Image source: Federal Reserve Bank of New York. 

Shareholders of biotechnology company Exelixis (NASDAQ:EXEL) have had an exceptional year in spite of witnessing many biotech stocks giving back all of their gains for the year. Since Dec. 31, 2014, and through the market close on Wednesday Oct. 7, Exelixis stock has more than quadrupled (310%). I certainly can't complain since I'm an Exelixis shareholder.

Still, the big debate with money-losing biotech stocks is how much they could really be worth. When it comes to valuing biotech stocks, emotions and estimates play a far greater role in lending to a company's valuation than any other industry. It often means biotech stocks tend to be very volatile and difficult to properly value.

How much is Exelixis worth?
With this in mind, I propose to take a closer look at Exelixis' "cogs" to establish what each component could eventually be worth. Understand that the following sales estimates for Exelixis' products and pipeline are exactly that, estimates, and that as a current shareholder, you can likely expect some bias on my part. Further, just because I'm suggesting Exelixis stock could be worth more than it is now, there are no guarantees it'll head higher. Stocks can go down just as easily.

Without further ado, here are the important components to Exelixis' product portfolio and pipeline, and what they could eventually be worth.

The bread and butter in Exelixis' product portfolio and pipeline is Cometriq, a therapy that's been approved by the Food and Drug Administration as a treatment for metastatic medullary thyroid cancer. In addition to MTC, the company released positive late-stage data on Cometriq in the METEOR study earlier this year as a treatment for renal cell carcinoma, and it's being studied in an ongoing trial known as CELESTIAL for hepatocellular carcinoma (liver cancer), with results due out in 2017.

Image source: Exelixis.

Taking this one at a time, let's first look at the MTC contribution. MTC is a pretty rare indication that, across the U.S. and EU, likely leaves Exelixis with a market potential of around 1,500 people. That's not a whole lot, and it likely caps Cometriq's peak annual sales potential in MTC at around $75 million. The silver lining here is that its progression-free survival (PFS) of 11.2 months in MTC crushed the placebo, which came in at four months. In short, shareholders have few worries that Cometriq will face stiff competition in MTC anytime soon.

Renal cell carcinoma, or RCC, is where things begin to get a little trickier. This is a highly competitive space, and the emergence of cancer immunotherapies isn't adding any clarity as to what drugs will retain or grow their market share within the indication. By 2019, this is expected to be a $2.9 billion market, according to Datamonitor Healthcare.

My guess? I can foresee Cometriq taking in the neighborhood of 10% market share (about $290 million in sales) by 2019 if approved by the FDA. My thesis is supported by the 42% reduction in the rate of disease progression in the METEOR trial, as well as the specifically strong results in patients who had taken Sutent as their only prior VEGF-receptor tyrone kinase inhibitor. PFS, or the amount of time patients' disease remained stable, improved to 9.1 months for this subgroup compared to 3.7 months for Afinitor-treated patients. It's also countered by Cometriq showing a favorable but non-statistically significant improvement in the trend for overall survival. 

Lastly, we have CELESTIAL for hepatocellular carcinoma, or HCC. Datamonitor Healthcare projects that this could be a source of exceptional sales growth in the coming years, reaching $1.4 billion in market size by 2019. As with kidney cancer, this is a very competitive space, and a lot can change between now and 2017-2018, when Exelixis would have its first opportunity to gain this new label indication.

Image source: Roche.

What's worth noting with CELESTIAL is that median overall survival is the primary endpoint, not PFS, as in the METEOR study. Cometriq failed to hit its primary endpoint of a statistically significant improvement in overall survival in the COMET studies for metastatic castration-resistant prostate cancer in 2014, ultimately crushing the stock. In METEOR, Cometriq demonstrated a favorable survival trend, but it still didn't lead to a statistically significant improvement in overall survival. In other words, success in CELESTIAL is no guarantee. If Exelixis can succeed, I could foresee 10% market share within its first two years of launch.

In a perfect scenario, I could see Cometriq generating around $500 million by the end of the decade.

The other extremely exciting product in Exelixis pipeline is cobimetinib.

