EXEL

Exelixis, Inc. 10-K Summary (Fiscal Year Ended Jan 1, 2010)

Business Context and Reporting Period

Exelixis, Inc. is a biopharmaceutical company focused on discovering and developing small molecule drugs for cancer and other serious diseases. The reporting period covers the fiscal year ended January 1, 2010 (referred to as 2009 in the text). The company operates primarily through collaborations with major pharmaceutical partners, including Bristol-Myers Squibb, sanofi-aventis, and Genentech. Its most advanced drug candidate is XL184 (BMS-907351), a MET, VEGFR2, and RET inhibitor currently in Phase 3 trials for medullary thyroid cancer.

Key Financial Metrics

Note: The company reported a net loss per share of $(1.26) for 2009 compared to $(1.54) for 2008.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 29% to $151.8 million, driven primarily by a $140.0 million upfront payment from sanofi-aventis (net of withholding) and increased license revenue from the Bristol-Myers Squibb collaboration.
• Expense Reduction: R&D expenses decreased 9% to $234.7 million due to the wind-down of certain clinical trials (XL647, XL820, XL784, XL844) and a reduction in headcount from a 2008 restructuring.
• Liquidity Decline: Cash and cash equivalents dropped significantly from $247.7 million to $86.8 million, largely due to net cash used in investing activities ($112.3 million) for the purchase of marketable securities and operating cash outflows.
• Deconsolidation: The company recorded a $9.8 million loss upon the deconsolidation of Symphony Evolution, Inc. (SEI) following the expiration of a purchase option in June 2009.

Guidance, Outlook, and Risks

• Restructuring: On March 8, 2010, Exelixis implemented a restructuring plan reducing its workforce by approximately 40% (270 employees). The company expects to record a restructuring charge of approximately $15.0 million in Q1 2010.
• Clinical Outlook: The company expects to submit a New Drug Application (NDA) for XL184 for medullary thyroid cancer in the second half of 2011, assuming positive Phase 3 results. A Phase 3 trial for recurrent glioblastoma is planned for initiation by the end of 2010.
• Liquidity Outlook: Management anticipates that current cash resources and expected collaborator funding will support operations for at least 12 months following the filing date. However, the company expects to incur net losses and negative operating cash flow in 2010.
• Key Risks:
  • Debt Covenants: The company must maintain minimum working capital ($25.0 million) and cash/investments ($50.0 million) to comply with its GlaxoSmithKline loan agreement. As of Dec 31, 2009, it was in compliance.
  • Collaboration Terms: Co-development rights with Bristol-Myers Squibb for XL184 could be terminated if "cash reserves" fall below $80.0 million and are not restored within 90 days.
  • Financing Needs: The company may need to raise additional capital to repay the GlaxoSmithKline loan (outstanding principal and interest of $70.8 million) and fund ongoing operations.

Investor Verification Checklist

• Verify the status of the Phase 3 registration trial for XL184 in medullary thyroid cancer and the timeline for the NDA submission.
• Monitor the company's cash burn rate and ability to maintain the $80.0 million "cash reserves" threshold required to retain co-promotion rights with Bristol-Myers Squibb.
• Assess the impact of the March 2010 restructuring on the company's ability to execute its clinical pipeline and meet partner obligations.
• Review the repayment schedule for the GlaxoSmithKline loan ($34.7 million due Oct 2010, remainder Oct 2011) and the company's strategy for refinancing or repayment.
• Confirm the progress of the sanofi-aventis collaboration regarding XL147 and XL765, including the receipt of guaranteed research funding.