What happened
Shares of the mid-cap cancer specialist Exelixis (EXEL +4.22%) shed 14.1% of their value last month, according to S&P Global Market Intelligence. The catalyst?
While the decelerating growth within its all-important cabozantinib franchise -- consisting of Cabometyx for kidney cancer and Cometriq for progressive, metastatic medullary thyroid cancer -- didn't help matters, the real culprit seems to be the industrywide sell-off stemming from President Trump's trade war with China. Nearly all biotechs, after all, have struggled since the President began ramping up the rhetoric about protectionist trade policies with our biggest trading partner.
Image source: Getty Images.
So what
Exelixis garnered one of the richest valuations within biotech for most of the back half of 2017, thanks to its rapidly growing sales in advanced kidney cancer and positive late-stage trial results for cabozantinib in liver cancer announced last October. As the market has seemingly entered into a widespread de-risking phase in response to America's uncertain trade policies, however, Exelixis' stately valuation appears destined to continue reverting to the mean going forward.
Now what
The good news is that Exelixis' top line is forecast to jump quite a bit next year as the company rolls out new high-value indications for cabozantinib over the next few months. So, if things go according to plan, Exelixis' sky-high price-to-sales ratio of 13.4 should drop to a far more reasonable 6.5 within the next year and a half. That's still not bargain territory, but there's good reason to believe that Exelixis is probably nearing a bottom based on its underlying fundamentals.
In all, Exelixis is arguably a particularly strong watchlist candidate after last month's downturn. There aren't many mid-cap companies with multiple FDA-approved cancer drugs on the market, after all. So, if Exelixis' shares drop much further, it might be a good idea to grab some shares and hold them for the long term.
