There is a loose relationship between price and quality on the stock market. Penny stocks are overwhelmingly regarded as high risk, while many larger-cap shares trade at high prices.
Still, it's possible to find solid businesses whose share prices aren't too high -- perhaps following a recent stock split or because the market is ignoring their potential, or for some other reason. In other words, there is no need to break the bank to invest in quality companies.
In that spirit, let's consider one exciting company whose share price is under $40: Exelixis(NASDAQ: EXEL).
A major win for Exelixis
Exelixis is an oncology-focused biotech. The company's most important product, Cabometyx, treats renal cell carcinoma (a form of kidney cancer) and hepatocellular carcinoma (liver cancer), among others.
Cabometyx generates the bulk of Exelixis' revenue. It has done so for a while. In the second quarter, Cabometyx's top line increased by 35.6% year over year to $637.2 million. U.S. revenue from Exelixis' cabozantinib (the generic name for Cabometyx) franchise totaled $437.6 million, or a little under 69% of the company's top line.
Exelixis might be a one-trick pony, but it's a good trick. The company has managed to carve out a niche for itself in what might be the most-competitive therapeutic area in the pharmaceutical industry, one typically dominated by the largest drugmakers in the world.
Cabometyx is a tyrosine kinase inhibitor (TKI), a type of therapy that can specifically target and kill cancer cells. It is the leading prescribed TKI in renal cell carcinoma (RCC). Still, it is risky for a company to rely so much on a single therapy.
Thankfully, Exelixis just eliminated a significant risk that had been hanging over its head. It won a lawsuit against MSN Laboratories, a privately owned pharmaceutical company. MSN was looking to launch a generic version of cabozantinib, something that would destroy Exelixis' financial results.
Thanks to this legal win, MSN can't launch its generic before at least early 2030 (pending appeals). It's no wonder Exelixis' shares jumped on the news.
What the future looks like
Cabometyx's revenue has increased over the years, partly because it has earned new indications. That should continue to happen. Exelixis is currently awaiting approval for Cabometyx as a therapy for previously treated pancreatic neuroendocrine tumors. It is running several more trials for the medicine, too.
Exelixis was putting up strong financial performances when it still faced the generic threat from MSN Laboratories. The company's prospects look much stronger now. Furthermore, Exelixis is developing other promising candidates. The company's approach is to target sub-areas with unmet needs within the vast field of oncology.
One of the company's late-stage candidates, zanzalintinib, is undergoing phase 3 studies in metastatic colorectal (colon or rectal) cancer. That is the second-leading cause of cancer death in the world, even though the five-year survival rates for colon and rectal cancer are very high, in the neighborhood of 90%, if they are caught early.
In other words, once the disease metastasizes, our current standards of care are woefully inadequate to treat patients. Zanzalintinib could address this issue. It is also being developed to target non-clear cell RCC and squamous cell carcinoma of the head and neck.
Exelixis has several other products in early-stage trials that should make meaningful progress in the next few years. The biotech is a proven innovator in oncology, owns a highly successful medicine whose sales should continue growing until the end of the decade, generates steady revenue and earnings, and has a pipeline with promising candidates.
These factors make Exelixis a no-brainer buy, and with shares trading for just under $30, it's an affordable investment.
Should you invest $1,000 in Exelixis right now?
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Prosper Junior Bakiny has positions in Exelixis. The Motley Fool has positions in and recommends Exelixis. The Motley Fool has a disclosure policy.
