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The Clear Reason Behind Exelixis, Inc.'s 21% Gain in August

By Sean Williams – Sep 8, 2016 at 7:59AM

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Who said earnings reports don't matter for biotech companies?

Image source: Getty Images.

What happened

Shares of Exelixis (EXEL 2.05%), a midcap biotech company focused on the development of cancer therapeutics, surged 21% in August, based on data from S&P Global Market Intelligence. The clear reason for the strong upside reaction in the company's share price can be traced to its second-quarter earnings release after the closing bell on Aug. 3.

So what

Heading into its second-quarter earnings report, Wall Street had been looking for Exelixis to generate about $18 million in sales and lose $0.27 per share. Even though the company has a handful of approved therapies, both Cotellic and Cabometyx were recently launched, so expectations were decidedly tame.

For the quarter, Exelixis actually wound up delivering $36.3 million in sales, including $17.6 million since the April launch of Cabometyx as a treatment for second-line advanced renal cell carcinoma (RCC), and $14 million for Cometriq, a treatment for advanced medullary thyroid cancer. Comparatively, Exelixis had only reported $8 million in sales during Q2 2015. Furthermore, the company wound up losing just $0.16 per share, $0.11 less than expected. Since this report, Exelixis' breakeven expectations have been thrust forward, with the company now expected to be profitable by as early as 2018. 

Now what

Image source: Exelixis.

As a little extra fuel for the fire, Exelixis reported on Tuesday that its first planned interim analysis of Cabometyx as a treatment for advanced hepatocellular carcinoma in the CELESTIAL trial ended in what can be considered a success. The trial's independent data monitoring committee recommended that the study continue without modification. What this implies is that Cabometyx has an opportunity to hit its primary endpoint of a statistically significant improvement in overall survival, and that it has a generally favorable safety profile relative to the placebo. A secondary interim analysis is to be conducted once 75% of events have been observed. 

As a shareholder of Exelixis I can certainly say that things are finally starting to fall into place. The approval in second-line RCC is big, but it's the company's midstage CABOSUN data that suggested a possible label expansion to treatment-naïve RCC patients that really holds a lot of hope.

Additionally, the phase 3 combination study known as COTEZO involving Exelixis' Cotellic in combination with Roche's cancer immunotherapy Tecentriq for the treatment of advanced colorectal cancer (CRC) could be a game-changer. If Exelixis can latch its cancer drug onto an approved immunotherapy, it could become a backbone treatment for CRC.

With profitability looming and Cabometyx's outlook seeming to improve by the day, the future continues to look bright for Exelixis.

Sean Williams owns shares of Exelixis, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of and recommends Exelixis. 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.

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