Forget the FDA Delay: 3 Reasons Exelixis Is Still a Buy

Exelixis (EXEL -1.19%) has experienced a remarkable performance this year, with its shares soaring 49%. However, the company recently faced a hurdle when the U.S. Food and Drug Administration (FDA) extended the review period for Exelixis' investigational medicine, zanzalintinib, for colorectal cancer. The FDA has now scheduled a decision by March 3, 2027, after initially planning to make a determination by December 3, 2026.

While this delay may seem unfavorable, Exelixis' prospects remain promising for several reasons. First, the company's flagship product, Cabometyx, continues to drive substantial revenue and earnings growth. Cabometyx, a tyrosine kinase inhibitor, has become a top-prescribed medicine for various cancers, including liver and kidney cancers, and has expanded its indications, such as a combination therapy.

Furthermore, Exelixis has successfully delayed the entry of cheaper generic versions of Cabometyx in the U.S. through a patent lawsuit, which may allow the company to retain its monopoly until January 2030, potentially even later if the company wins another patent case. This provides ample time for Exelixis to develop newer medicines to replace Cabometyx.

Another significant factor is Exelixis' promising drug candidate, zanzalintinib, despite the recent regulatory setback. Colorectal cancer, the second leading cause of cancer death globally, presents a vast market opportunity, particularly for advanced stages where Exelixis is focusing. Moreover, Exelixis plans to explore zanzalintinib's potential across various other forms of cancer, such as renal cell carcinoma, lung cancer, and more.

Analysts estimate that zanzalintinib could generate $4.5 billion in U.S. sales by 2033, which, when combined with the company's existing revenue ($2.3 billion from Cabometyx in 2022), could potentially offset the impact of Cabometyx's generic competition. Additionally, Exelixis is actively developing several other pipeline candidates that could contribute to its financial success in the coming years.

Although many of these early-stage drugs are unlikely to reach the market, there is a reasonable chance that at least a couple will succeed. Exelixis' ability to carve out a niche in the highly competitive oncology market, typically dominated by pharmaceutical giants, is particularly noteworthy. As the company continues to develop new cancer drugs and generate strong financial results, it is likely to maintain its competitive edge and deliver attractive stock market returns in the medium term.