Exelixis: What's Ahead For 2020

Jan. 19, 2020 4:25 AM ETExelixis, Inc. (EXEL)28 Comments27 Likes

Summary

  • Today, we revisit mid-cap oncology name Exelixis.
  • There has been quite a bit of news on this concern over the past five weeks, including a tie-up with giant drug maker Roche.
  • We review these events and update the investment case on Exelixis in 2020 in the paragraphs below.
  • I do much more than just articles at The Biotech Forum: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

"Some of the biggest cases of mistaken identity are among intellectuals who have trouble remembering that they are not God.” ― Thomas Sowell

Today, we revisit mid-cap oncology concern Exelixis (NASDAQ:EXEL). Several events have occurred since we last looked at this name five weeks ago. The company signed a collaboration deal with drug giant Roche (OTCQX:RHHBY) (OTCQX:RHHBF), provided Q4 and full-year revenue guidance, and presented at the big JPMorgan Healthcare conference in San Francisco this week. We will look at all three events in the paragraphs below as we update our investment case on Exelixis.

Company Overview:

Exelixis is a 'Tier 2' oncology-oriented biotechnology company that focuses on forms of cancer that are especially challenging to treat. Thus far, the company has brought to market three FDA approved products. The two main ones being Cabometyx and Cometriq that were derived from Exelixis' flagship molecule cabozantinib. Cotellic, a formulation of cobimetinib, is marketed via a collaboration with Genentech. The company's pipeline is comprised of its two lead compounds cabozantinib and cobimetinib, and the company also has two early-stage assets known as XL092 and XL888. Exelixis currently trades for just over $20 a share and has a market capitalization of roughly $6.2 billion.

Roche Tie-Up:

On December 19th, Roche and Exelixis announced they will be partnering in evaluating the combination of Cabometyx and Roche's Tecentriq for the treatment of patients with locally advanced or metastatic solid tumors. Exelixis and Roche will co-fund three late-stage studies in advanced non-small cell lung cancer, castration-resistant prostate cancer and renal cell carcinoma.

Fourth-Quarter Results:

On January 12th, the company announced preliminary fourth-quarter and full-year guidance (below)

Source: Company Presentation

The company sees little to no growth from product revenues in 2020.

2020 guidance: Revenues: $850M-900M; product sales (cabozantinib): $725M-775M

Highlights From JPM Presentation:

At the JPMorgan confab, the company highlighted again its expected 2019 results. More interestingly, it gave a couple interesting data points around its efforts to see Cabometyx approved for additional indications as well as its focus on expanding its early stage pipeline.

Source: Company Presentation

And the most interesting slide of all is management's view of where Cabometyx could be five years hence which is the most powerful reason to hold the stock.

Source: Company Presentation

Balance Sheet & Analyst Commentary:

The company currently has $1.4 billion of cash and no debt on its balance sheet. This means any buyout of the firm would be for just less than $5 billion at current trading levels, not including any 'buyout premium'. The company also hinted at its JPM presentation, it might be the acquirer and not the target (see bottom of slide below).

Source: Company Presentation

The analyst community is tepidly positive on the name at the moment (probably until revenue growth accelerates as new indications are approved). Four analyst firms including Merrill Lynch and Oppenheimer have reissued Buy ratings over the past week. However, their price targets are in the range of $21 to $25 a share, not far above current trading levels.

Verdict:

Outside a buyout, Exelixis probably has modest upside in 2020. I still like the longer term value here as Cabometyx still has significant growth ahead of it as new indications are hopefully approved. Here are some of the key 2020 trial milestones the company noted in its press release that accompanied its fourth-quarter preliminary results.

Source: Company Presentation

  • Topline data from Phase 3 Checkmate 9ER study of cabozantinib + Opdivo (nivolumab) in treatment-naïve advanced/metastatic renal cell carcinoma expected in H1.
  • Preliminary data from Phase 3 COSMIC-311 study of cabozantinib in patients with radioactive iodine-refractory differentiated thyroid cancer who have progressed after up to two VEGF receptor-targeted therapies (and the completion of enrollment) expected in H2.
  • Complete enrollment in Phase 3 COSMIC-312 study of cabozantinib + Roche's Tecentriq (atezolizumab) versus Bayer's Nexavar (sorafenib) in H1. Analysis of progression-free survival and interim overall survival could happen in H2.

Exelixis has been an ideal buy-write candidate anytime it drops into the high teens. That is the way I plan to continue to play this name along with my longer term core stake in this oncology name.

"Intellect is not wisdom.”― Thomas Sowell

Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum.

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Disclosure: I am/we are long EXEL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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