EXEL - Exelixis: Earnings Sell-Off Presents Unique Opportunity

2023-11-02 14:45:22 ET

Summary

• Exelixis's Q3 earnings fell short of expectations, with lower-than-anticipated Earnings Per Share and total revenues.
• The company's pipeline includes innovative therapies and collaborations with partners to revolutionize cancer treatment.
• Despite the disappointing earnings, Exelixis remains at an attractive valuation level and has promising long-term growth prospects in the oncology market.

In the quickly evolving field of oncology, Exelixis ( EXEL ) has emerged as a prominent player, dedicated to discovering, developing, and commercializing new medicines for difficult-to-treat cancers. With a strong focus on innovation and a commitment to improving patient outcomes, Exelixis has made significant strides in the fight against cancer over the past years.

Exelixis fell nearly 7%, after announcing its latest Q3 earnings , which fell short of expectations. In this regard, Earnings Per Share came in at $0.10, which was $0.09 below the anticipated figure. Revenue reached $471.92 million, marking a 14.6% increase from the previous year, but still missing the forecast by $1.47 million. Looking ahead to 2023, Exelixis predicts total revenues to be between $1.825 billion and $1.850 billion, with net product revenues estimated to be in the range of $1.625 billion to $1.650 billion.

Pipeline Update:

Exelixis boasts a diverse product portfolio that includes cabometyx, cometriq, and cotellic. Cabometyx, the company's flagship product, has gained significant recognition as a leading tyrosine kinase inhibitor for the treatment of renal cell carcinoma. Its success is attributed to its use in combination with nivolumab in the first-line setting.

Apart from its existing products, Exelixis is also actively engaged in developing a robust pipeline of innovative therapies. The company's research and development efforts focus on various modalities, including bispecific antibodies, antibody-drug conjugates, and other cutting-edge treatments. Through strategic collaborations with partners like Aurigene and STORM Therapeutics, Exelixis is advancing multiple small molecule programs that have the potential to revolutionize cancer treatment.

• Cabozantinib Product Line: In the third quarter of 2023, the cabozantinib portfolio produced net sales of $426.5 million within the United States. This includes $422.2 million from the sales of CABOMETYX (cabozantinib) and $4.3 million from COMETRIQ (cabozantinib). Additionally, through the sales achieved by Exelixis’ partnership networks related to cabozantinib in the quarter ending on September 30, 2023, Exelixis received royalty payments amounting to $37.8 million.

• Critical Phase 3 CONTACT-02 Study Assessing Cabozantinib with Atezolizumab for Advanced Prostate Cancer: In August, Exelixis, alongside its collaborator Ipsen, disclosed that their international phase 3 CONTACT-02 trial achieved one of its dual main goals. The study revealed a statistically significant extension in the time patients with metastatic castration-resistant prostate cancer (mCRPC) lived without disease progression, as determined during the initial analysis.

• Comprehensive Data from the CABINET Phase 3 Study on Cabozantinib for Neuroendocrine Tumors Unveiled at the 2023 ESMO Congress. The 2023 European Society for Medical Oncology (ESMO) Congress was the platform for presenting in-depth findings from the phase 3 CABINET trial in October. This pivotal study's interim analysis showed a statistically significant and clinically relevant extension in progression-free survival ('PFS') for patients with advanced pancreatic and extra-pancreatic neuroendocrine tumors who received cabozantinib.

Attractive Valuation:

Exelixis remains at attractive valuation levels, and even more so after its recent sell-off. As its revenue continues to grow, the company traded sideways over the past few years due to competition fears, failures in pipeline candidates, as well as rising operating costs. Nevertheless, Exelixis trades at attractive valuation levels, both with regard to its sales and balance sheet.

Exelixis currently trades at just 3.7 times sales, which is comparably lower than large competitors such as AbbVie ( ABBV ), or Merck (MRK). While large-cap pharmaceuticals boast higher profit margins due to a greater scale, Exelixis has arguably a much larger growth runway ahead. The potential for future growth seems to be not fully priced at current levels.

For instance, Seagen ( SGEN ), was acquired by Pfizer ( PFE ) for $43 billion, at just over $2 billion in annual revenues , translating into nearly 20 times Price to Sales. Exelixis also holds a healthy balance sheet, carrying $1.3 billion in cash, against just $200 million in debt. Exelixis is using its excess cash to allocate some of its capital into share buybacks. In its latest earnings, Exelixis reported that it has successfully bought back 16.943 million of its own shares at a cumulative cost of $344.8 million as of September 30, 2023. Earlier in March, the company made an announcement following the approval by its Board of Directors to potentially repurchase up to $550 million worth of its common stock by the end of 2023.

Takeaways:

Despite a recent disappointing earnings report, Exelixis' long-term growth prospects remain promising. The company is well-positioned at the forefront of oncology innovation, with the expanding oncology market expected to drive growth in the coming years. However, potential investors should be mindful of risks such as clinical trial outcomes, regulatory challenges, competition, and changes in healthcare policies that could impact the company's future performance.

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