Zanzalintinib Pivotal Trials Will Unveil New Cancer Treatment Options

Key Takeaways

• Anticipated cabozantinib approval for NET indications is expected to expand CABOMETYX's market significantly, driving revenue growth.
  
• Business development focusing on late-stage GU/GI assets could enhance portfolio and drive growth through strategic acquisitions or partnerships.
  
• Heavy reliance on cabozantinib and rising expenses could challenge profitability, while regulatory and competitive pressures threaten revenue and market expansion.

Catalysts

An oncology company, focuses on the discovery, development, and commercialization of new medicines for difficult-to-treat cancers in the United States.

• The anticipated approval and launch of cabozantinib for neuroendocrine tumor (NET) indications, with a PDUFA date set for April 2025, is expected to drive significant revenue growth by expanding the market for CABOMETYX.
  
• The development and potential commercialization of zanza as a new oncology franchise, with pivotal trials in colorectal cancer, non-clear cell kidney cancer, and head and neck cancer expected to read out in 2025, offer future revenue growth opportunities.
  
• Exelixis is accelerating its Phase I development pipeline with novel molecules like XL309, which could enhance treatment options for PARP inhibitor-resistant tumors, promising future revenue streams.
  
• The company is actively engaging in business development activities focusing on late-stage assets in the GU/GI space, which could enhance their portfolio and drive future earnings growth through strategic acquisitions or partnerships.
  
• Exelixis's substantial cash position and free cash flows support sustained investment in developmental priorities and ongoing share repurchase programs, potentially boosting earnings per share over time.

Exelixis Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Exelixis's revenue will grow by 9.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 24.0% today to 32.7% in 3 years time.
• Analysts expect earnings to reach $921.7 million (and earnings per share of $3.19) by about March 2028, up from $521.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.4 billion in earnings, and the most bearish expecting $530 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.0x on those 2028 earnings, down from 19.5x today. This future PE is lower than the current PE for the US Biotechs industry at 19.6x.
• Analysts expect the number of shares outstanding to decline by 3.92% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.26%, as per the Simply Wall St company report.

Exelixis Future Earnings Per Share Growth

Risks

• Exelixis relies heavily on the success of its cabozantinib franchise, and any failure in expanding its indications, particularly in the NET space, could severely impact expected revenues. (Revenue impact)
  
• The anticipated increase in gross-to-net deductions due to higher co-pay assistance and Medicare Part D expenses could limit net margins, potentially affecting bottom-line profitability. (Net margins impact)
  
• High operational expenses, including manufacturing, clinical trial, and licensing costs, continue to rise, which could pressure profit margins and reduce net earnings if revenues do not grow as expected. (Earnings impact)
  
• The competition in oncology is intense, and Exelixis’s projections for cabozantinib and zanzalintinib may not materialize if competitors introduce more effective therapies, hindering market share growth. (Revenue impact)
  
• Dependence on successful regulatory approvals for pipeline products, including pending FDA sNDA reviews, presents risks that could delay or prevent market entry, impacting future revenue streams. (Revenue impact)

Valuation

• The analysts have a consensus price target of $37.062 for Exelixis based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $45.0, and the most bearish reporting a price target of just $23.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.8 billion, earnings will come to $921.7 million, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 6.3%.
• Given the current share price of $36.36, the analyst price target of $37.06 is 1.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.