Look up the term “volatility” and you’re likely to find several biotech stocks that have posted wild price swings over the past several weeks. Among them, Exelixis, Inc. (NASDAQ:EXEL) should be at the top of the list.
After a 14% fall Wednesday, EXEL stock took another beating Thursday, losing as much as 12% before closing the session down only 8%.
Still, if you’re keeping score at home, EXEL stock has plunged almost 24% since Monday. The reason for the punishment? Obviously, biotech stocks live and breathe based on clinical trials of potential revenue-generating blockbuster drugs. The success rate of these drug trials dictate whether regulators such as the Food and Drug Administration will endorse certain drugs as being ready for production and or say, “Over my dead body.”
EXEL Stock’s Drug in Question
In the case of Exelixis, the company was banking on its cancer CaboNivo treatment, which is meant to treat urothelial and other genital cancers.
The treatment, which it is currently in joint Phase I trial with Bristol-Myers Squibb Co (NYSE:BMY), might have to go back to the drawing board. On Wednesday Exelixis’ disclosed that the combination trial indicated issues with drug recipients, spooking investors into selling EXEL stock.
The early results showed that nine of the 24 patients required dose reductions due to adverse events. What does that mean for EXEL stock? Is this apparent panic selling an overreaction or do investors have a legitimate gripe?
On Thursday Leerink analysts called the selloff of EXEL stock “overdone.” The firm reiterated its “outperform” rating on Exelixis.
“It’s still premature to form conclusions on the company’s Cabometyx market opportunity or potential opportunities in renal cell carcinoma,” Leerink proclaimed.
Despite the Leerink’s endorsement, the drubbing EXEL stock has taken should surprise no one. Despite the declines in the past two days, EXEL stock is still up almost 60% in three months, while skyrocketing more than 200% in six months.
These gains have come purely on the assumption, or speculation, that it would have achieved a greater success rate in CaboNivo than what was reported. In other words, investors who jumped on EXEL stock with little to no information other than a hunch are now looking for the exits.
And given that the likes of Pfizer Inc. (NYSE:PFE) and Merck & Co., Inc. (NYSE:MRK), which are better capitalized with deeper R&D budgets are also working on a similar drug, Exelixis would have been a long shot to lead the market even if its trial was successful.
In terms of what to do with EXEL stock? We haven’t seen the bottom yet.
The company is not profitable and is expected to lose 62 cent per share in fiscal 2016. With 2017 estimates calling for 10-cent loss, the narrowing of 52 cents may now be too aggressive, given the failure rate.
Despite Leerink’s optimism, EXEL stock — by its recent decline — has only now reached its consensus price target. This means a re-evaluation of its growth outlook is imminent.
And I don’t see a scenario where the EXEL stock is not downgraded.
At the time of publication, Saintvilus did not hold any stock in the companies mentioned.