Patent Expirations And Pricing Pressures Will Constrain Viability

Key Takeaways

• Heavy reliance on a single product exposes Exelixis to risks from patent loss, generics, pricing pressures, and regulatory changes, threatening long-term revenue and profitability.
  
• Challenges in diversifying the pipeline and a shift toward advanced oncology therapies could erode market share, with innovation efforts unlikely to offset structural industry changes.
  
• Expanding drug approvals, robust product demand, pipeline diversification, and disciplined capital allocation position the company for sustained growth and lower business risk.

Catalysts

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

• Exelixis remains highly dependent on the cabozantinib (CABOMETYX/COMETRIQ) franchise, and as a single-product-dominated company, it faces a pronounced risk from patent expiration, future generic erosion, and rapid market share loss as biosimilars and generics gain traction, which would severely pressure both revenue and net margins over the long term.
  
• Rising healthcare cost pressures and increasing payer pushback on oncology drug pricing in developed markets threaten both Exelixis’ ability to drive price increases and its capacity to maintain premium pricing on CABOMETYX, highly constraining topline revenue growth and compressing net margins for the foreseeable future.
  
• Intensifying political scrutiny and the possibility of future regulatory action in the U.S. to cap or mandate discounts on drug pricing may materially reduce Exelixis' revenue base and undercut earnings, especially as more of its sales volume comes from publicly reimbursed patients—currently split evenly between Medicare and commercial payers.
  
• The company’s longer-term pipeline carries significant clinical and regulatory execution risk; any late-stage clinical failures, pipeline attrition like the discontinuation of XL495 due to unfavorable toxicity, or regulatory delays could undermine pipeline diversification efforts and stall anticipated new revenue streams, worsening earnings volatility and investor returns.
  
• As technological advances focus the oncology industry toward cell and gene therapies or next-generation modalities, small-molecule therapies like those in Exelixis’ portfolio could face obsolescence and declining relevance, triggering a structural decline in market share and ongoing margin pressure that is unlikely to be compensated for by currently planned R&D investments.

Exelixis Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Exelixis compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Exelixis's revenue will grow by 3.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 28.0% today to 25.8% in 3 years time.
• The bearish analysts expect earnings to reach $661.5 million (and earnings per share of $2.31) by about July 2028, up from $643.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 15.6x on those 2028 earnings, down from 19.0x today. This future PE is lower than the current PE for the US Biotechs industry at 17.0x.
• Analysts expect the number of shares outstanding to decline by 4.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

Exelixis Future Earnings Per Share Growth

Risks

• The strong approval momentum and expanded label for CABOMETYX in neuroendocrine tumors, along with rapid commercial execution and enthusiastic prescriber adoption, point to accelerating revenue growth and enhanced market share, which could buoy long-term sales and profitability.
  
• The ongoing robust performance of the cabozantinib franchise—demonstrated by 36% year-over-year US net product revenue growth and unique gains in both total and new prescription share—indicates resilient demand and product leadership, increasing the likelihood of sustained earnings strength.
  
• Exelixis’ advancing pipeline, with zanzalitinib and multiple additional INDs expected in 2025, provides meaningful opportunities for long-term diversification beyond the current flagship drug, reducing concentration risk and paving the way for new revenue streams that can stabilize or boost future earnings.
  
• The growing global oncology market, aided by secular trends like the aging population, increased cancer incidence, and ongoing investment in personalized medicine, creates a broader addressable market for Exelixis' expanding portfolio, potentially supporting above-market revenue growth and solid net margins.
  
• The company has demonstrated strong capital discipline and shareholder-return focus, with significant ongoing share repurchases and a substantial cash position of $1.65 billion, signalling both management confidence and capacity to invest in R&D and business development without compromising on profitability or return on equity.

Valuation

• The assumed bearish price target for Exelixis is $36.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Exelixis's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $60.0, and the most bearish reporting a price target of just $36.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.6 billion, earnings will come to $661.5 million, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 6.4%.
• Given the current share price of $44.81, the bearish analyst price target of $36.0 is 24.5% lower.
• 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.