Biotech stocks are infamous for their volatile ways -- shooting higher one minute, only to crater the next. After a biotech crashes, investors should always assess their options going forward. Sometimes a marked sell-off represents a compelling buying opportunity that can pay off handsomely over the long run. On the other hand, a mass shareholder exodus can trigger a series of events that culminate in the stock plummeting further, even possibly leading to bankruptcy.

Exelixis, (NASDAQ:EXEL) is a small-cap biopharma that has had an absolutely awful 2014. The failure of the company's late-stage trial "COMET-1", for cabozantinib's closely watched advanced prostate cancer indication, has resulted in a staggering 72% decline in share price:

EXEL Chart

Given this steep drop, I think now is a good time to consider whether Exelixis can "rise from the dead" so to speak, or whether more depreciation is coming down the pike.

Optimist outlook
On the sunny side, Exelixis does offer investors a couple of good reasons to keep the faith. First off, the company's advanced melanoma drug, cobimetinib, posted positive late-stage results during the third-quarter of this year. Exelixis and its marketing partner Roche are therefore preparing regulatory filings in the EU and the U.S. for the experimental drug. All told, I think this promising clinical candidate should gain both regulatory approvals within the next 8 to 10 months, based on the publicly available data from the so-called coBRIM study.

Turning our focus back to cabozantinib (brand name: Cometriq), this drug is already on the market as a treatment for metastatic medullary thyroid cancer, and is also in two late-stage studies for kidney (METEOR) and liver cancer (CELESTIAL). Per its third-quarter earnings release, we learned that the METEOR top-line results should roll out sometime during the second-quarter of 2015; the CELESTIAL data readout, though, isn't expected until at least 2017.

Although Cometriq's thyroid cancer indication won't be a huge revenue generator, these other two indications could potentially rake in roughly $400 million a year in combined peak sales. Overall, the optimistic outlook suggests that Exelixis is capable of generating somewhere around $500 million in total sales by 2019 if all goes well.

Pessimist view
While the optimist view looks enticing in light of Exelixis' present market cap of a mere $335 million, I think it's important to remember that things almost never go as planned in biotech. In fact, Exelixis is facing some serious challenges that could set the stock up for another leg down in 2015.

The main problem is that the company was betting heavily on a positive outcome for COMET-1. After the bad news that Cometriq failed to show a statistically significant increase in overall survival in advanced prostate cancer patients, Exelixis was forced to cut its workforce by 65% and look into renting out a portion of its facilities in order to reduce its hefty cash burn.

Looking ahead, management noted during its third-quarter earnings release that the company had $293.5 million in cash and investments remaining, but these assets are only enough to meet the company's financial obligations until the end of 2015. So, I would expect a large secondary offering to take place if the METEOR results are indeed positive.

On the flip side, another negative data readout will almost certainly send investors running for the exits. After all, the next major catalyst, the CELESTIAL trial, is more than two years away from reporting results and well-beyond the company's current cash runway. If METEOR fails, I think the company will have to ultimately raise cash, via a secondary, at rock bottom share prices, putting its stock under even more pressure. 

Is Exelixis doomed?
Exelixis is undoubtedly a wounded biotech right now. The company's drastic cost-cutting measures aren't a long-term solution toward meeting its financial obligations going forward. This small-cap biotech's fortunes therefore appear to hinge upon the upcoming METEOR data readout in a big way.

If the METEOR data is positive, for instance, this event should allow Exelixis to execute a secondary at more reasonable levels, and perhaps more importantly, bring another revenue source into the fold by 2016. On the other hand, a negative data release could potentially result in another sell-off, potentially leading to a dreaded reverse-split simply to keep the stock from being de-listed on the NASDAQ. Exelixis is thus too risky for my taste, keeping me safely on the sidelines for now.


George Budwell has no position in any stocks mentioned. The Motley Fool recommends Exelixis. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.