2 Big Reasons Exelixis, Inc. Soared 22% in January

It was a month of big deals for Exelixis.

Sean Williams
Sean Williams
Feb 2, 2017 at 7:36AM
Health Care
Lab researcher working with a microscope.

Image source: Getty Images.

What happened

Shares of Exelixis (NASDAQ:EXEL), a biopharmaceutical company focused on the development of therapies to treat cancer, surged 22% in January, according to data from S&P Global Market Intelligence. Two factors can claim responsibility for the bulk of Exelixis' move higher last month.

So what

To begin with, Exelixis got a double-digit percentage bump on Jan. 9, when it announced an update in its ongoing arbitration dispute with partner Roche (NASDAQOTH:RHHBY) over Cotellic, Exelixis' cancer drug that's been approved as a combination therapy with Roche's Zelboraf to treat a specific type of advanced melanoma.

According to the press release, Exelixis won't be liable for $18.7 million in marketing expenses for the combination therapy (which Exelixis figured Roche would be covering in the first place), and Exelixis will be receiving back the $7.1 million it's already paid in marketing costs, plus interest on this $7.1 million. Exelixis won't be billed for future expenses on marketing of the combination therapy, either. Long story short, Exelixis' expenses are now a tad bit lower, which could lead to even better operating results going forward.

The other catalyst came at the very tail end of January, with Exelixis announcing that it had entered into a licensing agreement for cabozantinib (known as Cabometyx and Cometriq) in Japan with Takeda Pharmaceutical (NASDAQOTH:TKPYY). Under the agreement, Takeda gets the commercial rights to all future development for Cabometyx and Cometriq in Japan. In return, Exelixis gets $50 million in upfront cash; is eligible to receive another $95 million in development, regulatory, and sales-based milestones; and will still receive royalties based on the sale of the drug.

This deal, which follows its 2016 deal with Ipsen that brought it $200 million in upfront cash, should solidify Exelixis' intermediate-term cash position, especially with the company slated to become profitable on a recurring basis later this year.

Pills sitting atop money.

Image source: Getty Images.

Now what

It was just another month of business as usual for one of biotech's top performers over the past year. Looking ahead, there are two catalysts that could move Exelixis' stock in 2017.

First, the actual sales of Cabometyx are expected to have a lot of sway. Cometriq is now just an afterthought as a treatment for metastatic medullary thyroid cancer. The bulk of Exelixis' sales are expected to come from Cabometyx as a second-line treatment for renal cell carcinoma. Third-quarter sales wound up trouncing Wall Street's expectations, so another quarter of better-than-expected sales would be likely to have a positive impact on its valuation.

Secondly, the long-awaited CELESTIAL results should be available this year. CELESTIAL is a pivotal phase 3 study examining Cabometyx as a treatment for advanced liver cancer. CELESTIAL already passed its first hurdle, with the independent data-monitoring committee allowing the study to continue as planned following a planned interim analysis. If Cabometyx provides a statistically significant improvement in median overall survival, the peak sales of the drug are likely to rise in the eyes of Wall Street, and Exelixis could begin attracting interest from larger suitors.

I'm a shareholder, so I say this with some bias, but things are continuing to look up for Exelixis.