Why This Bay Area Biotech Could be a Cash Cow for Investors

September 11, 2017
By Mark Terry, BioSpace.com Breaking News Staff

South San Francisco, Calif. – Exelixis recently took a dive, although it’s been on an upward climb for most of the year. Keith Speights, writing for The Motley Fool, discusses why this might be the perfect time to buy.

Exelixis focuses on developing and marketing small molecule therapies for cancer. Over the last three years, company stock has grown almost 550 percent. It’s big drug is Cabometyx.

The recent drop was related to an announcement that Bristol-Myers Squibb was halting a late-stage clinical trial of Opdivo and Yervoy in first-line renal cell carcinoma (RCC) earlier than expected because of positive results. Investors were clearly concerned about how the Opdivo/Yervoy combo would impact Exelixis’ Cabometyx sales. Speights writes, “The reality is that BMS was always going to be a major player in the RCC market (as it already is).”

He points out that investors should remember two things. The first is that, according to clinical data, Cabometyx still looks like it’s a better treatment. “Exelixis and its partner, French drugmaker Ipsen , are hosting a call on Sunday prior to the presentation of data at the European Society for Medical Oncology (ESMO) conference in Spain. I expect the two companies will remind investors and the media just how good Cabometyx was in the phase II Cabosun study.”

Secondly, Bristol-Myers’ combination therapy will likely be priced higher than Cabometyx if it gets approved as first-line treatment for RCC. The Opdivo/Yervoy combo currently costs $265,000 per year for melanoma. Cabometyx is priced at about $156,000. With the drug being both cheaper and more effective, payers are probably going to direct patients and providers towards Cabometyx.

Speights writes, “Also, don’t overlook the potential for Cabometyx in combinations of its own. BMS is evaluating the drug in combination with Opdivo and/or Yervoy in treating RCC. Don’t be surprised if one of these combos proves more effective than anything else. In addition, Exelixis is studying a combination of Cabometyx and Roche ’s Tecentriq in treating bladder cancer and RCC. Regardless of what happens, Exelixis wins.”

And Exelixis isn’t done evaluating Cabometyx in other types of cancers. Interim data analysis of a late-stage trial of the drug in liver cancer is expected before the end of this year.

And Exelixis isn’t a unicorn with a single drug in its pipeline. Cotellic, Speights writes, “just might be a bigger winner than initially thought. Roche is evaluating the drug in three late-stage combination studies targeting treatment of melanoma and colorectal cancer. There are also several dozen Phase II studies featuring Cotellic that are actively recruiting patients with various forms of cancer.”

Speights also points out that Exelixis is showing a profit and is debt-free. Cabometyx sales are on the climb, and the company is undoubtedly working to leverage its cash position, including the possibility of partnering or buying more early-stage or late pre-clinical stage drug candidates.

Or possibly get bought. Speights predicates this a bit on President Trump’s tax reform policies going through. That could happen, although to-date the Trump Administration hasn’t been able to push through any legislation without getting batted down by the courts or congress. Speights writes, “Even if tax reform doesn’t materialize, I still think an acquisition of Exelixis is possible. Some big pharma companies are holding off on making moves until they find out what happens with tax reform. Regardless of the outcome, I expect the number of deals to increase next year. I won’t be shocked at all if 2018 is the last year for Exelixis to rank among the best-performing biotech stocks—because of a buyout by a bigger company.”