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Is Exelixis Stock a Buy?

By Prosper Junior Bakiny – Sep 2, 2021 at 6:19AM

Key Points

  • Exelixis' shares dropped following negative results from a clinical trial for its best-selling medicine.
  • The company's crown jewel still has plenty of opportunities for label expansions.

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This biotech stock is down, but it's not out just yet.

Biotech specialist Exelixis (EXEL -4.54%) has had a rough year in the stock market. On June 28, the company's shares dropped by more than 20% on the heels of unimpressive results from a clinical trial. Clinical setbacks are often to blame when drugmakers experience such steep losses. Still, the market sometimes overreacts to even the slightest hint of negative news. Was the sell-off of Exelixis' shares justified? Let's look a bit closer at the company's recent developments and figure out whether it is worth investing in today. 

Mixed data 

Exelixis is currently running a phase 3 clinical trial for its crown jewel, cancer medicine Cabometyx, in combination with another cancer drug called atezolizumab in patients with advanced hepatocellular carcinoma (HCC). The study pitted the combo treatment against Bayer's sorafenib. Although the combination of Cabometyx and atezolizumab led to a significant improvement in progression-free survival (PFS), Exelixis announced that the therapy is unlikely to reach its second primary endpoint of overall survival when compared to sorafenib.

Doctor writing on a clipboard.

Image source: Getty Images.

PFS, or the length of time a patient lives with the disease without experiencing worsening effects, is great. Overall survival is even better. During Exelixis' second-quarter earnings conference call, management said it plans to submit regulatory submissions for Cabometyx in this indication anyway, pending regulatory feedback.

But given that the medicine is unlikely to achieve one of its primary endpoints in the study, it isn't clear whether it will receive positive feedback from regulators. And even if it does -- and goes on to earn approval in this indication -- it is doubtful whether this (hypothetical) regulatory nod could lead to meaningful revenue increases for Exelixis. 

What's next for Exelixis?

Cabometyx is responsible for the bulk of Exelixis's revenue. The company has grown its top line in recent years largely because it has continued to grind out market share for the medicine, especially as a treatment for renal cell carcinoma (RCC). Cabometyx is the No. 1 prescribed tyrosine kinase inhibitor (TKI) for RCC patients.

Exelixis has had less success in the market for HCC medicines, and the recent disappointing data suggests that this trend will continue. With that said, though, there is light at the end of the tunnel for Exelixis. First, Cabometyx has racked up plenty of approvals in recent years. During the second quarter ending June 30, Exelixis' total revenue of $385.2 million was up by 48.4% year over year. The drug's net product sales came in at $275.6 million, increasing 59% compared to the year-ago period.

This kind of top-line growth isn't something Exelixis delivers every quarter. In this case, it was reflective of yet another label expansion for Cabometyx, which in January earned approval from the U.S. Food and Drug Administration (FDA) as a first-line combination treatment for patients with advanced RCC.

Are there more indications for Cabometyx on the horizon? Most definitely. Exelixis is running dozens of clinical trials, many of which feature Cabometyx as part of a combination treatment. Even a handful of approvals could go a long way toward bolstering the company's lineup. Furthermore, the company is focused on advancing its early-stage pipeline to move beyond Cabometyx eventually.

For instance, Exelixis is developing an oral TKI called XL092, which is in a phase 1b clinical trial. While it will be a while before Exelixis' early stage programs go on to earn regulatory approval (assuming they do), in the meantime, the company is confident that Cabometyx will continue to rack up growing revenue and help support its research and development activities. Given recent history and the many clinical studies Cabometyx is undergoing, that seems more than likely.

In short, this cancer-focused biotech is certainly not done posting strong financial results. And after its stock-price meltdown, opportunistic investors should consider adding shares of Exelixis to their portfolios.

Prosper Junior Bakiny owns shares of Exelixis. The Motley Fool recommends Exelixis. The Motley Fool has a disclosure policy.

Stocks Mentioned

Exelixis Stock Quote
Exelixis
EXEL
$15.77 (-4.54%) $0.75
Roche Ag Stock Quote
Roche Ag
RHHBY
$40.51 (0.10%) $0.04
Bayer Aktiengesellschaft Stock Quote
Bayer Aktiengesellschaft
BAYR.Y
$13.89 (-0.57%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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