Exelixis (EXEL) Q2 Earnings Preview: Stock Likely To Gain?

Exelixis, Inc. (NASDAQ:EXEL) is scheduled to report second-quarter 2016 results on Aug 3 after the market closes.

Exelixis has a disappointing track record over the last four quarters. The company surpassed expectations only once in the four trailing quarters and missed the same on the remaining three occasions, with an average negative earnings surprise of 2.28%. Let's see how things are shaping up for this announcement.

Factors Influencing this Quarter

Exelixis’ lead drug, Cometriq (cabozantinib), is approved for the treatment of progressive, metastatic medullary thyroid cancer (MTC).

The company received a significant boost in Apr 2016, when the FDA approved Cabometyx (cabozantinib) tablets for the treatment of patients with advanced renal cell carcinoma (RCC) who have received prior anti-angiogenic therapy. We note that the company was evaluating a tablet formulation of cabozantinib, distinct from the capsule form, for advanced RCC.

The European Medicines Agency (EMA) has accepted a Marketing Authorisation Application (MAA) for Cabometyx for review for the same indication. The Committee for Medicinal Products for Human Use (CHMP) has given a positive opinion on Cabometyx for the treatment of advanced RCC in adults. The company has a collaboration agreement with Ipsen for the development of cabozantinib indications outside the U.S., Canada and Japan.

The company has collaborated with the National Cancer Institute’s Cancer Therapy Evaluation Program (NCI-CTEP) and is evaluating cabozantinib in more than 45 ongoing or planned studies, including trials in advanced RCC, bladder cancer, colorectal cancer, non-small cell lung cancer and endometrial cancer.

Meanwhile, the CELESTIAL study for advanced hepatocellular carcinoma (HCC) is ongoing and top-line results are expected in 2017. Exelixis also initiated a phase Ib study (investigator-sponsored) on cabozantinib (in combination with Opdivo or Opdivo plus Yervoy) in patients suffering from genitourinary tumors, including bladder cancer and RCC. Data from the study are anticipated in 2016. The company also expects to report data from a phase II study on cabozantinib, in comparison to sunitinib, for the first-line treatment of intermediate or poor-risk RCC patients and a phase II study evaluating cabozantinib as single agent in recurrent endometrial cancer in 2016.

Another product in Exelixis’ portfolio is Cotellic (cobimetinib) which gained approval in the U.S. in Nov 2015, in combination with Roche Holding’s (OTC:RHHBY) Zelboraf, for the treatment of advanced melanoma. Consequently, the company is partnering Roche to co-promote the drug in the U.S.

As a result of these activities, the company expects operating expenses of $240 million to $270 million.

What Our Model Indicates

Our proven model shows that Exelixis is likely to beat estimates this quarter because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates, and Exelixis has the right mix.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +3.70%. This is because the Most Accurate estimate currently stands at a loss of 26 cents, while the Zacks Consensus Estimate stands at a loss of 27 cents.

Zacks Rank: Exelixis currently carries a Zacks Rank #3, which when combined with its positive ESP, makes us reasonably confident of a positive surprise this quarter.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

EXELIXIS INC Price and Consensus

EXELIXIS INC Price and Consensus | EXELIXIS INC Quote

Stocks That Warrant a Look

Here are a couple of other companies you may want to consider, as our model shows that they also have the right combination of elements to post an earnings beat this quarter:

Ironwood Pharmaceuticals (NASDAQ:IRWD) has an Earnings ESP of +13.33% and a Zacks Rank #2. The company is expected to report earnings on Aug 4.

Impax Laboratories (NASDAQ:IPXL) has an Earnings ESP of +3.03% and a Zacks Rank #2. The company is scheduled to report results on Aug 9.