Please ensure Javascript is enabled for purposes of website accessibility

An EXELent Drug Deal

By Brian Orelli, PhD - Updated Apr 5, 2017 at 7:59PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Exelixis meets a year-end financial goal.

With less than three weeks left in the year, Exelixis (NASDAQ:EXEL) cut it close, but management got the job done.

The company had guided to have at least $200 million in the bank at the end of 2008, so it needed to make at least one more licensing deal for its plethora of unpartnered drugs. No problem; today it picked up $195 million in cash in a deal with Bristol-Myers Squibb (NYSE:BMY).

The deal doesn't come as a big surprise to me. Management tipped its hand a few weeks ago when it agreed to spend some of its cash to co-develop a drug with Bristol-Myers as part of an established partnership.

The new deal with Bristol-Myers involves Exelixis' phase 3 thyroid cancer drug XL184 -- the same drug that GlaxoSmithKline (NYSE:GSK) turned down in October. As I suggested at the time, Glaxo's decision was likely a business one and not based on the likelihood of clinical success, since Bristol-Myers agreed to license the drug and Exelixis has decided to spend some of its cash to co-develop the drug. Exelixis will share profits in the U.S., and potentially get $150 million in milestone payments and double-digit royalties should the drug get approved outside the U.S.

Bristol-Myers also gets phase 1 cancer drug XL281 as part of the deal. The pharma giant will take over development of the drug and Exelixis could get milestone payments of up to $465 million as the drug progresses through the clinic and becomes a commercial success. Exelixis is also entitled to double-digit royalties on worldwide sales of XL281.

This deal puts the Motley Fool Rule Breakers pick in pretty good shape. Between the cash it received this year, the $45 million it'll get next year as part of this deal, and potential milestone payments from partners Glaxo, Wyeth (NYSE:WYE), Genentech (NYSE:DNA), and Daiichi Sankyo, Exelixis is looking good for the next couple of years. Hopefully by then the market will have rebounded and the drugmaker can use the usual method of carrying out secondary offerings to gain any additional cash it might need.

More Foolishness on drugmakers' need for cash:

Find out why The Motley Fool picked Exelixis for the high-growth Rule Breakers newsletter by grabbing a free 30-day trial. You'll get access to all our back issues and the most recent picks.  

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. GlaxoSmithKline is a Motley Fool Income Investor selection. The Fool owns shares of Exelixis. The Fool's disclosure policy likes its marshmallows lightly toasted.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Exelixis, Inc. Stock Quote
Exelixis, Inc.
$21.55 (0.14%) $0.03
Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
$73.80 (2.33%) $1.68
GSK Stock Quote
$40.31 (-0.64%) $0.26

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.