Exelixis, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended September 26, 2014, presented in the filing as September 30, 2014, and the nine months then ended. This does not match the request metadata of “2013 Q3.”
Business context and reporting period
Exelixis is a biopharmaceutical company focused primarily on developing and commercializing cabozantinib. COMETRIQ was approved in the U.S. and EU for progressive, metastatic medullary thyroid cancer (MTC). The company also out-licensed cobimetinib to Genentech/Roche. Financial statements are unaudited and prepared for interim reporting.
Key financial metrics
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $6.3 million | $5.5 million | $17.8 million | $27.0 million |
| Net product revenue | $6.3 million | $4.8 million | $17.8 million | $10.7 million |
| Operating expenses | $57.9 million | $61.4 million | $196.0 million | $168.2 million |
| Loss from operations | $(51.6) million | $(55.9) million | $(178.3) million | $(141.2) million |
| Net loss | $(62.6) million | $(67.1) million | $(210.6) million | $(174.0) million |
| Net loss per share | $(0.32) | $(0.36) | $(1.09) | $(0.95) |
| Gross margin | 91% | 94% | 92% | 92% |
| Cash used in operating activities | Not separately presented for quarter | $(185.4) million | $(151.4) million |
At September 30, 2014, cash and cash equivalents were $100.1 million and total cash, investments and restricted cash/investments were $293.5 million, down from $415.9 million at December 31, 2013. Current assets were $220.7 million and current liabilities were $173.9 million. Total liabilities were $442.2 million, and stockholders’ equity was a deficit of $58.5 million.
Debt carrying value was $355.2 million, including $178.0 million for the 2019 convertible notes, $96.5 million for the Deerfield notes and $80.8 million under the Silicon Valley Bank facility. Deerfield principal outstanding was $104.0 million; the 2019 notes have $287.5 million principal outstanding. The company reported total indebtedness through maturity of $472.3 million, excluding trade payables.
Material changes versus comparable periods
- Q3 revenue increased 15% year over year as COMETRIQ product sales grew; however, a $1.8 million European distributor project-management fee reduced Q3 revenue. The filing expects another $0.6 million of this fee in Q4 2014.
- Nine-month revenue declined 34%, mainly because 2013 included license and contract revenue from Bristol-Myers Squibb that was fully recognized in 2013; no license or contract revenue was reported in the first nine months of 2014.
- Research and development expense rose 16% for the nine-month period, primarily due to cabozantinib clinical trial spending, notably METEOR and CELESTIAL. Q3 R&D expense fell 8% year over year, partly due to reversals of bonus and stock-compensation accruals after COMET-1 results.
- Nine-month operating cash use increased year over year. Financing included $75.6 million net proceeds from a January 2014 stock offering; cash and cash equivalents declined by $3.9 million during the nine months.
Outlook, commentary, risks and unusual items
- COMET-1, a Phase 3 cabozantinib trial in metastatic castration-resistant prostate cancer, failed its primary overall-survival endpoint: median overall survival was 11.0 months versus 9.8 months with prednisone (HR 0.90; p=0.212). Investigator-assessed median progression-free survival was 5.5 versus 2.8 months (HR 0.50; p<0.0001).
- Following COMET-1, Exelixis began a restructuring expected to reduce headcount by about 65%, or approximately 150 employees, leaving approximately 80. The company recorded $3.3 million of 2014 restructuring charges through quarter-end and expected $6–$7 million in total one-time termination benefits, plus additional facility-related and other costs not yet estimable.
- Management focused resources on the Phase 3 METEOR renal cell carcinoma trial and CELESTIAL advanced hepatocellular carcinoma trial. Top-line METEOR results were expected in Q2 2015 and CELESTIAL results in 2017. COMET-2 results were expected in 2014; the filing states that any potential CRPC regulatory path would depend on the totality of COMET program data.
- Management expected available resources and product revenue to fund operations through the end of 2015, assuming cost savings and the expected extension of the Deerfield notes’ maturity to July 1, 2018. This was not assured: the extension option expired March 31, 2015, and exercising it would result in a 15% annual interest rate beginning July 2015. The company warned it could need additional capital sooner and that financing might be dilutive or on unfavorable terms.
- COMETRIQ sales remain a limited revenue source; management estimated 500–700 eligible U.S. patients annually for the approved MTC indication. The company expects continued losses and negative operating cash flow and noted reliance on future trial results, product acceptance, collaboration income, cost control, debt arrangements and compliance with bank collateral covenants.
- Genentech reported positive Phase 3 coBRIM results for cobimetinib plus vemurafenib in advanced melanoma: investigator-assessed median progression-free survival was 9.9 versus 6.2 months (HR 0.51; p<0.0001). Overall-survival data were immature and had not crossed the prespecified significance boundary at the interim analysis. Roche had completed an EU marketing application; Genentech expected a U.S. filing before year-end 2014.
- In a subsequent development reported in the filing, the November 4, 2014 EXAM MTC overall-survival analysis was not statistically significant overall: median survival was 26.6 versus 21.1 months (HR 0.85; p=0.2409). This was a secondary endpoint and post-quarter development.
- Other notable items include a $0.8 million gain from a purchase-price adjustment related to the 2011 sale of Artemis and a $1.9 million nine-month unrealized gain from revaluation of Deerfield warrants. The filing reported no material legal proceedings and stated disclosure controls were effective.
Important facts for investors to verify
- Confirm the period: this is a 2014 Q3 filing, not a 2013 Q3 filing.
- Track METEOR and CELESTIAL trial timing and outcomes, and the final COMET-2 results and any regulatory implications.
- Assess the assumptions behind the stated cash runway through end-2015, including restructuring savings, COMETRIQ revenue and the Deerfield extension option.
- Review debt maturities, interest and prepayment terms, and Silicon Valley Bank collateral and covenant requirements.
- Monitor restructuring cash costs, facility exit charges, and the impact of reduced staffing on trial execution and operations.
- Assess whether COMETRIQ growth and cobimetinib progress can offset the loss of collaboration revenue and ongoing operating cash burn.