Onyx Attractive, but Issues Remain

Not pretty.

My worries came true. Exelixis turned out to be an expensive stock with an early-stage pipeline. The company has a voracious and never-ending appetite for cash. And that pile of promising cancer drugs in the portfolio, far from being a "cushion from failure," has actually been a hindrance to intelligent clinical development. Exelixis has too many drugs in the hopper, to the point that nothing is getting done quickly enough.

If there's good news to come from this, Exelixis at around $4 is a more compelling investment than it turned out to be at $10. That's small comfort for those who owned the stock higher, I realize.

Don't be fooled into thinking that there isn't downside risk to Exelixis even at this level. The company has to start making meaningful progress with the cancer drug pipeline or the stock will go lower.

A phase III trial -- the company's first -- was initiated in July for XL184. The problem is that the drug is being tested against a rare form of thyroid cancer which means a very small commercial opportunity. And the study is going to take two years to enroll fully.

Exelixis needs solid clinical data from its other drugs so that larger phase II and III studies can get started. Watch to see what the company announces at a European cancer conference later this month. Glaxo is also expected to make a partnering decision on XL184 later this month.

Last week, Exelixis announced plans to bring another new cancer drug into human testing. Stop! How about moving faster with the drugs in the pipeline already? That's what investors want to see.