Final Trade Detail

Exelixis

Investors who followed this trade Generated a

39% Return

Open Date

11/7/18

Close Date

1/9/19-1/28/19

Hold Time

63-82 days

Buy Price

$16.92

Close Price

$23.07-23.28

%Gain/Loss

39%

Original Recommendation

Exelixis

Exelixis (EXEL)

our opinion

buy

current price

$16.92

target price

$25.00

market cap

$6.1B

div yield

0.00%

  • Exelixis announced royalties received from Ipsen (entitled to cabozantinib rights outside of the U.S. and Japan) will increase from 2-12% to 22-26%.
  • Cabometyx could drive annual sales of over $2 billion.

trade details

Christmas has come early, my friends. I’m genuinely baffled when we’re given not one, not two, but three or more opportunities to invest in an incredible company. It’s a very rare occurrence. Guess what? That’s exactly what Exelixis has presented to investors over the past couple of years.

Exelixis, Inc. (NASDAQ:EXEL) first came on our radar back in 2016. We bought shares in May 2016 at a price of $6.29, later closing our position a few months later at $11.88. That represents an 88.87% return! We later went back to the well in June 2017 and ultimately sold a few weeks later for a slight gain.

Fast forward to 2018 and shares have fallen nearly 50% from its 52-week high. The reasons why we invested in 2016 and 2017 have not changed. Here’s why we love this company and recommend accumulating shares below $20 per share.

Company Background
Exelixis, Inc. is a biotechnology company engaged in the discovery, development, and commercialization of new medicines to enhance care and outcomes for people with cancer.

The company’s products include CABOMETYX for the treatment of patients with advanced renal cell carcinoma who received prior anti-angiogenic therapy; and COMETRIQ for the treatment of patients with progressive and metastatic medullary thyroid cancer.

Why We’re Buyers
In 2016, Exelixis won FDA approval for Cabometyx as a second-line treatment for renal cell carcinoma. This is the most common form of kidney cancer. In December 2017, the drug gained FDA approval as a first-line treatment for the disease. The first-line kidney cancer market has nearly as many patients than the second-line and third-line indications combined. This means sales of the drug are soaring.

There are also plans to use more use cases for Cabometyx. The latest development is the drugs potential to treat liver cancer. This represents another huge market and, when combined with kidney cancer applications, could result in annual sales of over $2 billion.

Combinations featuring Cabometyx could fuel substantial growth in coming years. For example, Cabometyx could be combined with Bristol-Myers Squibb’s Opdivo as a first-line treatment of kidney cancer. The possibilities are endless when combining drugs to treat cancer patients.

And there’s more…

Exelixis announced royalties received from Ipsen (entitled to cabozantinib rights outside of the U.S. and Japan) will increase from 2-12% to 22-26%. This should provide additional revenue growth for Exelixis going forward. Ipsen has seen substantial growth in cabozantinib within Europe, and announced new country launches for 2018 and 2019.

The Risks
Bristol-Myers Squibb’s Opdivo has gained approval as a standalone treatment for several forms of cancer. While BMY and Exelixis have formed partnerships to improve the lives of patients, the competitive nature of these two companies may become worrisome. This would be a David vs Goliath battle that is likely to favor BMY.

Exelixis is far from a one-hit wonder. There are other drugs in the pipeline, but there are no clear winners or applications for these drugs. Exelixis will need to broaden and diversify its drug pipeline to establish itself as a clear leader in the space.

Financials
Exelixis reported sales of $225.4M in its latest quarter, representing top line growth of 47.7%. The company has a strong balance sheet, with its cash position reported as $635M and less than $100M in liabilities.

Final Thoughts
Partnerships will ultimately fuel growth for Exelixis. Exelixis, Inc. has collaborations and license agreements with Genentech, Inc., Ipsen Pharma SAS, GlaxoSmithKline, Bristol-Myers Squibb Company, Sanofi, Merck, and a handful of other major pharma companies. In addition to collaborations, you can expect these pharma giants to have an appetite for acquisitions. Exelixis is a prime takeover candidate.

Trade Recommendation
We recommend buying shares of Exelixis up to $17/share.