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

Exelixis (NASDAQ: EXEL) has crushed the broader market this year, with its shares climbing 49%. However, the drugmaker recently hit a roadblock. The U.S. Food and Drug Administration (FDA) decided to extend the review period for Exelixis' zanzalintinib, an investigational medicine for colorectal cancer. The health regulatory agency requested more data before it can decide whether to approve the drug. A decision is now expected by March 3, 2027, pushed back from the original deadline of Dec. 3, 2026. That's not great news for Exelixis, but despite this setback, the company's prospects look attractive. Here are three reasons why.

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1. Winning the Cabometyx patent battle

Exelixis' most important driver of revenue and earnings growth is Cabometyx, a medicine approved for various cancers, including liver and kidney cancers. Cabometyx is a tyrosine kinase inhibitor -- tyrosine kinase is a protein that plays a role in cell growth and division, a mechanism that is sometimes hijacked by cancer cells to promote rapid growth. Cabometyx has been one of the top-prescribed medicines of its kind in renal cell carcinoma (RCC, the most common form of kidney cancer) for years.

It has also continued to grind out new indications, including as a combination therapy. Exelixis' financial results have been strong thanks to this drug. In the second quarter, the company's revenue increased by 10.6% year over year to $628.7 million. Exelixis' earnings per share grew by about 26% year over year to $0.82.

Exelixis has done its best to delay the entry of cheaper Cabometyx generics in the U.S., and so far, it has been successful. Thanks to a patent lawsuit it won, it should not face generic competition in the U.S. at least until January 2030, perhaps even later if the company wins another patent case that starts in November. That should give Exelixis enough time to develop newer medicines to replace its crown jewel.

2. Zanzalintinib could be a pipeline-in-a-drug

The most promising drug Exelixis is developing is zanzalintinib, and that's despite the recent regulatory setback. Consider the medicine's potential in colorectal cancer. It is the second leading cause of cancer death worldwide, which implies that there is a large opportunity in the market, particularly for the indication Exelixis is targeting: once it has metastasized. Further, Exelixis won't stop at this indication.

The biotech company will seek to follow the same blueprint it used for Cabometyx. Exelixis is testing zanzalintinib across several other forms of cancer. The list includes RCC, some kinds of lung cancer, and more. Of course, zanzalintinib won't earn every indication it targets. Cabometyx didn't either. But even a handful or so could make the medicine a massive commercial success and help usher in the next phase of growth for Exelixis.

Some analysts have estimated that zanzalintinib could generate $4.5 billion in U.S. sales by 2033 across various indications. Note that last year, the company made $2.3 billion in revenue, mostly from Cabometyx. Provided the sales estimates for zanzalintinib are accurate, this drug could eventually more than offset the loss of Cabometyx.

3. Exelixis' deep pipeline

Even if zanzalintinib alone isn't enough to replace Cabometyx once the latter starts facing generic competition, Exelixis has a plan. The company boasts several other pipeline candidates that could eventually contribute. Although these are mostly still in early stage studies, they could make significant progress over the next five years. Most early stage candidates never make it to the market, but there is a decent chance that at least a couple of Exelixis' brand-new therapies will.

And even if none does, the company has research collaborations in place that could supply additional, oncology-focused drug candidates to its pipeline. Exelixis' ability to carve out a niche in the ruthlessly competitive oncology market, which is typically dominated by pharmaceutical giants, is fairly impressive. And over the medium term, the company could, once again, launch one or two brand-new cancer drugs that will help it sustain strong financial results and deliver competitive stock market returns.

Prosper Junior Bakiny has positions in Exelixis. The Motley Fool has positions in and recommends Exelixis. The Motley Fool has a disclosure policy.