Why Exelixis Is Already Up 55% This Year

Exelixis' (NASDAQ: EXEL) kidney cancer drug Cabometyx is quickly winning market share, and that's fueling a rapid run-up in its revenue. The company has a big opportunity in its sights to expand Cabometyx's addressable market, and it's got other promising drugs in clinical trials. Can this be the year that Exelixis turns a profit?

In this clip from The Motley Fool's Industry Focus: Healthcare podcast, the team discusses the reasons behind Exelixis' market-beating performance this year, and what could be on tap for it in the future.

A transcript follows the video.

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Todd Campbell:No. 5on the list today is up 55%. That's mind-blowing to me. The company isExelixis. Exelixis is white-hot because it'splaying in the cancer space. We've seen a lot of different merger and acquisition activity -- a lot ofdifferent deals got done over the course of the last year in cancer. And I think that is one reason whyinvestors are getting so excited about this stock. They have a kidney cancer drugon the market that is growing very quickly.

Kristine Harjes:Yes,indeed. Theyactually have a couple of different drugs going on. As you mentioned, their kidney cancer drug is the mostexciting of them. Todd, do you want to tell us more about this one?

Campbell:That's the needle-mover, right, Kristine? Cabometyx. That's the needle-mover. They launchedthat drug last year for use in second-lineadvanced kidney cancer. That's a market that Afinitor, which is a billion-dollar drug, has long dominated. They're winning market share. I think their market share now is up to 27% in that second-line setting. That's translating into a $200 million run rate in sales that could groweven more because they released a studylast year that showedthey may be able to move this drug upand have it be used in the first line oftreatment for these cases. If so,it's going to fight against Sutent, which is another billion-dollar drug. So,you have a couple different reasons why this Cabometyx could become a $500 million or more drug.

Harjes:Andanother vote of confidence that this company has,other than simply being in a fairlylucrative space,is that other companies seem to agree. They have partnership agreements on almost all of their drugs. Notonly is that a vote of confidence, but it also gives them funding. Forexample, in January, they announced alicensing agreement in Japan withTakedaPharmaceuticals that gave them $50 million up front, almost another $100 million more inpotential milestones, royalties on top of that. This is a fairly well-funded companybecause of these partnerships.

Campbell:It's still losing money, Kristine. We have to make sure that everybody knows that. This is not a profitable company yet.

Harjes:Although I think technically, this last quarter was thefirst time they did turn a profit.

Campbell:Yeah, but ...

Harjes:But there's an asterisk.

Campbell:There are asterisks there: one-time events andmoney coming in that you can't expect going forward. I think this year's estimates from industry watchers are about$0.05 in earnings per share -- next year getting more meaningful.

Harjes:Phew, don't spend that all in one place.

Campbell:Yeah,exactly. This is an expensive stock. But, again, there are not a lot ofcancer companies out there that are emerging that have fast-growing cancer drugs on the market thatare independent. Andas a result, you have companiesout there likePfizerand these other guys thatwant to buy these companies, and that's bidding them up topretty high valuations. This stock, for example, now has a $6.5 billion market cap, which ispretty big for a company that did,including milestone payments and everything else, less than $300 million in sales last year.

Harjes:Exactly.

Kristine Harjes has no position in any stocks mentioned. Todd Campbell owns shares of Pfizer. The Motley Fool owns shares of and recommends Exelixis. The Motley Fool has a disclosure policy.