The COVID-19 pandemic has done a number on global stock markets this year. Several multibillion-dollar industries, such as airlines, cruise ships, and upscale sit-in restaurants, among many others, are fighting for their very survival right now.
Pharmaceutical companies, especially those specializing in cancer treatments, are a different story altogether, though. While airlines and cruise ships may struggle to regain their footing in the months ahead, cancer companies should quickly get back to business as usual post-pandemic. Most cancer patients, after all, aren't likely to skip out on life-saving treatments unless they absolutely have to. So, once the COVID-19 threat fades, cancer stocks should be among the first to truly rebound.
Which cancer stocks are poised for the biggest gains at the end of this global pandemic? Exelixis (EXEL -1.51%) and Immunomedics, Inc. (IMMU) could both generate enormous levels of free cash flow and top-line growth over the next five to 10 years. In fact, these two cancer specialists might even be able to make their current shareholders filthy rich by the end of the decade. Here's how.
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Exelixis: a proven cash cow with several catalysts on the way
Exelixis is a mid-cap cancer company. The company's value proposition largely centers on its flagship medicine Cabometyx, which is currently approved to treat advanced kidney and liver cancer. While the drug's sales have slowed lately because of stiff competition mainly in the advanced kidney cancer setting, Exelixis has plans in place to tack on several additional high-value indications to Cabometyx's label within the next few years. If things go according to plan, Cabometyx's peak global sales could eventually top the $2 billion mark by mid-decade.
Additionally, Exelixis has also been rapidly building up a huge stockpile of cash. At the end of 2019, the company reported cash and cash equivalents of nearly $1.4 billion. So, less than two years from now, Exelixis should be sitting on over $2 billion in cash, barring any major M&A activity in the meantime. Exelixis, in turn, will have the financial flexibility necessary to broaden its pipeline through one or more bolt-on acquisitions in the near future.
What's the bottom line? Exelixis' shares are likely trading at around 2.5 times 2025 sales, without even factoring in any value-creating business development activity in the interim. That's dirt-cheap for a cancer company with a bona fide flagship product and a sizable cash position.
Perhaps even more importantly, Exelixis has the pieces in place to make the leap from a middling mid-cap drugmaker into a large-cap behemoth of the pharmaceutical industry by 2030. As such, growth-oriented investors will definitely want to take a serious look at this grossly undervalued biopharma stock soon -- especially with Exelixis' shares down by almost 30% from their 52-week highs right now.
Immunomedics: a high-risk, high-reward cancer stock
Last Monday, Immunomedics announced that it will halt the ongoing late-stage trial of sacituzumab govitecan as a treatment for triple-negative breast cancer (TNBC) based on a unanimous recommendation by a Data Safety Monitoring Committee. The study's initial results suggest that this drug could be a major advancement in the treatment of this devastating disease.
A regulatory application for sacituzumab govitecan as a treatment for patients with metastatic TNBC is already under review with the U.S. Food and Drug Administration (FDA). A decision is expected by June 2 of this year.
The big deal is that sacituzumab govitecan has the potential to be an enormous cash cow for the company for a very long time. Triple-negative breast cancer, after all, has proven to be a particularly tough nut to crack for the pharmaceutical industry, and sacituzumab govitecan is one of the few drugs that has shown any signs of efficacy in this setting.
Underscoring this point, Wall Street has the drug's peak sales ranging from a low of $3.1 billion to a high $6.1 billion by 2033. To put these sales estimates into the proper context, Immunomedics' market cap presently stands at around $4 billion. Suffice to say, this mid-cap biotech probably has a lot more room to run before it reaches fair value.
What's the catch? Immunomedics, as a company, has a rather long and disappointing history. Wall Street, in turn, clearly isn't convinced that the company will be able to push sacituzumab govitecan over the finish line on the regulatory front. Thus, Immunomedics remains a high-risk stock despite this recent win in the clinic.
All told, Immunomedics' stock could easily quadruple in value from here, but there's also the risk that a regulatory decision won't go quite as planned. As such, potential investors will definitely want to weigh the pros and cons of this promising biopharma stock before pulling the trigger.
