Exelixis, Inc. 10-Q Summary: Quarter Ended April 2, 2010
Business Context and Reporting Period
This report covers the quarterly period ended April 2, 2010 (referred to as March 31, 2010 in financial tables). Exelixis, Inc. is a biopharmaceutical company focused on discovering and developing small molecule drugs for cancer and other serious diseases. The company has no approved products and relies on collaboration agreements for revenue. During the quarter, the company implemented a significant restructuring plan to focus resources on its lead clinical compounds: XL184, XL147, and XL765.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $42.2 million | $25.3 million |
| Net Loss (Attributable to Exelixis) | $(43.2) million | $(36.2) million |
| Loss Per Share (Basic & Diluted) | $(0.40) | $(0.34) |
| Operating Cash Flow | $(53.7) million | $(42.1) million |
| Cash and Cash Equivalents (End of Period) | $58.3 million | $201.4 million |
| Total Cash, Equivalents & Investments | $168.5 million | $247.7 million |
| Total Debt Outstanding | $76.4 million | $79.6 million |
Note: Revenue includes license fees, contract revenue, and collaboration reimbursements. Net loss includes a one-time restructuring charge.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 67% to $42.2 million, driven primarily by new collaboration agreements with sanofi-aventis (XL147, XL765) and milestone revenue from Genentech. This was partially offset by a $2.1 million reduction in revenue due to net payable status in the Bristol-Myers Squibb collaboration.
- Restructuring Charge: The company recorded a $16.1 million restructuring charge in Q1 2010, compared to none in Q1 2009. This charge resulted from a workforce reduction of approximately 40% (270 employees) and asset impairments related to facility closures.
- Operating Expenses: Research and Development (R&D) expenses increased 17% to $64.8 million, primarily due to increased Phase 3 clinical trial activity for XL184. General and Administrative expenses remained relatively flat at $8.8 million.
- Liquidity: Cash and cash equivalents decreased by $28.5 million during the quarter. Total liquid assets (cash, equivalents, and marketable securities) stood at $168.5 million.
Guidance, Outlook, and Risks
Outlook and Strategy: Management expects to maintain operations for at least 12 months following the filing date using current cash resources and anticipated collaboration funding. The company is aggressively advancing XL184 (Phase 3 for medullary thyroid cancer) and expects to submit a New Drug Application (NDA) in the second half of 2011 if trials are successful. The restructuring is intended to control costs and focus on high-potential assets.
Key Risks and Contingencies:
- Debt Covenants: The company has a $71.4 million loan from GlaxoSmithKline (GSK) with financial covenants requiring minimum "working capital" of $25.0 million and "cash and investments" of $50.0 million. As of March 31, 2010, the company was in compliance ($69.0 million working capital; $162.0 million cash/investments).
- Collaboration Covenants: The Bristol-Myers Squibb agreement requires "cash reserves" of at least $80.0 million to maintain co-development rights for XL184. Current reserves are $162.0 million.
- Future Restructuring Costs: The company anticipates an additional $9.0 million in restructuring expenses in 2010, primarily related to lease-exit costs for a South San Francisco facility.
- Clinical Uncertainty: Success depends on the safety and efficacy of product candidates in clinical trials, which are inherently uncertain and costly.
Investor Verification Checklist
- Debt Repayment: Verify the ability to repay the second installment of the GSK loan ($71.4 million outstanding) due October 27, 2010, either in cash or stock, and assess dilution risks if stock is used.
- Restructuring Execution: Monitor the realization of cost savings from the 40% workforce reduction and the actual costs associated with exiting the South San Francisco facility (estimated additional $9.0 million).
- Clinical Milestones: Track enrollment and data readouts for the Phase 3 trial of XL184 in medullary thyroid cancer and Phase 2 trials for XL147/XL765, as these drive future revenue and valuation.
- Cash Burn Rate: Assess the sustainability of the current cash position ($168.5 million) against the projected operating cash burn and upcoming debt obligations.
- Collaboration Status: Confirm the status of net funding flows with Bristol-Myers Squibb, as the company expects to move from a net payable to a net receivable position in 2010.