Exelixis, Inc. 10-Q Summary: Period Ended June 30, 2003
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2003, for Exelixis, Inc., a biotechnology company focused on developing proprietary human therapeutics using comparative genomics and model system genetics. The company's primary pipeline targets cancer and other proliferative diseases. As of August 1, 2003, there were 71,143,161 shares of common stock outstanding.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2003 | Six Months Ended June 30, 2003 | Balance Sheet (June 30, 2003) |
|---|---|---|---|
| Total Revenues | $13,005 | $25,335 | - |
| Net Loss | $(23,442) | $(46,500) | - |
| Loss Per Share (Basic & Diluted) | $(0.39) | $(0.78) | - |
| Research & Development Expenses | $32,453 | $62,756 | - |
| Cash and Cash Equivalents | - | - | $68,572 |
| Short-term Investments | - | - | $156,774 |
| Total Current Assets | - | - | $234,943 |
| Total Liabilities | - | - | $158,766 |
| Stockholders' Equity | - | - | $200,464 |
| Accumulated Deficit | - | - | $(333,854) |
Liquidity: The company held approximately $237.9 million in cash, cash equivalents, short-term investments, and restricted cash as of June 30, 2003. Net cash used in operating activities was $46.0 million for the six-month period.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased to $13.0 million (Q2 2003) and $25.3 million (YTD 2003) compared to $9.9 million and $21.4 million in the prior year periods. This increase was primarily driven by a corporate collaboration with SmithKlineBeecham (GSK) initiated in October 2002.
- Expense Increases: Research and development (R&D) expenses rose to $32.5 million (Q2) and $62.8 million (YTD) from $29.3 million and $55.4 million in 2002. Increases were due to higher personnel costs (6% increase) and license/consulting fees (37% and 80% increases respectively) to support clinical and preclinical programs.
- Financing Activity: In June 2003, the company completed a follow-on public offering of 10.0 million shares at $7.10 per share, raising gross proceeds of $71.0 million and net proceeds of approximately $66.4 million. In July 2003, underwriters exercised an option to purchase an additional 1.3 million shares for net proceeds of $8.4 million.
- Discontinued Operations: The company reported no loss from discontinued operations in 2003, compared to a loss of $837,000 in the prior year quarter, following the transfer of the Genomica software business in 2002.
Guidance, Outlook, and Risks
- Clinical Progress: The company initiated a Phase 1 clinical trial in June 2003 for XL784, a proprietary small molecule anticancer compound. Discussions with the FDA regarding the Phase 3 trial design for the rebeccamycin analogue XL119 are ongoing, with a development plan expected to be finalized in the fall of 2003.
- Outlook: Management expects to incur additional operating losses for the foreseeable future due to planned expenditures for R&D and clinical development. The company believes current cash resources and collaborator funding will satisfy anticipated needs for at least the next two years.
- Risks and Contingencies:
- Capital Needs: Future capital requirements are substantial; failure to raise additional funds could force curtailment of operations.
- Collaboration Dependence: Substantially all revenues are derived from collaborative agreements. Termination or failure to meet milestones in these agreements (e.g., with Bayer, Bristol-Myers Squibb, GSK) could materially reduce revenue.
- Regulatory Uncertainty: Product candidates are subject to lengthy and uncertain regulatory processes. Clinical trials may fail to demonstrate safety or efficacy.
- Accounting Changes: The company is evaluating the impact of FASB Interpretation No. 46 (FIN 46) regarding the consolidation of variable interest entities (VIEs) related to joint ventures with Bayer Corporation and Bayer CropScience LP.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $237.9 million liquidity position against the projected burn rate of $46 million per six months for operating activities.
- Collaboration Revenue: Assess the sustainability of revenue growth driven by the GSK collaboration and the risk of expiration or termination of other key agreements (Bayer, BMS).
- Clinical Milestones: Monitor the progress of the XL784 Phase 1 trial and the FDA discussions regarding the XL119 Phase 3 trial design.
- FIN 46 Impact: Review the outcome of the evaluation regarding the consolidation of Genoptera and Agrinomics joint ventures, which could alter the balance sheet.
- Dilution: Note the recent issuance of 11.3 million shares in June and July 2003 and the potential for future dilutive financing.