Why Exelixis, Inc. Could Be a Gold Mine for Growth Investors

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Exelixis, Inc. (NASDAQ: EXEL) has already delivered big gains this year, but there could be a few untapped veins in this biotech gold mine. We'll need to tread lightly because a great deal of success is already baked into the price, but a few catalysts on the horizon could send this stock soaring again in 2018.

In a nutshell, there's a good chance the number of patients eligible to receive this company's pricey cancer drugs could rise several fold. Here's a closer look at a few key factors that could dislodge some shiny nuggets in the years ahead.

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Stellar results

Exelixis' lead drug, Cabometyx, is currently limited to certain patients with kidney and thyroid cancer, and Exelixis needs to expand the drug's addressable patient population if its stock is to rise from present levels. The company is fortunate to have promising data from the Celestial trial that ought to persuade the FDA to expand its indication to include a large group of liver cancer patients with a dearth of effective treatment options.

The drug significantly improved survival odds among patients with advanced-stage hepatocellular carcinoma (HCC), the most common form of liver cancer, in a pivotal trial earlier this fall. Exelixis intends to submit an application to the FDA that would expand the Cabometyx drug label to include advanced-stage HCC patients in the first quarter of 2018. Given the results in hand, an approval seems likely.

While some liver cancer sales are already baked into Exelixis' $7.7 billion market cap, the population is large and underserved. Liver cancer is expected to claim the lives of around 29,000 Americans this year, and an estimated 700,000 worldwide.

To the front of the line

Freshly diagnosed cancer patients tend to stay on their first therapy longer than on subsequent treatments. This is why Exelixis investors should be just as excited about Cabometyx's potential move to the front of the kidney cancer treatment line as they are about its chance to become a new HCC option.

Right now, Cabometyx is approved for kidney cancer patients who have already been treated with a specific class of drug that attempts to starve tumors of their blood supply. Pfizer's Sutent currently holds the first-line position, but perhaps not for much longer.

Cabometyx lowered newly diagnosed patients' risk of death or worsening disease by 52% compared with today's standard first-line treatment. With data this good, it looks as if we can reasonably expect an approval decision on or before the FDA's stated action date of Feb. 15.

A second chance for Cotellic

With all the buzz around Cabometyx, it's easy to forget Exelixis has a second commercial-stage drug. In 2015, Cotellic earned FDA approval to treat a genetically defined group of melanoma patients in combination with Roche's (NASDAQOTH: RHHBY) Zelboraf.

Cotellic royalties from the Swiss drugmaker reached just $5 million in the first nine months of 2017, but a recent legal settlement could allow Exelixis to revitalize the drug's launch. In a nutshell, it seems Exelixis has the legal clarification it needed to pursue label expansions for Cotellic on its own or in combination with other drugs.

One of the first new combinations for Cotellic could come from Roche again. Exelixis' partner is conducting three late-stage trials with Cotellic in combination with its immunotherapy, Tecentriq. Investors will want to keep their eyes open for results due around the middle of 2018.

Putting it together

Exelixis reported a tremendous 126% rise in third-quarter product sales to an annualized run rate of $386 million. That's nothing to sneeze at, but it's hardly enough to support the stock's recent $7.7 billion market cap without a ton of growth in the quarters ahead. That means Exelixis will probably need a lot more than FDA approvals to persuade the market to lift its stock price much further.

Although Cotellic might not have blockbuster potential, a successful label expansion, possibly as part of a new combination therapy, could boost high-margin royalty revenue received from Roche above $200 million in the years ahead. That's small potatoes next to peak contributions expected from Cabometyx. If the tablets become standard treatments for the liver and kidney cancer indications they're currently aimed at, I think annual sales of the drug could pass $3 billion by 2022.

A lot can go wrong between now and then, but it looks as if Exelixis has everything it needs to become a gold mine for patient growth investors.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Exelixis. The Motley Fool has a disclosure policy.