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Better Buy: Exelixis, Inc. vs. Intra-Cellular Therapies Inc.

Keith Speights, The Motley Fool

Biotech investors are always looking for the next big thing. That's exactly what they found in Exelixis (NASDAQ: EXEL), which ranked as one of the top biotech stocks of 2016 (and 2015 also). But Exelixis isn't the little biotech ready to hit the big time anymore. Intra-Cellular Therapies (NASDAQ: ITCI) could be, though.

Intra-Cellular Therapies stock has taken investors on a roller coaster ride so far in 2017. Exelixis has continued its winning ways of prior years. Which stock is now the better buy? 

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Image source: Getty Images.

The case for Exelixis

Probably the strongest argument for buying Exelixis stock is that it claims one of the hottest cancer drugs in the biopharmaceutical industry with Cabometyx. The drug has already captured a nice chunk of market share in the second-line renal cell carcinoma (RCC) market. Now Exelixis is preparing for bigger and better things.

The FDA recently granted priority review for Cabometyx in the first-line RCC indication. Instead of having to wait 10 months for a decision, Exelixis will now find out by Feb. 15, 2018, if it can move ahead with selling the drug to a larger market. Although anything can happen with the regulatory process, the chances for approval appear to be good.

Exelixis could be looking at success in a different type of cancer, as well. The biotech announced earlier this week that Cabometyx met its primary endpoint of overall survival in a late-stage study evaluating the drug in treating advanced hepatocellular carcinoma (HCC). Exelixis expects to submit for approval in this additional indication in the first quarter of 2018.

Positive results in treating two tumor types could bode well for Cabometyx's prospects in treating other cancers. Also, the drug has quickly become a go-to target for combinations with other pharma companies' cancer drugs. Exelixis' MEK inhibitor Cotellic is also an in-demand drug for inclusion in combo therapies.

Climbing sales for Cabometyx helped Exelixis become profitable earlier this year. In addition, the company paid off its debt. Exelixis is now in solid position to make deals to add to its pipeline -- or potentially find itself an acquisition target.  

The case for Intra-Cellular Therapies

Intra-Cellular Therapies doesn't have an approved product yet, but its likelihood for changing that improved significantly in recent months. Investors breathed a sigh of relief in August when the company announced that the FDA determined that additional data provided by Intra-Cellular showed that toxicity for its lead candidate lumateperone found in animals wasn't relevant to humans.

The company followed up with more good news in September. Intra-Cellular reported positive results from an open-label safety switching study with lumateperone in patients with schizophrenia. The big news from this study was that lumateperone didn't have some of the side effects experienced with other antipsychotic medications. Based on the results, Piper Jaffray analyst Charles Duncan upgraded the stock to "overweight" and hiked his price target from $14 to $33.

Intra-Cellular Therapies stock is only up a little so far in 2017. However, that's primarily because a secondary stock offering to raise more cash offset the huge jump in its stock price following the good news in August and September. 

What would it take for Intra-Cellular to become the hot biotech that Exelixis has been over the last few years? First, the company needs to win FDA approval for lumateperone. Intra-Cellular plans to submit lumateperone for approval by mid-2018. Second, the drug needs to obtain favor from insurers and pharmacy benefits managers. Third, lumateperone must snag a decent share of the market by beating out other schizophrenia drugs that are already approved. 

Better buy

I think Exelixis is the better choice between these two stocks. Intra-Cellular has too many hurdles to jump -- and lumateperone didn't prove to be more effective than a placebo in a late-stage study. Although the FDA allowed the company to move forward with testing and submission for approval, that's not encouraging. Even if lumateperone does win approval, the schizophrenia market is pretty crowded already. 

Meanwhile, Exelixis has the wind at its back, with solid results for Cabometyx in first-line RCC and HCC indications. The only real knock against the stock is its valuation. However, my view is that Exelixis shares still have room to go higher because of the potential for Cabometyx in other indications, along with the company's plans to beef up its pipeline. Exelixis is a former next big thing that could still be the next big thing.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Exelixis. The Motley Fool has a disclosure policy.