Several innovative new ways of fighting cancer are now either available or probably soon will be. That's generating excitement in the oncology community -- and among investors. Two companies that are front and center in the development of new treatments for cancer are Exelixis, Inc. (NASDAQ: EXEL) and Novartis AG (NYSE: NVS).
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Exelixis is an up-and-coming biotech with a stock that has more than tripled in value over the last 12 months. Novartis is an established large drugmaker whose share price is up by a single-digit percentage during the same period. But which stock is the better pick for investors now? Here's how Exelixis and Novartis compare.
The case for Exelixis
Much of the investing argument for Exelixis is tied to one product: Cabometyx. The drug gained approval in April 2016 as a second-line treatment for renal cell carcinoma (RCC), a type of kidney cancer. Sales and prescription volume for Cabometyx are soaring.
However, it's the possibility of additional indications that's really driving Exelixis stock higher. In May 2016, the biotech announced positive preliminary results from a phase 2 study of Cabometyx as a first-line treatment of RCC. These preliminary results were confirmed when Exelixis released details of the study in October 2016. The company is preparing to submit for approval in the additional indication.
That might not be all for Cabometyx, though. Exelixis executives stated on the company's first-quarter earnings call in May that a second independent data monitoring committee review of a study evaluating the drug as a second-line treatment of advanced liver cancer is expected later this year with final results anticipated in 2018. In addition, Cabometyx is part of several other studies in combination with other cancer drugs.
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Some analysts project peak annual sales for Cabometyx of at least $1 billion. If approved for all indications and some of the combination studies are successful, the actual revenue from the drug could be much higher than that.
Because of investors' recognition of the tremendous potential for Cabometyx, Exelixis now claims a market cap of more than $7 billion. How much higher the stock can go depends on how well current and future clinical studies go. Based on the results over the last couple of years, there's plenty of reason for optimism about Cabometyx -- and about Exelixis stock.
The case for Novartis
Novartis can lay claim to four cancer drugs that are already blockbusters, including its top-selling drug Gleevec. The Swiss pharmaceutical company made nearly $12 billion in 2016 from its nine most successful cancer drugs. However, Novartis isn't just focused on cancer.
The company is also a leader in the neuroscience and eye-care markets. Novartis' Gilenya is one of the world's best-selling multiple sclerosis drugs. Lucentis is one of the top age-related macular degeneration (AMD) drugs.
In addition, Novartis' Sandoz business unit develops and markets retail generic drugs, biosimilars, and anti-infectives. Its Alcon business unit focuses on vision-care products including contact lenses and on eye-surgery products.
Investors have several reasons to like Novartis stock. First, the company ranks as one of the most profitable drugmakers in the world. Second, it uses those profits to reward shareholders with a solid dividend, which currently yields 3.33%. Third, Novartis' growth prospects are better than they've been in a while.
Those growth prospects are boosted by new products like autoimmune disease drug Cosentyx. Novartis also has an exceptionally strong pipeline with more than 200 programs in clinical development.
Which of these stocks is the better buy? I think the answer depends on what kind of investor you are.
If you're retired and looking for income-producing stocks, Novartis is clearly the better fit for you. On the other hand, if you're seeking growth and are willing to take on some risk, Exelixis is the better pick. My view is that Exelixis is likely to generate a greater total return over the next few years. Because of this, I think the biotech is the better overall buy right now.
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