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Morgan Stanley Drops Bearish Exelixis Stance, Sees 'Limited Downside Risk'

Morgan Stanley Drops Bearish Exelixis Stance, Sees 'Limited Downside Risk'

Morgan Stanley has dropped its bearish stance on Exelixis, Inc. (NASDAQ: EXEL), although the research firm hasn't gained enough confidence to recommend buying the drugmaker's stock. 

The Analyst

Analyst Jeffrey Hung upgraded Exelixis from Underweight to Equal-weight and increased the price target from $20 to $28.

The Thesis

Merck & Co., Inc. (NYSE: MRK)'s Keytruda in combination with Pfizer Inc.(NYSE: PFE)'s Inlyta was recently found to be effective in treating first-line renal cell carcinoma, or RCC.

Exelixis shares likely have limited downside risk in the near-term, Hung said in a Monday note. 

The analyst said he miscalculated the magnitude of adoption of Exelixis' cabozantinib in second-line patients following first-line treatment with Bristol-Myers Squibb Co (NYSE: BMY)'s Opdivo and Yervoy.

While noting that IQVIA scripts have remained strong for the most part of the first quarter, Hung said he expects them to remain strong given the 90-percent capture rate of first-line Opdivo/Yervoy progressors.

Even if there is a slight inventory drawdown, given the build for two successive quarters, the analyst said he expects the increased patient demand and 5-percent price increase in mid-January to provide a shot in the arm for cabozantinib sales.

The good Keytruda/Inlyta data released at the ASCO-GU meeting does not preclude caboxantinib/Opdivo from having a place in first-line RCC, Hung said.

"As a result, we believe there is limited downside risk ahead of the cabo/nivo data from CheckMate (CM) 9ER later this year." 

Morgan Stanley adjusted its RCC model, assuming 18-percent peak U.S. market share in first-line and 40-percent in second-line, which suggests peak sales of $1.6 billion.

The firm also updated its EPS estimates, as Exelixis will begin reporting non-GAAP EPS in the first quarter.

Positive expectations for cabozantinib in second-line RCC are already priced into shares, in Morgan Stanley's view. 

The Price Action

Exelixis shares were trading up slightly at $24.54 at the time of publication Monday. 

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Latest Ratings for EXEL

Aug 2019MaintainsHold
Mar 2019UpgradesUnderweightEqual-Weight
Feb 2019Initiates Coverage OnMarket Perform

View More Analyst Ratings for EXEL
View the Latest Analyst Ratings

Posted-In: Jeffrey Hung Morgan StanleyAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga


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