The Key for Exelixis, Inc. (NASDAQ:EXEL) Could Be Very Simple

Exelixis, Inc. (NASDAQ:EXEL) shares represent a bit of a mystery. The optimism surrounding the stock is palpable, with analysts extremely positive, cash levels brimming, cash flows from operations fully positive, and double-digit sales growth defining the landscape. And yet, shares are net sideways for the trailing 60-day window.

This is an interesting problem because it wasn’t so long ago – just late last year – that the analysts weren’t lined up on the company’s side. In our analysis, we had been assuming that the shift to get the analysts back on board would be accompanied by a revaluation higher in the stock.

Exelixis, Inc. (NASDAQ:EXEL) is really centered around Cabometyx, which has established itself as a market leading Kidney cancer drug. In fact, there has never been a problem in terms of grading “Cabo” – as it is generally known – as a powerful market asset in a big space.

The problem has been on the competition side, with Cabo competing in a space dominated by a Bristol-Myers drug pairing that sits the shoulders of a powerful marketing apparatus. However, double-digit sales growth will solve a lot of problems, and it appears to have solved the issues held by the analysts.

So, why then do we see the stock stuck in place, oscillating in the $19-22 range on the chart?


As far as we can see, the market has yet to make the same shift that analysts have, but that doesn’t necessarily mean that it is discounting some negative future development – which is so often the case when a stock acts poorly relatively obvious fundamental information.

In this case, Exelixis keeps beating the estimates and shrinking its price multiple, and we think it must be about two main issues: First lingering concerns about an eventual loss of competitive edge in the renal carcinoma space, and second, a sense that there isn’t enough else going on in terms of development, particularly after its disappointing IMspire170 results a couple weeks ago.

In other words, could EXEL shares really be a simple play on Cabo? And, if so, how long before Cabo sales growth starts to fade in the shadow of something that’s just as effective, but powered by a much bigger marketing budget?

There are two sides to this question. We know the answer to the first, because it has consumed analysis of this stock for the better part of the past 18 months.

But the second aspect is a little trickier. In its recent IMspire170 revelation, the company noted that the phase 3 trial evaluating the combination of cobimetinib and atezolizumab fell short of meeting its primary endpoint of progression-free survival compared to the current standard of care in patients with previously untreated BRAF V600 wild-type advanced melanoma.

The study, if successful, would have put it in line to go to market paired with Roche’s extremely deep pockets.

But, quite frankly, the fallout from that shortfall has been very limited, and we would point to how well the EXEL tape digested this result as a point of important light looking ahead.

Finally, the Cabo story is still developing. Results from the critical CheckMate 9ER phase 3 study are expected very early in 2020, where Cabo is paired with Opdivo and Yervoy, which would help to add some serious marketing oomph to the story.

Stocks like EXEL perform best when they are running towards something rather than running away from something. This could line up a strong Q3 and Q4 performance to realign the multiple with the thrust of analyst opinions.