Biotech: Core and Explore – Pfizer Inc. (PFE), Merck & Co., Inc. (MRK)

An Explore “Do”

Exelixis, Inc. (NASDAQ:EXEL), on the other hand, is typical of a small biotech company that hasn’t hit the mainstream just yet. Its shares are trading at around $5, the company is losing money, and it’s got virtually all of its eggs in one basket as it attempts to bring COMETRIQ to market. The drug received approval in the United States for the treatment of progressive, metastatic medullary thyroid cancer in late 2012.

That market is relatively small, so even the company admits the approval isn’t a game changing event. However, the drug appears to have a lot of potential. Exelixis is researching other indications for which the drug could be used, including prostate cancer, lung cancer, and liver cancer, among others.

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Having already gained approval for one indication, there’s a good chance that more uses of COMETRIQ will be added. This could turn the drug into something of a franchise opportunity and quickly make Exelixis’ top and bottom lines look much more appealing than they do today. This, then, would seem a better option for investors seeking a satellite to orbit Amgen, as Exelixis has lots of potential, a proven product, and, with a relatively low share price, the downside is limited.

Think of it as a Portfolio

Clearly you’ll need to find more than one satellite to implement a core and explore approach. The goal would be to find a collection of companies with late stage drugs or drugs that have just been approved and have the potential to treat large or increasingly important audiences. Avoid companies whose shares have been bid up to inflated levels, since they will need to meet and exceed high expectations in order to maintain those heights. Overall, however, look at the core and explore technique as a portfolio and track it very closely in this exciting and often volatile space.

The article Biotech: Core and Explore originally appeared on Fool.com.

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