Cobimetinib is currently under review by the FDA for use in BRAF V600 mutation-positive metastatic melanoma as a combo therapy with Roche's (NASDAQOTH:RHHBY) Zelboraf, and it's also under investigation in a separate early-stage combination trial with Roche's experimental anti-PDL1 therapy atezolizumab for the treatment of solid tumors.

Image source: Roche.

The PDUFA decision date for the Zelboraf-cobi combination is set for Nov. 11, 2015, and it's already been pushed back three months to allow the duo of Roche and Exelixis to present more supporting data from its coBRIM study. Earlier this week, Exelixis announced that the combo therapy met its secondary endpoint of a statistically significant improvement in overall survival compared to the Zelboraf monotherapy arm. This comes on top of data presented at the American Society of Clinical Oncology's annual meeting at the end of May, where Exelixis updated its PFS and objective response data for the coBRIM study. Overall response rate jumped to 70% for the combo compared to 50% for the Zelboraf control group, while PFS for the combo handily trounced the monotherapy arm 12.3 months to 7.2 months. There was even a notable difference in complete responses between the combo and monotherapy arms (16% and 11%, respectively).

Based on the relatively few Wall Street estimates, the combo therapy could deliver nearly $800 million in sales at its peak. Of course, of all the oncology indications Exelixis has tackled, arguably none is more crowded than metastatic melanoma. I'd probably temper annual peak sales expectations to something closer to $600 million. Also, keep in mind that as sales of the combination increase, Exelixis' share of revenue will lessen (this isn't a 50-50 share). Still, I anticipate cobimetinib could produce $150 million to $180 million in metastatic melanoma for Exelixis.

It's far too early to assign any value to cobi's combination study with Roche's cancer immunotherapy atezolizumab. With phase 1 data expected toward the end of this year, we can reassess at that time.

For now, I see cobimetinib potentially generating $150 million to $180 million by 2020 to 2022.

Image source: U.S. Food and Drug Administration. 

Finally, we have XL888, a therapy that was recently dusted off after being put on the back burner following a phase 1 study that evaluated its safety and tolerability in patients with solid tumors in 2008. More recently, following the success of Zelboraf and cobimetinib in coBRIM, the Moffitt Cancer Center announced plans for a phase 1b study involving the combination of Zelboraf, cobimetinib, and XL888 as a treatment for metastatic melanoma. This phase 1b study is still in the works, and thus assigning any value to XL888 isn't yet, prudent in my opinion. 

Cash and cash equivalents
Also part of Exelixis' valuation are its cash holdings. According to its Q2 report, the company ended the quarter with $167 million in cash and cash equivalents. However, this doesn't include the net proceeds of $146 million it generated in July with a common stock offering. Thus, Exelixis has about $313 million in cash and cash equivalents.

But, keep in mind that Exelixis' late-stage studies aren't cheap, and its cash balance will more than likely dwindle for years to come as it beefs up its marketing staff and its manufacturing capacity, and advances its remaining studies. I'm only inclined to add around $100 million in cash and cash equivalents into my personal valuation model because of this.

Image source: Federal Reserve Bank of New York. 

How much is Exelixis worth?
Now it's time to put the puzzle pieces together. Based on my best market share estimates given the reported clinical data, Exelixis could produce around $650 million to $680 million in annual revenue within the next five to seven years. Considering that "accepted" fair valuations within the biotech sector recently have ranged around three times peak sales, I could foresee Exelixis toting a valuation of approximately $2 billion based on its products (and assuming everything is approved). If CELESTIAL misses the mark, then I'd place a fair valuation on Exelixis of closer to $1.5 billion.

Inclusive of cash value, I'd add $100 million to the above estimates. Thus, with METEOR and coBRIM likely to lead to approvals, I value Exelixis to be worth somewhere between $1.6 billion and $2.1 billion, depending on the CELESTIAL results. On a per share basis, this works out to anywhere from $7.10 to $9.30, thus implying upside of around 20% to 55% yet to come.

Remember, my analysis assigned no value to early-stage therapies, the potential for collaborations, intellectual property, or the intangible value of an experienced management team. It's always plausible that Exelixis' value could drop, but the above explanation lays out all the reasons I remain a committed shareholder of Exelixis.