Let me toss out a question to all of the biotech investors out there: If you had to name the most promising small biotech company working on cancer therapies, which one would top your list?

Would you go with a high-profile antibody company like Abgenix (NASDAQ:ABGX) or Medarex (NASDAQ:MEDX)? Or would you favor Celgene (NASDAQ:CELG) and Onyx Pharmaceuticals (NASDAQ:ONXX), firms with late-stage small-molecule drugs that look to be winners? What about riskier -- but potentially groundbreaking -- companies such as Cell Genesys (NASDAQ:CEGE) and Dendreon (NASDAQ:DNDN), which are leaders in developing cancer vaccines?

All of these well-known companies have had some success in clinical trials and are on the path to commercializing a product. In that light, they are all fine companies. But I think the most exciting small company discovering cancer drugs is -- hands-down -- Exelixis (NASDAQ:EXEL).

That probably puts me in the minority, since Exelixis has yet to attract the kind of attention the others regularly receive. Though it lacks name recognition, Exelixis has what could turn out to be the best drug pipeline of the bunch. And considering the exclusive company, that's saying a lot.

Broad drug pipeline
Exelixis has an early-stage pipeline with only a single drug, XL119, in phase 3 trials. The remainder of its drugs are currently in phase 1 trials or the late preclinical research stage. So why do I think it could have the best pipeline, given its immature portfolio?

For starters, the company has been highly productive with its R&D efforts. It will have a total of eight different drugs in clinical trials by the end of 2005. On top of that, another two promising drugs will enter trials next year. That's quite a deep bench.

With so many programs moving forward, Exelixis' success is not highly dependent upon a single drug program. That's a stark contrast to many of its peers, which will sink or swim on the fate of a single product. Exelixis can potentially absorb a few of the inevitable failures of clinical trials and still have enough drugs in the works to become a successful company.

Having a significant number of drugs in clinical trials increases a company's "shots on goal." But it's not just the quantity that has caught my eye; it's the targets that these drugs are hitting.

High-quality targets
Let me step back for a second. The dominant trend in cancer-drug development over the past few years has been to inhibit receptors or enzymes known to be involved in the growth of tumor cells. The idea is that shutting these down will stop the cancer from growing. It's like taking a piece of gum and plugging up the ignition switch of your car so that you can't stick the key in and start it up.

Many of Exelixis' drugs hit important targets in the regulation of cancer-cell growth. These include receptors such as VEGF, EGF, and HER2, as well as enzymes like Raf and Akt.

Investors who follow cancer companies will recognize those targets -- some of the most prominent cancer drugs on today's market hit the exact same ones. Avastin, Herceptin, Erbitux, and Tarceva are all approved drugs that work through these pathways.

The presence of already-approved products that work by inhibiting these receptors validates that the drug development strategy is sound. Significant risk is reduced because we're not left wondering whether the company's targets are even relevant to the treatment of cancer -- we already know they are.

The Foolish bottom line
I'll go out on a limb and say that in two years Exelixis will be an important player in the development of cancer drugs. I set my time frame at two years because it will take some time for the pipeline to mature a bit and generate preliminary clinical data that will suggest whether or not some of the drugs work.

Of particular importance here are XL119, XL647, and XL999. XL119 is currently in a phase 3 trial for bile duct tumors. XL674 and XL999 are both slated to enter phase 2 trials later this year.

With that in mind, and looking forward a bit, we'll need to pay particular attention to the American Society of Clinical Oncology (ASCO) meeting in the summer of 2007. The annual ASCO meeting is the most important cancer meeting every year, and it is where developmental drugs are put on display. Given the timelines for the most advanced drugs in Exelixis' portfolio, by that meeting we should know how the drugs are doing and whether they will be successful.

If you're interested in other biotech stock investment ideas, click here for a free 30-day trial to our Motley Fool Rule Breakers newsletter. And for additional articles on the biotech industry, see:

Motley Fool Rule Breakers biotech analyst Charly Travers owns shares of Cell Genesys, Exelixis, and Medarex. The Motley Fool has a disclosure policy.