Exelixis, Inc. — Form 10-Q summary
Period: Second quarter and six months ended June 30, 2011 (fiscal quarter ended July 1, 2011; amounts below are in U.S. dollars). The request metadata says “2010 Q2,” but the supplied filing is for 2011 Q2. Filed August 4, 2011.
Business context and reporting period
Exelixis is a clinical-stage biotechnology company with no approved products or product-sale revenue. It is concentrating its internal research and development on cabozantinib (XL184), which targets MET, VEGFR2 and RET, while partners advance most other programs. The filing reports unaudited second-quarter and first-half results compared with 2010.
Key financial metrics
| Metric | Three months ended June 30, 2011 | Six months ended June 30, 2011 | Comparable 2010 period |
|---|---|---|---|
| Total revenue | $32.2 million | $68.1 million | $47.6 million; $89.8 million |
| Operating expenses | $50.2 million | $109.8 million | $73.2 million; $162.9 million |
| Loss from operations | $18.0 million | $41.7 million | $25.6 million; $73.1 million |
| Net loss | $21.0 million | $48.5 million | $22.6 million; $65.9 million |
| Net loss per share, basic and diluted | $0.16 | $0.40 | $0.21; $0.61 |
Revenue comprised contract revenue of $8.3 million for Q2 and $20.7 million for the first half, license revenue of $22.5 million and $45.3 million, and collaboration reimbursements of $1.3 million and $2.0 million, respectively. No product sales were reported.
- Cash flow, first half: Operating activities used $86.8 million, investing activities used $121.4 million, and financing activities provided $186.0 million. Cash and cash equivalents ended at $75.3 million, down from $97.4 million at year-end 2010.
- Liquidity: Cash, cash equivalents, marketable securities and long-term investments totaled $353.6 million at June 30, including $4.2 million of restricted cash and investments. About $95 million of cash and marketable securities was required to remain on deposit with Silicon Valley Bank under loan covenants.
- Debt: Book debt, including the Deerfield financing, was $210.4 million, versus $208.5 million at December 31, 2010. The filing reports $36.5 million of principal and interest due to GlaxoSmithKline on October 27, 2011. The Silicon Valley Bank term loan has an $80 million principal balance and a May 2017 balloon maturity; it is supported by a deposit covenant. Deerfield notes have $124 million initial principal and bear $6 million annual interest.
- Balance sheet: Total assets were $454.2 million and total liabilities $536.0 million; stockholders’ deficit was $81.8 million. Current assets were $283.7 million and current liabilities $193.5 million.
- Margins: The filing does not present a gross margin; the company reported an operating loss and net loss.
Material changes versus the prior comparable period
- Q2 revenue fell 32.4% year over year and first-half revenue fell 24.2%. Management attributed the decline mainly to reduced Bristol-Myers Squibb reimbursements after that partner ended its cabozantinib collaboration in 2010, lower sanofi-aventis reimbursements as development work transitioned to the partner, and lower license revenue recognition.
- Research and development expense declined 20.9% in Q2 and 25.5% in the first half, primarily due to workforce reductions, lower facility and laboratory costs, and reduced stock-based compensation.
- First-half net loss narrowed year over year, but operating cash use increased from $78.5 million to $86.8 million, with a substantial contribution from a $50.5 million reduction in deferred revenue.
- First-half financing included $179.4 million net proceeds from a March 2011 offering of 17.3 million shares, increasing shares outstanding and contributing to dilution. First-half 2010 financing had included substantial borrowing proceeds.
- Second-quarter restructuring included a $1.7 million reduction in the restructuring liability, resulting in a reported restructuring credit of $1.5 million. At June 30, the restructuring liability was $10.1 million.
Outlook, management commentary, risks and unusual items
- Management expected available liquidity and funding from existing collaborators to support operations for at least 12 months after the filing date, while anticipating negative operating cash flow for the foreseeable future. Management also said it expected net income for full-year 2011 because of accelerated deferred revenue from the XL281 collaboration termination; this is not an indication of cash-flow profitability.
- On July 8, 2011, Bristol-Myers Squibb notified Exelixis it would terminate the XL281 collaboration, effective October 8, 2011. Rights are to revert to Exelixis; the company planned to wind down the work and did not expect to continue developing XL281. Exelixis estimated it would recognize about $109.9 million of related upfront-fee revenue in Q3 2011 and $10.4 million in Q4 2011, accelerating revenue previously expected to be recognized through 2014.
- For cabozantinib in medullary thyroid cancer, management expected EXAM Phase 3 top-line results around the end of Q3 2011, to begin a rolling NDA submission in Q4 2011 and complete the filing in Q1 2012. A second-half 2012 launch was anticipated only if trial results were positive and FDA approval obtained. These are forward-looking expectations, not guarantees.
- Management aimed to initiate a pivotal cabozantinib prostate cancer trial by year-end 2011 and two additional pivotal trials in 2012. It cited interim activity across multiple tumor types, while emphasizing that development, trial timing, approval and commercial success remained uncertain.
- Restructuring reduced headcount by 410 employees across 2010 and 2011. Further reductions were expected through 2012. The company anticipated additional restructuring charges, including up to $17 million for a potential facility exit, and facility-related cash costs extending through 2017.
- Key risks include clinical failure or delay, dependence on cabozantinib, reliance on collaborators and contract manufacturers, lack of product revenue, potential need for additional financing, dilution, debt repayment and covenant compliance, and uncertainty around reimbursement, competition and regulatory approval. The company’s $353.6 million liquidity figure includes funds subject to deposit requirements.
- The filing states that disclosure controls and procedures were effective at period-end and that no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- EXAM trial results and subsequent FDA filing progress against management’s stated timetable.
- Whether accelerated XL281 deferred revenue is recognized as estimated, and how this nonrecurring accounting benefit affects reported earnings versus cash flow.
- Available, unrestricted liquidity after accounting for Silicon Valley Bank deposit requirements, debt service and the October 2011 GlaxoSmithKline payment.
- Cash burn and the cost and timing of cabozantinib’s planned clinical trials, alongside any changes to management’s funding runway outlook.
- Actual restructuring charges, sublease proceeds and remaining facility-related cash commitments.
- Changes to collaboration funding and the company’s ability to meet debt covenants or secure additional financing without material dilution.