Exelixis, Inc. (NASDAQ:EXEL) blasted off late last week as the company’s Q3 earnings represented a bit of a surprise to analysts who had been down on the name due to very reasonable competition concerns. It would appear that recent results suggest a bit more Cabo traction than had been assumed at this point.

We would suggest that there are two other issues that really help to drive the story going forward. First, the company is likely going to see the indication profile for Cabometyx expanded in two months when the FDA rules on its use for hepatocellular cancer (HCC) – it is already approved for renal cell carcinoma (RCC). Second, we expect an acceleration in consolidation in the oncology space and EXEL is cheap as dirt relative to growth for a company with an asset approved as a key therapy for two major cancer indications.

Exelixis, Inc. (NASDAQ:EXEL) has had an interesting road over the past year.

On the one hand, if you look at the experience of an investor who bought in at $30 around the holidays last year, you have to think this is the worst stock on the planet. But, for those who moved in under $5 in 2016, you’re still sitting on 250% gains. However, this is all smoke and mirrors. What matters for both imaginary people is whether or not, in theory, they believe it would be a good idea for someone new to move in and buy EXEL shares today.

The story here is about Cabometyx, a kidney cancer drug that has shown tremendous promise, but is competing in a space dominated by a Bristol-Myers drug pairing that sits the shoulders of a powerful marketing apparatus.

However, as we have discussed, Cabo is being tested as a pairing with Opdivo in a Phase 3 study underway since last year that could completely turn the tables on Wall Street’s problem with this development program.

With the show of surprising traction for Cabo relative to street expectations in Q3 and the likelihood of another approval for HCC in two months, the added notion of an increase in “shopping” by large-cap oncology programs could start to finally work towards pricing in a premium valuation for the stock as a market hedge to the potential for a bid on the whole enchilada.

This is not the statement that we have some reason to know a takeout is approaching. It is simply a profile analysis that points to the stock’s positioning as a relatively cheap way to augment an existing larger-tier oncology stable.


The Basics

Exelixis, Inc. (NASDAQ:EXEL) trumpets itself as a biotechnology company that engages in the discovery, development, and commercialization of new medicines to enhance care and outcomes for people with cancer.

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

Its CABOMETYX and COMETRIQ are derived from cabozantinib, an inhibitor of multiple tyrosine kinases, including MET, AXL, RET, and VEGF receptors.

It also offers COTELLIC tablets, an inhibitor of MEK in combination with vemurafenib for the treatment of patients with BRAF V600E or V600K mutation-positive advanced melanoma in the United States; and in combination with vemurafenib in other territories, including the European Union, Switzerland, Canada, Australia, and Brazil.

Exelixis, Inc. has collaboration and license agreement with Ipsen Pharma SAS, Genentech, Inc., GlaxoSmithKline, Bristol-Myers Squibb Company, Sanofi, Merck, Daiichi Sankyo Company Limited, and Invenra, Inc.

Exelixis, Inc. (NASDAQ:EXEL) pulled in sales of $225.4M in its last reported quarterly financials, representing top line growth of 47.7%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($635.1M against $90.9M).

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