Morningstar | Lowering Our FVE for No-Moat Exelixis to $24 Per Share After Fresh Look at Cabozantinib Franchise
After taking a fresh look at Exelixis, we are revising our fair value estimate downward to $24 per share after adjusting our patient share expectations, modeling in cabozantinib generic entry, and increasing near-term operating expenses. We're reiterating our no-moat rating for the biotech. Even though we expect robust returns from the cabozantinib franchise, we believe the company's heavy reliance on one molecule precludes an economic moat. Further, cabozantinib competes in crowded oncology indications, making the case for a moat more difficult with so many therapies vying for first-line share. With that said, cabo has shown impressive efficacy and has solid footing in second-line share.The strongest U.S. patent, on cabo's composition of matter, expires in 2026, while the European and Japanese equivalents extend to 2029. Exelixis also has secondary U.S. patents covering formulation and method of treatment that extend to 2030 and beyond. It is possible that the secondary patents are upheld in court, extending Exelixis' profits, but given the high uncertainty associated with that outcome, we believe it is appropriate to incorporate generic entry in 2027 in our base case.
The slight increase in near-term operating expenses stems from the company's recent announcement of its intent to sponsor a phase 3 study of cabozantinib in combination with Bristol's Opdivo and Yervoy in kidney cancer. This is in addition to an ongoing Bristol-sponsored and Exelixis co-funded phase 3 trial, Checkmate 9ER, which tests cabozantinib and Opdivo in kidney cancer. Checkmate 9ER was delayed after some additional enrollment requirements, but we now expect results from the trial early next year. The company is also sponsoring an early trial of cabozantinib in combination with Roche's Tecentriq in multiple tumor types, as well as a phase 3 trial of cabo in combination with Tecentriq in first-line liver cancer, which was initiated in December 2018.
Exelixis is an oncology-focused biotechnology company that involved in the discovery, development and commercialization of new medicines for cancers. The company's marketd products are: CABOMETYX? (cabozantinib) tablets for renal cell carcinoma and previously treated hepatocellular carcinoma; and COMETRIQ? (cabozantinib) capsules for progressive, metastatic medullary thyroid cancer. The company's products resulting from its discovery efforts are: COTELLIC? (cobimetinib), an inhibitor of MEK approved as part of a combination regimen to treat melanoma; and MINNEBRO? (esaxerenone), an oral, non-steroidal, selective blocker of the mineralocorticoid receptor approved for the treatment of hypertension in Japan.
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