Hook / Thesis
Exelixis is a cash-generating oncology company that still carries upside from regulatory optionality. The shares (last trade ~ $42.66) look like a favorable event trade ahead of a possible FDA approval tied to Cabometyx label expansion. If the approval arrives, the market can meaningfully re-rate the stock: Exelixis has posted a recent quarterly net income of $193.6 million and operating cash flow of $290.3 million, signaling the company is not pre-revenue or cash-strapped the way many biotech stories are. That changes how investors should size this binary trade.
In short: I prefer a tactical long into the event with a clear stop-loss and two profit targets. This is a high-risk, high-reward setup because the outcome is binary - approval could drive outsized upside; a rejection or negative advisory committee outcome would prompt a quick re-pricing lower.
What the company does and why the market should care
Exelixis is a commercial-stage oncology company best known for cabozantinib marketed as Cabometyx (renal and liver cancers) and Cometriq (medullary thyroid cancer). The company has a track record of moving molecules from clinic to commercial markets with partners (Roche, Ipsen historically) and continues to pursue label expansions and new indications that can broaden Cabometyx's use.
Why this matters to investors now: Cabometyx already has commercial traction in established oncology indications, and regulatory wins outside the U.S. demonstrate a playbook other markets are validating. The dataset includes a 07/24/2025 press item noting EU approval of Cabometyx in advanced neuroendocrine tumors. That same regulatory momentum, if mirrored in the U.S., would enlarge the addressable market materially and justify a valuation re-rate.
Recent financials that support a constructive thesis
Use the recent quarter as the base case: the fiscal quarter ending 10/03/2025 (reported 11/04/2025) shows:
- Revenues: $597.8 million (quarter)
- Gross profit: $579.2 million
- Operating income: $236.5 million
- Net income: $193.6 million
- Diluted EPS: $0.69
- Operating cash flow: $290.3 million
- Equity on balance sheet: $2.1607 billion; total assets: $2.8235 billion
Those are solid numbers for a company still pursuing label expansion: positive operating income and nearly $300 million of cash flow from operations in the quarter reduce the downside from ordinary liquidity concerns and give management flexibility to support commercial launches, manufacturing scale-up, or additional trials as needed.
Valuation framing (approximate): using the latest diluted EPS of $0.69 for the quarter, an annualized EPS runs near $2.76 (0.69 x 4). With the stock trading ~ $42.66, that implies an approximate P/E around 15.5x on an annualized basis. That is reasonable for a specialized oncology commercial company with near-term regulatory upside; it also leaves room for multiple expansion if the approval arrives and revenue ramps in a new indication.
Note: I am using quarter-reported EPS to illustrate the market's starting point; event-driven re-rating can change multiple assumptions quickly.
Catalysts
- Possible FDA approval for a Cabometyx label expansion - the trigger for this trade. The company has regulatory momentum in other regions (EU approval 07/24/2025) that supports the plausibility of a U.S. approval.
- Commercial rollout / launch metrics: early uptake and reimbursement decisions in the newly approved indication would validate revenue upside and help justify a higher multiple.
- New clinical readouts or positive data releases supporting combination uses of cabozantinib - these would broaden prescribing and could increase peak sales assumptions.
- Analyst/consensus upgrades following approval or a positive advisory committee decision - often translates into near-term share appreciation.
Trade mechanics - how I’d put the trade on
Trade idea (event-driven long):
- Entry: $41.00 - $44.00 (prefer to scale in 1/2 position at the low end and the rest nearer $44 if the stock shows consolidation).
- Initial stop: $37.75 (about 10% below a $42.00 reference; tight enough on a binary trade to limit damage if the approval is denied).
- Target 1 (near-term): $53.00 - take 50% off the position. This represents roughly +25% from a $42.50 base and is realistic if the FDA outcome is positive and initial commercial channels respond.
- Target 2 (stretch): $62.00 - take remainder. This is a +45% move and corresponds to a re-rating and early sales ramp; leave a trailing stop on the residual to capture more upside if momentum continues.
- Position sizing: treat as a smaller-sized, high-conviction trade relative to portfolio given binary risk - target max portfolio allocation 1-3% of capital for typical retail accounts.
Why this trade makes sense
Two practical observations support a tactical long: (1) Exelixis is profitable on a GAAP basis in the most recent quarter; net income was $193.6 million and operating cash flow $290.3 million, which is an atypically strong position for a biotech exposed to regulatory binary risks. That reduces the tail risk from liquidity and financing dilution. (2) The company has demonstrated regulatory sell-through in other markets (EU approval 07/24/2025 for Cabometyx in neuroendocrine tumors) and markets with similar dynamics often telegraph U.S. outcomes. Market participants price in optionality; a favorable FDA action tends to compress uncertainty and expand multiples quickly.
Risks and counterarguments
Be explicit: this is a high-risk trade. Key risks include:
- Binary regulatory outcome - approval is not guaranteed. A negative FDA decision or even a mixed advisory committee recommendation can send shares sharply lower.
- Litigation / legal risk - the company was referenced in an investor alert about a law firm investigation (08/09/2025). Any escalation in litigation could depress the stock irrespective of FDA news.
- Commercial execution risk - even with approval, uptake depends on payer coverage, physician adoption, and competitive dynamics in oncology. Competitor launches or better-combined regimens can limit penetration.
- Clinical/regulatory setbacks elsewhere - negative data in related trials or safety signals can spill over to sentiment and valuation.
- Macro / market risk - biotech and broader equity selloffs around the event can pressure shares despite a favorable outcome.
Counterargument to my thesis: one could reasonably argue that a single-label approval may not be a material earnings inflection if the new indication is small or faces intense payer resistance. In that scenario the approval could be priced in already, and the share move after the decision would be muted. My trade size and stops are designed to respect that possibility.
What would change my mind
- I would abandon the long thesis if management discloses material safety issues with cabozantinib or if regulatory filings reveal previously unknown manufacturing or safety concerns.
- If operating cash flow materially reverses or the company announces a dilutive financing unexpected by the market, the risk profile changes and I would trim exposure.
- I would also flip bearish if the FDA issues an outright rejection or an advisory panel comes back negative - that outcome would likely invalidate the upside scenario in the near term.
Bottom line
Exelixis combines the upside of regulatory optionality with the crash-absorbing benefit of profitable recent operations and strong operating cash flow. That makes it an attractive candidate for a disciplined event-driven long: defined entry between $41-$44, a hard stop near $37.75, and staged profit-taking at $53 and $62. Treat this as a high-risk trade and size accordingly. The key driver is a possible FDA approval for a Cabometyx label expansion - if that materializes, the stock should move materially higher; if not, respect the stop and conserve capital.
Disclosure: This is a trade idea for situational, educational purposes and not personalized investment advice. Do your own due diligence.