RBC thinks Cabometyx creates a $1 billion opportunity for EXEL
The U.S. Food and Drug Administration (FDA) yesterday expanded the use of Exelixis, Inc.'s (NASDAQ:EXEL) drug, Cabometyx, to treat those with advanced kidney cancer. The decision comes well ahead of the FDA's mid-February action date, and earned EXEL stock a price-target hike to $38 from $35 at SunTrust Robinson. RBC, meanwhile, projected a $1 billion market opportunity for the biotech.
In reaction, EXEL shares are trading up 4.5% ahead of the bell. The stock's had a standout year, up 78.9% so far in 2017 based on last night's close at $26.68. The security's momentum has stalled since a mid-October bull gap -- sparked by positive Cabometyx data -- but has found a firm foothold atop its 140-day moving average, which contained a late-September retreat, as well.
A capitulation from short sellers could certainly keep this rally going. As of the Dec. 1 reporting period, 18.59 million EXEL shares were sold short -- representing more than nine days' worth of pent-up buying demand, at the stock's average pace of trading.
And while relatively few options traders have targeted the drug stock -- total open interest of 109,856 contracts ranks in the 27th annual percentile -- it's an attractive time to buy premium on Exelixis. While EXEL's Schaeffer's Volatility Index (SVI) of 45% ranks in the 4th percentile of its annual range, the equity's 30-day at-the-money implied volatility of 45.3% ranks below 95% of comparable readings taken in the past year. These two volatility indicators suggest low expectations are being priced into short-term contracts.