Exelixis (EXEL -2.04%) is trading at a bargain price after the market sell-off caused by the COVID-19 pandemic. The biotech stock dropped over 15% from its high of $22.06 in February, now trading around $18. Year to date, the biotechnology stock is up 4.14%, outpacing the Virtus LifeSci Biotech Products ETF (down 7.78%) and S&P 500 (down 13.68%).
Investors may want to know what's driving the stock higher after the market meltdown. Its business had an incredible year in 2019 -- generating more than $1 billion in global net revenues -- driven by success and expansion of its cabozantinib franchise for the treatment of kidney cancer, liver cancer, and medullary thyroid cancer.
With the rise of uncertainty in the market, can Exelixis investors expect to outperform both the broader market and the biotech sector?
The 25-year-old biotechnology company has developed four products. Two branded products – Cabometyx and Cometriq – are derived from the company's lead compound cabozantinib. Cabometyx is approved for advanced forms of kidney cancer and previously treated liver cancer, while Cometriq is permitted for treating medullary thyroid cancer.
The two other products in its pipeline include Cotellic (cobimetinib) and Minnebro (esaxerenone). Cotellic is marketed in collaboration with Genentech (owned by Roche) and approved for use in a combination regimen to treat advanced melanoma. Minnebro is a product licensed to a Japanese company, Daiichi Sankyo and is approved for use in Japan to treat hypertension.
Exelixis' cabozantinib franchise (Cabometyx and Cometriq) continues to expand its global presence where it is currently approved and marketed in 52 and 49 countries, respectively. Cabometyx is the only tyrosine kinase inhibitor (TKI) in the oncology space that provides overall survival benefit for patients with kidney cancer and liver cancer.
Senior Vice President P.J. Haley noted that Cabometyx continues to be the number one prescribed TKI treatment in kidney cancer in the fourth quarter of 2019. During this time, the prescriber base increased by 35% year over year and 6% quarter over quarter and continues to be used broadly in patients with kidney cancer across academic and community settings, clinical risk groups, and other lines of therapy.
Cabometyx is well-positioned in competitive markets of kidney cancer and liver cancer. Haley highlighted that Cabometyx outperformed the other TKI monotherapy drugs on the market such as Pfizer's Sutent and GlaxoSmithKline's Votrient in Q4 2019. This suggests that demand for this product continues to grow and will capture more of the monotherapy market.
In Q4 2019, Cometriq brand generated $13.8 million in net product revenues for the cabozantinib franchise. With a strong presence in kidney and liver cancer and new opportunities in MTC, the next few years will continue to see solid top-line growth.
Momentum into 2020
Exelixis' performance in 2019 was monumental. President and CEO Michael Morrissey said, "Exelixis achieved strong financial performance in 2019, with significant growth in total revenue and expansion of the cabozantinib franchise, which for the first time exceeded $1.0 billion in annual global net revenue." With such a stellar performance in 2019, can this momentum continue?
The focus on 2020 to 2021 will be on execution. Management looks to maximize its potential treatment in advanced forms of liver cancer, differentiated thyroid cancer, prostate cancer, and neuroendocrine tumors.
This year began with a series of presentations at J.P. Morgan Healthcare Conference and two American Society of Clinical Oncology (ASCO) conferences for Gastrointestinal (GI) and Genitourinary (GU). Data presented at ASCO -GI and -GU highlighted encouraging results for its cabozantinib + immune checkpoint inhibitor (ICI) combinations for treatment of advanced liver cancer and metastatic castration-resistant prostate cancer (mCRPC). Further success of ICI combination studies may expand the eligible patients benefiting from the drug. These studies and others may offer new market opportunities and contribute to top-line growth of the company.
Dominant financial position
Exelixis' finances seem healthy and are poised to dominate in these economic conditions. It holds $1.4 billion in cash and investments to operate and offers a healthy financial situation where its assets exceed its liabilities.
The company has a small debt position with total debt at $50.7 million from its most recent quarter. It also boasts a debt to equity ratio of 3.01%. This implies that the company uses very minimal debt to finance its operations, a D/E ratio of less than 30% is ideal for companies operating in economic downturns.
The company's current ratio is 7.08, which implies that the business has seven times more current assets than liabilities to cover its debt situation. This indicates that the company is great financial health in terms of liquidity and is less likely to struggle in a recession.
Exelixis expects to use this strong financial position to continue the growth of its pipeline. Morrissey said in the full year press release, "We concluded the company's 25th anniversary year with a strong balance sheet and profitable business, which enables Exelixis to continue our ongoing investment to expand the cabozantinib franchise into new indications and build a pipeline of differentiated oncology assets through targeted business development and internal drug discovery activities." It invested $337 million into research and development expenses in 2019, and further investment in the coming years will help Exelixis achieve as many as four additional approved indications by the end of 2021.
Prime time valuation
Exelixis is primed to outperform going forward. The biotech stock is trading at 30.7 times future earnings, a high forward price-to-earnings (P/E) ratio indicates that analysts expect to see more growth than the last twelve months (17.43x). Considering peers in the broader biotech market, Exelixis' forward earnings are trading higher than Incyte Corporation (28.74x) and Gilead Sciences (11.99x) suggesting that there is significant growth to capture.
The company's PEG (price-to-earnings-growth) ratio is 0.92; a PEG ratio of one or below indicates a stock is a good value. With that said, the current stock price looks like a bargain and analysts project an average price target of $24.46, with a range of $19 to $35. This target price can be achieved considering its healthy financial position and focus on R&D. If the company executes on its goals, new indications can drive top-lines forward and more money into the pockets of shareholders. Those looking to invest should note the current stock price as a bargain and consider buying this company for the long run.