A Rinse-Wash-Repeat Play for Opportunistic Investors

No matter the short-term consequences of events in the past months, what remains constant is the stock market’s ability to create wealth over the long term.

Each crash or correction that occurred in history was eventually offset by a strong bull market rally.

That’s why it pays to be prepared for when things start to turn around.

Today, I’d like to take a look at another name in the oncology sector that’s poised to skyrocket in the coming years: Exelixis (EXEL).

Here’s a quick overview of Exelixis.

Exelixis is a California-based biotech that’s focused on developing treatments for hard-to-treat types of cancer. To date, the company has three FDA-approved treatments in the market.

The stock has been trading within the $20 and $22 range and sports a market capitalization of roughly $7 billion.

For most of its existence, Exelixis’ growth story centers around its blockbuster therapy, called Cabometyx.

In the second quarter earnings report, Cabometyx’s sales went up 59% compared to its 2020 performance to contribute $275.6 million.

This comprised the bulk of Exelixis’ total revenue worth $385.2 million, which climbed an impressive 48.4% year over year.

Cabometyx is the leading treatment for first- and second-line treatment for advanced renal cell carcinoma (RCC) and advanced hepatocellular carcinoma.

Together, both indications could generate over $1 in annual sales for Cabometyx in 2021 and 2022.

To put things in perspective, the entire Cabometyx franchise was only worth about $742 million in 2020.

What makes Cabometyx an exciting revenue stream is its label-expansion capacity.

Apart from the two approved indications, Exelixis is also conducting six more clinical trials for this drug either as a monotherapy or a combination treatment.

So far, Cabometyx has proven to be effective as a combination therapy with Bristol-Myers Squibb’s (BMY) Opdivo. This additional approval has allowed Exelixis to seize an even bigger share of the RCC market today.

Considering the label-expansion opportunities for Cabometyx, this treatment is projected to become a multi-billion-dollar drug soon.

Given the solid performance of its products and successful collaborations, Exelixis has also become a cash cow.

The company estimates that it would conclude 2021 with roughly $1.6 billion to $1.7 billion in cash and investments—an amount that comprises over 20% of its market capitalization.

With this money, the company can comfortably pursue acquisitions and even strengthen its internal R&D engine.

However, not everything has been smooth sailing for Exelixis in the past months.

One of the major factors that pulled the stock down by a whopping 20% is the unimpressive results from its liver cancer clinical trial with Roche (RHHBY) last June.

However, I think the market overreacted to this piece of negative news.

If anything, Exelixis has already turned the situation around.

Unfazed by its unexpected flop with Roche, Exelixis is again pursuing a difficult-to-treat condition: prostate cancer.

The difference this time is that the company appears to have more confidence in the efficacy of its famed Cabometyx as a treatment for the condition—so much so that they intend to apply for FDA feedback in the high-risk group and possibly even an accelerated approval.

It also celebrated a recent win with the approval of Cabometyx’s label expansion to cover 12 years and older—an approval granted way ahead of their December 4 schedule.

Now, Cabometyx can also be prescribed to treat DTC, which is the most common kind of thyroid cancer in the United States.

More than that, Exelixis is the first to provide a standard treatment option to these patients, making the company a first mover in this segment.

Looking at the history of first movers, such as Vertex (VRTX) in the cystic fibrosis sector and Teladoc (TDOC) in the telehealth space, Exelixis could very well be on its way into becoming a functioning monopoly.

In terms of its pipeline, Exelixis has more than 100 studies going through different stages. These cover diverse indications including gastrointestinal cancers, neuroendocrine tumors, and lung cancer.

While Exelixis has a balance sheet akin to Fort Knox and a remarkable revenue growth, its shares remain range-bound in the past couple of years.

Nonetheless, it has continued to be an impressive “rinse-wash-repeat” covered call play during the same period and is considered a dividend stock with double-digit yields.

Moreover, Exelixis has been consistently ramping up revenue growth in the past years.

The biotech’s big cash balance along with its proven profitability indicate a minimal possibility of dilution.

Considering its price-to-earnings-growth ratio of almost 1, this company is the picture of an ideal balance of double-digit sales growth complemented with great value.

Simply put, it’s a great opportunity for long-term investors.

More importantly, its recent stock-price meltdown makes it an ideal addition to the portfolio of opportunistic investors.