BMO - EXEL: Initiating at OP: We Like Risk/Reward Despite Cabo Overhang (Outperform PT 28) | EXEL Message Board Posts


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Msg  28959 of 29067  at  6/23/2022 4:10:53 PM  by

JBWIN


BMO - EXEL: Initiating at OP: We Like Risk/Reward Despite Cabo Overhang (Outperform PT 28)

 Bottom Line:
 
We are initiating coverage of Exelixis with an Outperform rating and $28 target price. The main value driver for EXEL is cabozantinib (cabo), an oral pan-tyrosine kinase inhibitor (TKi), which is in an ongoing litigation with generic manufacturers. While there’s a risk a cabo generic could enter the market as early as 2026, we think EXEL is trading below this scenario and given our experience with these generic litigations, a settlement or outright win are as likely and represent upside to current levels. 
 
Key Points:
 

Cabo has significant growth potential in the near term. We believe cabo is well-positioned in RCC, a view supported by physician experts we spoke with familiar with the space. The recent approval of cabo in combination with nivolumab (anti PD-1) in first-line RCC has reaccelerated revenue growth; we forecast cabo RCC U.S. sales of $1.3B in 2022 and $1.6B in 2023. We're above consensus in the medium to long-term with 2024-2025 estimates 9-16% above the Street.

Ongoing cabo litigation is a risk, but stock appears to be trading below worst case. The biggest threat to EXEL’s outlook, in our view, is the ongoing litigation trial with MSN Pharmaceuticals and the potential for generic cabo once the composition of matter patent expires in 2026. Litigation trials have been historically challenging to call, and we believe the risk of an outright win, a loss, or settlement are the same. We spoke with a highly regarded generic litigation expert and while there’s a risk of a cabo generic by 2026, these patent litigation cases are complex and EXEL is trading below this scenario. Given our experience with these generic litigations, a settlement or outright win are likely as an outright loss. In our base case scenario (a settlement), we value EXEL shares at $28/share and cabo at $20/share.

Pipeline beyond cabo is unproven and could be a source of upside. EXEL has several early pipeline programs including XL-092, a next-generation TKI that is potentially differentiated from cabo and in active clinical development and XB002, an anti-tissue factor ADC currently in Phase 1 development. We model risk-adjusted pipeline contribution of $578M in 2030 (~$1/share) and view proof of concept data from XL-092, which has the potential to replace cabo after 2026 patent loss as the biggest driver of pipeline upside near term.

 


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