Exelixis Busy Selling Its Wares

Showing that it makes more deals than a used-car salesman, Rule Breakers pick Exelixis (NASDAQ:EXEL) recently inked another drug-development deal with biopharmaceutical powerhouse Genentech (NYSE:DNA). Fortunately for Exelixis' shareholders, what it's hawking is much more valuable than a used Ford truck, with Genentech agreeing to pay $40 million for the right to co-develop a cancer compound.

Allowing it to focus on what it does best, the deal calls for Exelixis to bring the compound XL518 through phase 1 trials and then to hand the drug over to Genentech for the remainder of its development if Genentech decides to continue with its testing in clinical trials.

The great part of the deal for Exelixis and its dwindling $150 million cash cushion is that Genentech will pay the millions of dollars in development costs after the phase 1 trials are completed, and Exelixis will still retain U.S. co-promotion rights and royalties on all international sales if XL518 makes it to market.

XL518 is going to be tested as a treatment for cancer. There's not a lot of clinical trial data regarding the target of XL518, but Array BioPharma (NASDAQ:ARRY) does have two compounds in phase 1 and 2 trials that target the same cancer pathway, so good results from Array might be indicative of the prospects of XL518.

This $40 million deal compares favorably with the Bristol-Myers Squibb (NYSE:BMY) deal that Exelixis signed two weeks ago, in which BMY would potentially pay the equivalent of $40 million for three drug candidates, but also called for Exelixis to share in the cost of the development for the drug candidates.

Most small-cap pharmaceutical firms woo investors with the huge sales potential that the compounds they're developing may have, but are short on clinical trial results or the proof that their compounds work. While generating multimillion dollar development deals with some of the top pharmaceutical firms in the business may not be as indicative of a drug's potential as solid late-stage clinical trial results, Exelixis is at least having its preclinical research validated.

Exelixis is a Rule Breakers recommendation.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article.