Exelixis (NASDAQ:EXEL) stock had been in the doldrums. After roaring for much of the first eight months of the year, the biotech's share price sank more than 15% during September. All of that is history now.

On Monday, Exelixis stock soared yet again, fueled by not just one piece of good news but two. Exelixis announced that cabozantinib met its primary endpoint of overall survival in a late-stage study evaluating the drug in treating advanced hepatocellular carcinoma (HCC). Also, the Food and Drug Administration granted priority review to Cabometyx (cabozantinib) as a treatment for previously untreated advanced renal cell carcinoma (RCC). 

Investors quickly forgot the doldrums of September. Exelixis is now once again a hot biotech stock. I don't expect the heat to cool down anytime soon: Exelixis' rebound is just getting started. 

Chart with arrow going down then up

Image source: Getty Images.

The better good news

Let's first look at Exelixis' good news announced on Monday. It's certainly great for the company that the FDA granted priority review to Cabometyx in the first-line RCC indication. That means an approval decision will be made by Feb. 15, 2018 -- four months earlier than it otherwise would have been made. Assuming Cabometyx wins approval as expected, Exelixis should hit the ground running early next year in a potentially lucrative market.

The more important news for Exelixis, though, is that cabozantinib met the primary endpoint in the Celestial phase 3 study targeting treatment of HCC. It shouldn't have surprised anyone that the FDA would give Cabometyx an accelerated approval timeline. However, there were questions about how well cabozantinib would perform in treating HCC.

In September 2016, Exelixis reported the outcome of the first interim analysis of the Celestial study. At that time, the independent data monitoring committee recommended that the study continue without modifications. All investors knew then was that there weren't any reasons to stop the trial. 

Although all of the details have yet to be released, we now know that cabozantinib is effective in treating HCC. Exelixis announced that the trial was stopped based on the positive efficacy results. The company now plans to submit a supplemental New Drug Application (sNDA) for for HCC indication in the first quarter of 2018.

Rebound just revving up

To know why Exelixis' rebound is just getting started, it's important to understand why the stock dipped in the first place. Shares slumped in large part because of an analyst downgrade. Leerink Partners analyst Mike Schmidt lowered his outlook for Exelixis to market perform because of concerns about the stock's valuation. 

I understand why some would think Exelixis was overvalued. At the time of Schmidt's downgrade, the biotech's market cap stood at roughly $8.25 billion. Peak sales estimates for cabozantinib were over $1 billion, but that wasn't high enough to justify Exelixis stock's valuation, even with potential for the company's other drugs. However, those peak sales estimates built in a lot of uncertainty about the HCC indication. Morningstar, for example, included only a 60% chance of success for cabozantinib in the Celestial study in its probability-adjusted sales estimate. Now, the odds that the drug wins approval in the HCC indication are much higher.

Keep in mind that until Bayer (NASDAQOTH:BAYRY) won FDA approval for Stivarga earlier this year, no new drug had been approved for treating HCC since 2007. There should be major excitement among oncologists if Exelixis is successful in bringing Cabometyx to market for the indication. 

But the biggest reason why I think Exelixis' momentum will pick up even more steam is what the latest results could mean for Cabometyx's prospects in combo studies and in treating other types of cancer. Over 50 studies are underway exploring use of the drug either by itself or in combination with other drugs. Most of these studies aren't being conducted by Exelixis (just as the Cabosun trial that led to the company filing for approval in the first-line RCC indication wasn't). My view is that the HCC results bode well for Cabometyx's potential in treating other tumors. 

Predictions

When Exelixis stock was struggling recently, I thought that buying the dip was a smart move. Now that it's rebounding, I still think that the stock is a buy. I don't pretend to know for sure what will happen in the future, but I'm willing to make a few predictions.

First, I think Cabometyx will easily win approval in the first-line RCC indication in February. I also fully expect Exelixis to enjoy a spectacular launch of the drug in this indication. In addition, it won't surprise me at all if the first-line approval helps Cabometyx capture even greater market share in the second-line and later RCC indications.

Second, I predict the FDA will grant priority review status to Cabometyx in treating HCC, with the drug winning approval by the fourth quarter of 2018 in the indication. I anticipate yet another enormously successful launch in HCC.

Third, my view is that Exelixis will become a buyout target in 2018. Monday's news should make that prediction much more likely than it already was. Even if I'm wrong on this one, if I'm right on the others, Exelixis stock's rebound is just getting started.  

Editor's note: A previous version of this article stated that patients taking cabozantinib experienced a 32% increase in overall survival compared to those on placebo. Although the clinical trial was powered to detect this level of increase, Exelixis has not yet announced the detailed results. The Fool regrets the error.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Exelixis. The Motley Fool has a disclosure policy.