Small-cap star Exelixis (EXEL) posted a modest gain of just over 4 percent on Feb 26 with heavy volume trading. While the gain was not large, it’s worth noting because it comes on the heels of an earnings report that featured wider losses and lower revenues than the same quarter a year earlier.
Stock Gains Despite Wider Losses
Exelixis released its Q4 2013 earnings report after market close on Fed. 20, and it showed reasons for concern. The company reported a loss of $0.38 per share, largely in line with a Zacks consensus estimate but a 35.7 percent year-over-year increase from Q4 2012. What’s more, Q4 revenue was off 44.9 percent year-over-year to $4.3 million and missed Zacks consensus estimates of $6 million.
For the full year, Exelixis lost $1.33 a share, wider than the Zacks estimate of $1.32 and a 44.6 percent year-over-year increase from 2012’s loss of $0.92 per share.
However, despite this, the stock remains strong. Friday morning saw a big dip that took shares as low as $6.39 a share after closing at $7.16 apiece the day before. However, the steep sell-off was followed by an equally sharp rise, and the stock ended the day at just over $7 a share for a loss of just 2 percent. Now, with today’s gains, the stock’s up 2 percent since its price just prior to the earnings report.
Exelixis Spending Bigger on Promising Pipeline
The bigger story is that Exelixis increased expenses in 2013 for what are probably the right reasons. Exelixis’ earnings report showed a year-over-year increase in R&D spending of 52.6 percent to $49.6 million. The company currently has nine partnered compounds with major pharmaceutical companies like GlaxoSmithKline (GSK) and Bristol-Myers Squibb (BMY) in various stages of development and oncology drug GDC-0973 (XL518) in development with Roche’s (RHHBY) Gennetech, currently in its phase-1b trial.
A look at the small-cap stars methodology shows that health care companies tend not to play by the same rules when it comes to their balance sheets, favoring invested capital and intangible assets over hard earnings. Investors are more than willing to invest in companies with years of losses under their belt (and years more potentially ahead) as long as those companies have a solid product pipeline to fall back on.
And the nearly 65 percent gain for Exelixis over the last year would seem to indicate that the markets have a lot of confidence in their product pipeline.