Exelixis (EXEL +4.46%) and bluebird bio (BLUE +0.00%) are two biotech companies that have been moving in opposite directions on the stock market this year. While Exelixis has provided healthy gains -- its stock is up by 52.1% year to date -- Bluebird's shares have slid by 35.2% since the beginning of the year. Meanwhile, the S&P 500 is down by 10.9% year to date, so Bluebird's performance has been significantly worse than that of the broader market.
With this backdrop in mind, it might be tempting to pick Exelixis as the better stock to buy. But before counting out Bluebird, let's look into both companies' businesses -- as well as their most recent earnings reports -- and decide which is the better stock pick right now.
The case for bluebird bio
In my view, the best reason to consider buying shares of Bluebird is Zynteglo, a treatment for transfusion-dependent beta thalassemia (TDT) that was approved by the European Medicines Agency (EMA) in June 2019. This was a big deal since before the approval of Zynteglo, TDT patients could only survive by receiving regular blood transfusions. Zynteglo is a one-time treatment that can cure TDT patients of this rare genetic blood disorder. This factor explains Zynteglo's exorbitant price tag: The treatment will cost 1.58 million Euros ($1.8 million) over five years.
Image source: Getty Images.
Thanks to Zynteglo, Bluebird's revenue could increase significantly in the coming quarters as the treatment makes headway within its addressable market. Bluebird also has several exciting pipeline candidates. For instance, there is ide-cel, an investigational cancer treatment that Bluebird is developing in collaboration with Bristol Myers Squibb (BMS +0.00%). In March, Bristol Myers and Bluebird submitted a Biologics License Application (BLA) to the U.S. Food and Drug Administration (FDA) for ide-cel as a treatment for multiple myeloma, a type of cancer.
The FDA granted ide-cel a breakthrough therapy designation, which "is a process designed to expedite the development and review of drugs that are intended to treat a serious condition." With Zynteglo being approved in Europe and ide-cel likely to be given the green light by the FDA, Bluebird could gain some momentum and recover from its horrific performance on the stock market year to date.
The case for Exelixis
Exelixis is practically synonymous with Cabometyx, which is the company's top-selling product. Cabometyx is a tyrosine kinase inhibitor (TKI), a type of treatment that targets cancer cells. This therapy is approved for the treatment of hepatocellular carcinoma (HCC) -- a form of liver cancer -- and renal cell carcinoma (RCC), which is a type of kidney cancer. Cabometyx continues to account for the bulk of Exelixis' sales.
During the first quarter, Exelixis' total revenue increased by 5.3% year over year to $226.9 million. Cabometyx's revenue for the quarter was $189.2 million, which represents a little more than 83% of the company's total revenue. Cabometyx's revenue can continue climbing as well; here are two reasons why.
First, the cancer treatment racked up some new approvals. In late March, Takeda Pharmaceuticals (TAK 2.25%) -- which holds the rights to Cabometyx in Japan -- received the green light from health industry regulators to market Cabometyx as a treatment for RCC there. Exelixis will receive royalties from Takeda for the sale of Cabometyx in Japan. Also, in November 2019, Health Canada approved Cabometyx for patients with advanced RCC or with previously treated advanced HCC.
Second, Cabometyx is a unique cancer medicine. It is the first (and thus far the only) cancer therapy to show improvement in all three key efficacy parameters for RCC and HCC patients: Overall survival, objective response rate, and progression-free survival rate. Cabometyx is set to maintain its lead over other TKIs in the RCC and HCC market because of this important factor, and Exelixis' revenue could continue growing as a result.
Comparing their financials
Before deciding which of these two biotech stocks is the better pick, let's look at some key numbers from the companies' latest financial reports.
|
Company |
Market Cap |
Revenue |
Operating Profit (Loss) |
Net Profit (Loss) |
Cash and Cash Equivalents (Q1 2020) |
|---|---|---|---|---|---|
|
bluebird bio |
$3.3 billion |
$10 million |
($230.5 million) |
($223.4 million) |
$1.02 billion |
|
Exelixis |
$7.8 billion |
$226. 9 million |
$52.8 million |
$48.6 million |
$1.4 billion |
Source: Companies' financial statements.
While the companies have a near equivalent cash balance, Exelixis' revenue is significantly higher, and the company is already profitable. There's a simple reason for this: Bluebird's only approved product, Zynteglo, was given the green light just last year, and launching this product on the market was no easy task. "Due to the highly technical and specialized nature of administering gene therapy in rare diseases, bluebird bio is working with institutions that have expertise in stem cell transplant as well as in treating patients with TDT to create qualified treatment centers that will administer Zynteglo," management said. Until Zynteglo starts having a material effect for Bluebird, the company's financial results won't take off.
The winner: Exelixis
While Bluebird probably has a bright future thanks to Zynteglo, Exelixis is the better pick right now. Exelixis' crown jewel Cabometyx remains the leader in its market, and it still has room to grow. Furthermore, with Exelixis, investors don't have to wait patiently for it to become profitable. For those reasons, I believe Exelixis will continue to outperform Bluebird on the stock market for the foreseeable future.
