Is this Exelixis Stock's Worst Nightmare?

Exelixis has a great lineup of promising oncology candidates, but will it be able to develop them?

Jul 22, 2014 at 5:00PM

Oncology specialist Exelixis (NASDAQ:EXEL) shares have been on a roller coaster over the past several years. The company has an impressive stable of clinical stage candidates, but its pipeline has yet to prove itself in the clinic, or on the market. Having lots of promising clinical stage candidates is great, if you can afford to develop them. Unfortunately Exelixis is stretched a bit thin.

Exelixis' only commercial stage product isn't providing nearly enough revenue to allow the company to reach its potential. So to my mind the biggest risk for the company is if it fails to get Cometriq approved and commercialized beyonds its current, limited thyroid cancer indication. Let's take a look at the nightmare scenario and see if there's a way out.

A necessary expansion
While Exelixis has done well to bring its first product to market, the company is hardly flush with cash. Following a late 2012 approval for advanced thyroid cancer, Exelixis began marketing Cometriq in January 2013. In its first year net product revenue reached just $15 million, or  less than one-tenth of that year's R&D expense. This year's first quarter sales improved to $4.9 million, plus EU marketing approval granted in January 2014 should help, but even a several fold increase in Cometriq sales won't bring the company to positive cash flow.

Rather than throwing resources at a stable of promising, but unproven pipeline candidates, Exelixis has circled its wagons around Cometriq in an effort to bring it to a wider market. Currently the drug is in a closely-watched phase 3 trial with advanced prostate cancer patients. During a scheduled interim analysis in March, data monitors allowed the trial to continue to completion.

Reasons to be nervous
If you think receiving a go ahead to complete the pivotal trial would delight investors, think again. Following the announcement, the market pounded the stock down by nearly half.

Apparently the market was hoping for a recommendation to quit early because of fantastic results. Reaching a level of statistical significance early suggests a therapy is much more effective than necessary to meet pre-determined endpoints. It doesn't happen often, although prostate cancer drugs Zytiga (Johnson & Johnson) and Xtandi (Medivation and Astellas) both had their trials stopped early for efficacy. Given the sales potential in the prostate cancer market (analyst estimates for peak sales of Cometriq have run as high as $1.7 billion assuming an approval), there is lots of opportunity here if Cometriq can make it past regulatory review and launch well.

Running out of time
Not only does the company need the prostate cancer indication, it needs it fast. Exelixis finished the first quarter with about $274 million in cash and short-term investments. With cash flow from operations of -$216 million over the trailing-12 months, according to S&P Capital IQ, it won't be too long before Exelixis needs to raise funds, most likely through another equity offering.

If having enough funds to maintain operations isn't scary enough, $287.5 million worth of convertible notes maturing in 2019 should have investors biting fingernails before long..

A way out?
Should Exelixis' worst nightmare come true, there's a chance investors could escape with some of their shirts intact. Last week Roche (NASDAQOTH:RHHBY) made a well received announcement concerning partnered candidate cobimetinib. In advanced melanoma patients with a specific mutation, the addition of cobimetinib to Roche's Zelboraf significantly improved progression-free survival. We'll need to wait for an upcoming scientific meeting for more details, but for now it looks likely that Exelixis will soon have another commercial stage product.

Before getting too excited, it is important to note that a melanoma approval for cobimetinib probably won't bring Exelixis to positive cash flows on its own. Pending reviews of Bristol-Myers Squibb's Opdivo and Merck's pembrolizumab will likely make the melanoma indication fiercely competitive. The Roche deal includes a roughly even split of profits and losses related to cobimetinib in the US, and a typically ambiguous royalty percentage on ex-US sales.

Given the terms of the partnership, and Exelixis' beaten down share price, some have argued Roche should simply acquire Exelixis. My two cents on the whole matter? I think Exelixis has good opportunity with Cometriq and cobimetinib (you might call me cautiously optimistic on the stock overall) but I'll sleep safer watching this one from the sidelines.

Leaked: This coming blockbuster will make every biotech jealous
The best biotech investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we treat a common chronic illness, but potentially the entire health industry. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

Cory Renauer has no position in any stocks mentioned. The Motley Fool recommends Exelixis and Johnson & Johnson. The Motley Fool owns shares of Exelixis and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers