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Exelixis (EXEL): What's Ahead for the Stock in Q1 Earnings?

Exelixis, Inc. EXEL is scheduled to report first-quarter 2016 results on May 4 after the market closes.

Exelixis has a mixed track record so far. The company surpassed expectations in two of the last four quarters with an average positive earnings surprise of 5.16%. 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.

Meanwhile, the European Medicines Agency (EMA) has accepted for review a Marketing Authorisation Application (MAA) for Cabometyx for the same indication.

Meanwhile, Exelixis entered into an exclusive licensing agreement with Ipsen for the commercialization and further development of Cabometyx. Per the terms, Ipsen will enjoy exclusive commercialization rights for current and potential future indications of the drug outside the U.S., Canada and Japan. Exelixis, on the other hand, will retain rights to commercialize the drug in the U.S. and Canada, and is entitled to milestone payments of $260 million in 2016.

The company is in the process of building incremental infrastructure necessary for a potential launch of the Cabometyx in the U.S.

Another product in Exelixis’ portfolio is Cotellic (cobimetinib), which gained approval, in combination with Roche Holding’s RHHBY Zelboraf, in the U.S. in Nov 2015 for the treatment of advanced melanoma.

Consequently, the company plans to support Roche for the launch of the drug in the U.S.

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

What Our Model Indicates

Our proven model does not conclusively show that Exelixis is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -8.00%. This is because both the Most Accurate estimate currently stands at 27 cents while the Zacks Consensus Estimate stands at a loss of 25 cents.

Zacks Rank: Though the company’s Zacks Rank #3 increases the predictive power of ESP, its negative ESP makes surprise prediction difficult.

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.

Stocks That Warrant a Look

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

Jazz Pharmaceuticals plc JAZZ has an Earnings ESP of +4.58% and a Zacks Rank #3. The company is expected to release first-quarter results on May 10.

Impax Laboratories Inc. IPXL has an Earnings ESP of +8.89% and a Zacks Rank #3. The company is expected to release first-quarter results on May 10.

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EXELIXIS INC (EXEL): Free Stock Analysis Report
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IMPAX LABORATRS (IPXL): Free Stock Analysis Report
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