Deals Boost Exelixis' Prospects

This was followed by the deal this Wednesday with Genentech on the co-development of XL-518. The company recently filed an IND for this project to enter clinical development in early '07 for several anti-tumor indications. Genentech agreed to an upfront $40 million milestone payment and will cover all development costs from phase II onward. Exelixis will remain responsible for initial phase I development expenses.

Financing in Place

The stock is also on the rebound from an 11.5 million secondary share offering in October, which added about $91 million to the company's coffers. Totaling the company's $154 million in cash at September quarter-end, the $91 million equity financing and a combined $100 million in from the recent Bristol and Genentech deals, Exelixis now has about $345 million available for research funding. Although this will still not carry the firm through to profitability, this cash reserve, plus development contributions from partners, helps solidify continued pipeline development capabilities.

Expect Continued Momentum

I expect investor interest to remain keen in EXEL shares with several additional pipeline catalysts during the course of this year. Glaxo is expected to make its final selection of one or two product candidates for further development around midyear, which should add confidence in the firm's pipeline value. Phase II data is also expected to be revealed on XL647 in non-small-cell lung cancer, XL880 in renal-cell carcinoma and XL 784 in diabetic kidney disease during the course of the year.

In addition, the company is expected to file four additional pipeline projects for clinical development -- XL418, XL147, Xl765 and XL019 -- during '07. Although the potential exists for further development setbacks along the way, I expect increased visibility on several of these new-product fronts to outweigh the risks and support the near-term performance of EXEL shares.

The stock experienced a volatile second half of '06, with the shares vacillating between $7.50 and $10.50. I expect the newfound momentum to continue during the first half of '07, with potential new-product selections, clinical-data releases and medical meetings serving as catalysts near-term. I expect an increased level of investor interest and improving market sentiment to bring the shares back toward the early '06 highs near the $12 level.

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At the time of publication, Michael Latwis held no positions in the stocks mentioned, although positions may change at any time.

Michael Latwis has directed health care content at TheStreet.com Professional Products. He also has worked at Barclays Wealth management division and was previously associated with Lazard Freres and Fiduciary Trust. Latwis covered companies in the pharmaceutical and specialty pharmaceutical sectors as well as biotech, medical technology, healthcare services, retail and media stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Latwis appreciates your feedback; click here to send him an email.