Exelixis, Inc. — Form 10-Q Summary
Reporting period: First quarter of 2018, ended March 30, 2018 (presented in the filing as March 31, 2018); filed May 2, 2018. The request metadata says “2017 Q1,” but the supplied filing is for 2018 Q1.
Business context
Exelixis is an oncology biotechnology company. Its principal commercial product is CABOMETYX (cabozantinib), approved in the U.S. for advanced renal cell carcinoma (RCC); it also markets COMETRIQ and shares in COTELLIC economics through its Genentech collaboration. International cabozantinib commercialization is partnered with Ipsen and Takeda.
Financial highlights
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Total revenue | $212.3 million | $80.9 million | +163% |
| Net product revenue | $134.3 million | $68.9 million | +95% |
| Collaboration revenue | $78.1 million | $12.0 million | +550% |
| Operating income | $116.3 million | $20.2 million | — |
| Net income | $115.9 million | $16.7 million | — |
| Diluted EPS | $0.37 | $0.05 | — |
| Operating cash flow | $71.8 million | $68.9 million | — |
- CABOMETYX sales were $128.9 million, up 107%; unit volume rose 95%, reflecting growth in later-line RCC and the December 2017 U.S. first-line RCC approval. COMETRIQ sales fell 18% to $5.3 million.
- Gross margin was 96%, versus 95%. R&D expense rose 63% to $37.8 million; SG&A rose 54% to $52.6 million. SG&A included a $6.9 million increase in corporate giving.
- Cash and investments totaled $525.6 million at quarter-end, including $523.6 million available for operations. Cash, cash equivalents and restricted cash were $234.3 million. Total liabilities were $105.1 million; the balance sheet shows no debt, following repayment of prior borrowings in 2017.
- Total assets were $774.9 million and stockholders’ equity was $669.8 million at March 31, 2018.
Changes, outlook and material items
- Revenue recognition: Exelixis adopted ASC 606 on January 1, 2018 using the modified retrospective method. Adoption reduced opening accumulated deficit by $258.5 million and materially changed collaboration revenue timing. Q1 collaboration and total revenue were $31.4 million higher under ASC 606 than they would have been under prior guidance; the prior-year comparison is therefore not fully comparable.
- Q1 collaboration revenue included $45.8 million recognized on an expected $50 million Ipsen milestone for European Commission approval of first-line RCC, before the approval expected in Q2, and a $20 million Daiichi Sankyo milestone following a Japanese regulatory filing for esaxerenone.
- Operating cash flow was supported by earnings but affected by working-capital timing, including $38.0 million of growth in unbilled collaboration revenue. Investing activities used $25.5 million; financing activities used $0.3 million. Cash and investments available for operations increased from $452.0 million at year-end 2017.
- Management expected available resources, product revenue and collaboration revenue to fund operations for at least 12 months after the filing date. It expected R&D expense to increase during 2018 as cabozantinib trials and pipeline activities expand, and did not expect gross margin to change significantly during the remainder of 2018. No specific revenue or earnings guidance was provided.
- Key development updates included the March submission of a U.S. supplemental application for cabozantinib in previously treated advanced HCC, a positive European committee opinion for first-line advanced RCC, and plans to initiate a phase 3 differentiated thyroid cancer trial in 2018. Exelixis reported more than 70 ongoing or planned cabozantinib trials.
- Risks include dependence on CABOMETYX sales and successful expansion into new indications; competition, generic-entry risk and drug-pricing or reimbursement pressure; clinical and regulatory uncertainty; reliance on partners and third-party manufacturers; and the possibility that profitability may not continue. The FDA issued draft cabozantinib bioequivalence guidance, which the company said could indicate generic interest but was not confirmation of an ANDA filing.
- Subsequent to quarter-end, Exelixis entered an Invenra collaboration involving a $2 million upfront payment and potential milestone and royalty obligations. The company also planned to move its headquarters to Alameda in Q2 2018, with possible costs and disruption.
Investor verification priorities
- Separate underlying commercial growth from ASC 606 timing effects and the two significant Q1 milestones.
- Verify whether and when the European Commission approved first-line RCC and the related Ipsen milestone became billable and collectible.
- Track CABOMETYX U.S. sales, international partner sales and royalties, market access, discount reserves, and competitive or generic developments.
- Assess clinical, regulatory and commercial progress in HCC, RCC combination trials, and other pipeline programs against rising R&D and operating costs.
- Monitor cash generation and the assumptions supporting management’s stated minimum 12-month liquidity outlook.