Exelixis, Inc. — Form 10-K Summary
Period clarification: The supplied filing is Exelixis’s Form 10-K for fiscal 2019, ended January 3, 2020 (presented in the filing as December 31, 2019). It is not a 2018 Q4 filing. Fiscal 2019 had 53 weeks; fiscal 2018 had 52 weeks.
Business context and reporting period
Exelixis is an oncology-focused biotechnology company. Its principal commercial product is CABOMETYX (cabozantinib), approved in advanced renal cell carcinoma (RCC) and, beginning in January 2019, previously treated hepatocellular carcinoma (HCC). COMETRIQ is approved for medullary thyroid cancer. The company also earns collaboration revenue and royalties from products including COTELLIC and MINNEBRO, and is investing in cabozantinib trials and pipeline expansion.
The unaudited 14-week quarter ended December 31, 2019 recorded revenue of $240.3 million, operating income of $77.3 million, net income of $68.7 million, and diluted EPS of $0.22. The filing does not cover 2018 Q4 as its reporting period.
Financial performance and liquidity
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Total revenue | $967.8 million | $853.8 million | +13% |
| Net product revenue | $760.0 million | $619.3 million | +23% |
| Collaboration revenue | $207.8 million | $234.5 million | -11% |
| Operating income | $369.5 million | $438.9 million | -16% |
| Net income | $321.0 million | $690.1 million | -53% |
| Diluted EPS | $1.02 | $2.21 | -54% |
| Operating cash flow | $527.0 million | $415.7 million | +27% |
| Cash and investments, year-end | $1.389 billion | $851.6 million | +63% |
Gross margin was 96% in both years. Operating margin was approximately 38% in 2019 versus 51% in 2018; net margin was approximately 33% versus 81%. The lower 2019 net income primarily reflects the absence of the prior-year $244.1 million tax benefit from releasing substantially all of the valuation allowance on deferred tax assets, alongside higher operating expenses.
Research and development expense rose 85% to $337.0 million, largely reflecting expanded cabozantinib trials and pipeline deals. Selling, general and administrative expense increased 11% to $228.2 million. The company reported $1.011 billion of current assets and $142.7 million of current liabilities; working capital was $868.4 million. No material off-balance-sheet arrangements were reported. Long-term obligations were $57.0 million, principally lease-related; the filing reports no interest expense in 2019 or 2018.
CABOMETYX revenue grew 22% to $733.4 million, driven primarily by 17% higher unit volume, including the HCC launch. COMETRIQ revenue rose to $26.5 million, partly because of a clinical-trial comparator purchase; excluding that purchase, sales volume continued to decline. Product discounts and allowances increased to $197.7 million from $119.3 million.
Material changes and notable developments
- FDA approval of CABOMETYX for previously treated HCC in January 2019 expanded its U.S. market opportunity.
- Collaboration revenue fell as milestone revenue declined to $96.2 million from $164.4 million, partly offset by increased royalties on Ipsen cabozantinib sales.
- Operating cash flow increased, while investing cash outflow also increased to $587.2 million, mainly from purchases of investments. Financing cash flow was $12.6 million.
- The company initiated or advanced multiple pivotal studies, including COSMIC-311, COSMIC-312 and COSMIC-313, and entered new pipeline collaborations with Aurigene and Iconic.
Outlook, commentary and risks
Management expected 2020 net product revenue to remain in line with 2019, collaboration revenue to decrease because fewer milestones were expected, and discounts and allowances as a percentage of gross product revenue to rise moderately. It expected R&D and SG&A expenses to increase, gross margin to remain flat, and an effective tax rate of 20%–22%. Management said available cash, cash equivalents, short-term investments, product revenue and collaboration revenue were expected to fund operations for at least 12 months after filing.
Key risks include dependence on CABOMETYX’s commercial performance and successful additional trials; intensifying competition, especially immunotherapy combinations; payer access, reimbursement and drug-pricing pressure; reliance on partners and third-party manufacturers; and clinical, regulatory and pipeline-development uncertainty. Generic competition is a material longer-term risk. Exelixis sued MSN Pharmaceuticals after receiving notice of its generic CABOMETYX ANDA; trial was tentatively scheduled for April 2022, and the company stated it could not predict the outcome or the effect on generic entry. The filing also discusses potential trial-enrollment and contractor disruption related to the coronavirus outbreak.
Most important facts for investors to verify
- Confirm the filing-period mismatch: this is FY2019, not a 2018 Q4 Form 10-K; the reported 2019 fourth quarter was a 14-week period.
- Track CABOMETYX sales, market access and discount trends, and whether 2020 revenue met management’s “in-line” expectation.
- Monitor pivotal-trial timing and outcomes, particularly CheckMate 9ER, COSMIC-311, COSMIC-312 and COSMIC-313, as well as the proposed mCRPC accelerated-approval path.
- Follow the MSN patent litigation, relevant patent protections and any developments that could change generic-entry timing.
- Assess the sustainability of cash generation against rising R&D and SG&A spending, collaboration milestone variability and long-term lease commitments.