Cabometyx competition and diversification slow Exelixis stock outlook

On Thursday, UBS initiated coverage on Exelixis (NASDAQ:) stock, a biotechnology company traded on NASDAQ:EXEL, assigning a Neutral rating and setting a price target of $30.00.

The firm anticipates a deceleration in the year-over-year growth of Exelixis’s cancer drug, Cabometyx, projecting it to a mid-single digit trend for the years 2024 and 2025. Additionally, concerns were raised about potential intellectual property risks starting from 2026.

The UBS analysis suggests that the 2024 and 2025 sales forecasts for Cabometyx are slightly below the consensus, with estimates at -1% and -4% respectively. Despite this, UBS predicts that Exelixis’s pipeline asset, zanzalitinib, could achieve sales of $450 million by 2028, which is slightly above the consensus estimate of $440 million. The firm’s expectations for Cabometyx sales in 2025 stand at $1.8 billion, compared to a consensus of $1.9 billion.

Cabometyx, which is firmly established in the kidney cancer market, is expected to face limited growth opportunities moving forward, particularly due to emerging competition from drugs like Welireg. UBS points out that while Cabometyx has a strong position in treating renal cell carcinoma (RCC), the market is approaching saturation.

As a result, new indications such as metastatic colorectal cancer (mCRPC) and neuroendocrine tumors (NET) are anticipated to become significant growth drivers for the drug post-2025.

The report further notes that these new indications for Cabometyx are considered smaller markets, with each potentially contributing around $300 million to the drug’s sales in 2030.

These projections are part of the firm’s rationale for the stock’s Neutral rating, suggesting that the slow growth of Cabometyx and the gradual diversification of Exelixis’s pipeline may already be reflected in the current stock price.

In other recent news, Exelixis has been garnering attention due to its Phase 3 CABINET trial results, which showed significant improvement in progression-free survival (PFS) for patients with advanced neuroendocrine tumors (NET). The results were presented at the European Society of Medical Oncology (ESMO) Congress and concurrently published in the New England Journal of Medicine (NEJM). In addition, the U.S. Food and Drug Administration (FDA) accepted a supplemental New Drug Application (sNDA) for cabozantinib, a treatment for NET.

Exelixis’s financial performance has also been robust, with second-quarter revenues reaching $637.2 million, largely driven by cabozantinib, which contributed $437.6 million. The company’s diluted net income of $0.77 per share notably surpassed earlier projections.

Several analyst firms, including Citi, BofA Securities, and Truist Securities, have maintained their Buy rating on Exelixis, following the presentation of results from the Phase 3 CONTACT-02 trial. The trial demonstrated a significant improvement in PFS for patients with metastatic castration-resistant prostate cancer.

Furthermore, a decision on a patent dispute over Cabometyx, which will determine the drug’s market exclusivity period, is imminent. This is a crucial development for the company’s financial outlook. Lastly, the company’s supplementary New Drug Application (NDA) for cabozantinib in the treatment of NET has been accepted by the FDA, with a target action date set for April 2025.

InvestingPro Insights

With UBS initiating coverage on Exelixis, investors might be looking for additional context to gauge the company’s performance and potential. According to recent InvestingPro data, Exelixis holds a market capitalization of $7.65 billion and is trading at a P/E ratio of 23.51, which adjusts to 20.29 when considering the last twelve months as of Q2 2024. The company’s revenue growth for the same period stands at 17.48%, highlighting a robust financial performance.

InvestingPro Tips suggest that Exelixis’s management has been actively buying back shares, which often signals confidence in the company’s future prospects. Additionally, the company is reported to have more cash than debt on its balance sheet, which is a positive sign of financial health. These factors, coupled with a high gross profit margin of 96.06% in the last twelve months as of Q2 2024, provide a compelling picture of Exelixis’s financial stability and profitability.

For those interested in a deeper dive, there are over 12 additional InvestingPro Tips available, offering insights such as Exelixis’s expected net income growth this year, trading at a low P/E ratio relative to near-term earnings growth, and a strong return over the last three months. These tips can be explored further for those considering an investment in Exelixis, which can be found at InvestingPro’s dedicated page for the company.

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