$EXEL to the moon? Exelixis

please comment at the r/investing post, thanks.

Time to look for a moonshot, in biotech rather than tech!

Is Exelixis evolving into something big?

Key Stats

Ticker EXEL
Sector Bio Therapeutic Drugs
Latest price $25.26
Value $7,424M
Daily vol $103M
Date 06 October 2017
Financials SEC Filings
Website http://www.exelixis.com

1. So what's $EXEL invented?

Exelixis is a biopharmaceutical company that's focused on cancer. Products it's developing include:

  • CABOMETYX tablets are approved for previously treated advanced kidney cancer
  • COMETRIQ capsules are approved for progressive, metastatic medullary thyroid cancer
  • Cotellic, is a formulation of their product cobimetinib, a selective inhibitor of MEK is approved as part of a combination regimen to treat advanced melanoma.

So, kidney, thyroid and skin cancers drugs. But it's been a long journey. The business was founded in 1994. The USA's FDA approved their first product in late 2012, the second in early 2016. The EU and Japan are following and they've now got partners in place including the Japanese giant Takeda and Europe's Roche.

2. Are their alternatives?

Of course! When it comes to Cabometyx they have BMS, PfizerNovartis, Bayer, Onyx/Angem, Genentech/Roche and Eisai. In particular they see BMS' nivolumab as the biggest threat. Many of the same names appear at competitors to Cometriq, though Genzyme sounds the biggest concern. And Merck also appears in the list of competitors for Cotellic.

I'm struggling to see a pharmacological moat or blockbuster potential at $EXEL, so maybe this isn't a moonshot.

Though that doesn't mean they aren't a good business or investment! Which makes me wonder… how do I identify the next $KITE which Gilead just threw $12 billion at? A whole other topic, I know.

3. And cash has started to flow!

With the approvals coming through in the US, then Europe, and Japan looking probable, it's no wonder the sales are rocketing and the earnings are coming through. Though, don't expect buybacks or dividends anytime soon. This is tech… biotech.

Metric 2012A 2013A 2014A 2015A 2016A 2017E 2018E
Revenue $47m $31m $25m $37m $191m $397m $573m
EPS $-0.91 $-1.29 $-1.34 $-0.77 $-0.28 $+0.27 $+0.64

Similarly, it's no surprise to see $349M of net cash on the books. It's 5% of the market value of $EXEL and just prudent management in a business like this.

4. How's it looking versus the peers?

If we look at biotech's with a valuation between $5 and $10bn, it's got strong evidence of commercializing. It shouldn't be a surprise that there are losses and negative margins for the peers.

Companies Latest Sales Operating Profit Return on Equity
Exelixis, Inc. $320M 29% N/A
Seattle Genetics, Inc. $429M -44% -33%
TESARO Inc $40M -1217% -185%
bluebird bio Inc $27M -1026% -29%
EXACT Sciences Corporation $169M -77% -36%
Juno Therapeutics Inc $83M -345% -28%

And given they've got cashflow, it's the only one with a PE ratio. If we look to next year, it's trading on 39x earnings. Hardly a nutty price, with sales coming on line in the different geographies.

Peers Valuation Forecast PE Long-term Growth Dividend Yield Price to Sales
EXEL.O $7,424M 94x 46% 0% 23x
SGEN.O $8,330M -35x N/A 0% 18x
TSRO.O $6,600M -14x N/A 0% 153x
BLUE.O $5,899M -19x -65% 0% 178x
EXAS.O $5,715M -41x 23% 0% 31x
JUNO.O $5,014M -15x N/A 0% 52x

5. Wall Street sees potential

The consensus from the 10 brokers covering EXEL is Buy and they've an average target price of $30 a share. So 20% up from here.

The broker's have called this one right the last 2 years, continually pounding the table with a Buy or Strong Buy. Upgrading their target price, sales forecasts, and earnings outlook.

6. Playing the transition

EXEL is now a "commercial stage oncology biotech company" as the CEO said at a recent conference. And the transition has seen the stock raise from $4 a share to $24 a share.

From here, the playbook is pretty standard. Get the right partners in all the key geographies, ramp sales, watch the cashflows come it. Of course, there's no certainty in this world, less so in biotech. But if management follows the playbook, there is a good chance the stock could double in the next 5 years. Though it'll be a rollercoaster, with competitive news whacking the stock, and approvals/partnerships ramping it.

It's no moonshot. But if you are looking for a small-cap biotech with potential, it's hard to fault $EXEL.

View the archive of Stock a Day posts at it's subreddit stockaday.

Disclosure: I have no positions in any stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.

Submitted October 06, 2017 at 04:52AM by shane_stockflare
via http://ift.tt/2ggN6wF

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