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Stock Strategist

Is This the Year Exelixis Excels?

The lack of early success in its lead drug's cancer trial scares the market, but we see a buying opportunity.


 Exelixis (EXEL) announced this week that after a prespecified interim analysis for Cometriq's Phase III COMET-1 trial in prostate cancer patients, the independent data monitoring committee concluded the trial should continue to its final analysis. While the trial could have been stopped early at this interim analysis for success, we were not expecting this best-case scenario. Nevertheless, the stock sold off significantly on the news, probably because several other recent prostate cancer trials (Johnson & Johnson's Zytiga, Medivation's Xtandi and Bayer's Xofigo) were stopped early due to success.

We continue to believe that Cometriq has a 50% chance of success in the trial, and we are maintaining our $7.50 fair value estimate and no-moat rating for Exelixis. While the stock had been trading around our fair value estimate, we think the recent sell-off provides an opportunity to invest at a significant discount, with the key potential catalyst of the final COMET-1 results still expected later in 2014.

Stefan Quenneville, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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