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The Motley Fool: Consider investing in cancer-fighter Exelixis

The Charging Bull sculpture by Arturo Di Modica is seen Feb. 7 in New York’s Financial District. (Richard Drew / Associated Press)
The Charging Bull sculpture by Arturo Di Modica is seen Feb. 7 in New York’s Financial District. (Richard Drew / Associated Press)
The Motley Fool

If you can tolerate risk and volatility and you’d like to invest in a biotechnology company, consider cancer drug developer Exelixis (Nasdaq: EXEL). Following a two-year stretch in which Exelixis’ share price rose roughly nine-fold, shares have recently lost more than a third of their value, presenting an opportunity.

What’s going on? Well, the Food and Drug Administration (FDA) approved Bristol-Myers Squibb’s combination therapy of Opdivo and Yervoy for first-line renal cell carcinoma, which competes with Exelixis’ lead drug, Cabometyx. In addition, the combination of Roche’s Tecentriq and Exelixis’ Cotellic in a phase-3 trial for patients with advanced colorectal cancer failed. While these are disappointing outcomes for Exelixis, there’s more to consider.

For example, Cabometyx seems on track to possibly be approved to treat hepatocellular carcinoma following a successful phase-3 trial. With strong pricing power, peak sales for Cabometyx may top $1 billion a year by 2021. The company is bolstering its pipeline via licensing and acquisitions, too.

According to Wall Street’s consensus estimate for 2021, Exelixis is on pace to nearly triple the sales it generated in 2017 - yet it has recently been trading with a price-to-earnings (P/E) ratio only in the 20s. Biotech stocks can be volatile, and they rely on gaining FDA approvals. This one is worth considering. (The Motley Fool owns shares of and has recommended Exelixis.)

Ask the Fool

Q: How can I invest in Ben & Jerry’s? - S.S., Kenosha, Wisconsin

A: You can’t quite do so. Ben & Jerry’s was bought by Unilever in 2000 – and you can invest in Unilever, if you’re so inspired.

Many companies you know are actually subsidiaries of other companies. For example, Restaurant Brands International owns Burger King, Popeyes and Tim Hortons, while Clorox owns Burt’s Bees and Williams-Sonoma owns Pottery Barn and West Elm. Kellogg owns Kashi, Nike owns Converse and Gap owns Old Navy, Banana Republic and Athleta. Nestle owns Gerber and Purina, and Coca-Cola owns Honest Tea and Odwalla. TJX owns T.J. Maxx, Marshalls, HomeGoods and Sierra Trading Post, while Yum! Brands owns KFC, Pizza Hut and Taco Bell.

Q: What do the jobs of CEO and COO entail? - F.L., Norwalk, Connecticut

A: A company’s chief executive officer (CEO) will generally develop a company’s strategy and is responsible for seeing that it is carried out. He or she answers to the board of directors, who represent owners and shareholders. The chief operating officer (COO), often the same person as the company president, is responsible for executing the company’s strategy.

A CEO will typically serve as the company’s chief communicator, addressing media, employees, shareholders and customers – and will aim to meet all those constituents’ needs. He or she will make top-level decisions, will lead upper-management personnel, and will often work to get the public and investors interested in the company and confident about its future.

The COO manages day-to-day operations, dealing with customers and employees in sales, marketing, finance and more. The COO and the CEO work with the chief financial officer (CFO) to keep the company financially healthy.

My Dumbest Investment

I bought into a cannabis company based on a friend’s recommendation. It crashed and burned – with its share price so low that it was not worth selling. Some years later, I read that the company bought an entire town in California and was going to turn it into a “cannabis-friendly hospitality destination.”

I know that chances of this company ever making money are slim, but I am perennially hopeful. When I spot big opportunities like this, I like to look for support companies to invest in – such as, in this case, specialists in grow lights, fertilizer, etc. - Patricia, Scottsdale, Arizona

The Fool responds: Fortunes have been made when investors spot emerging trends and developments and invest in them early, so your instinct was good, as cannabis (marijuana) is being legalized for medical and/or recreational use in more states lately.

That said, fortunes can also be lost easily when betting on the wrong horses, and in the early years of any developing industry, it can be very hard or impossible to know which companies will prosper and which will fade away. The fact that this was a penny stock when you bought was an extra big red flag, as penny stocks (ones trading for less than about $5 per share) are notoriously volatile and risky. By the way, the company sold that town a few months ago, unable to pay for its big plans.

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