Business context and reporting period
Filing-period discrepancy: The request specifies 2019 Q3, but the supplied filing is Exelixis’s 2020 third-quarter Form 10-Q. It covers the quarter ended October 2, 2020, presented in the filing as September 30, 2020, and compares results with 2019. Exelixis is an oncology-focused biotechnology company; CABOMETYX is its principal commercial product.
Key financial metrics
Amounts below are in millions of dollars except per-share data. The filing reports unaudited results.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $231.1 | $271.7 | $717.5 | $727.5 |
| Net product revenue | $168.6 | $191.8 | $541.2 | $565.0 |
| Operating income (loss) | $(42.6) | $115.6 | $85.8 | $292.2 |
| Net income (loss) | $(32.0) | $97.5 | $83.4 | $252.3 |
| Diluted EPS | $(0.10) | $0.31 | $0.26 | $0.80 |
| Gross margin | 95% | 96% | 95% | 96% |
Revenue mix and operating costs: Q3 license revenue was $33.2 million, down 52%; collaboration services revenue was $29.3 million, up 171%. Q3 R&D expense rose 82% to $176.8 million and SG&A rose 72% to $88.2 million. The company attributed higher R&D costs principally to expanded cabozantinib trials, collaboration and licensing costs, stock-based compensation, and personnel. SG&A increases included stock-based compensation, personnel, and launch-related marketing preparation.
Cash flow and liquidity: For the first nine months of 2020, operating cash flow was $175.7 million, versus $368.9 million in 2019; investing cash flow was $(101.7) million and financing cash flow was $(6.4) million. Cash and cash equivalents were $334.0 million at September 30, 2020. Cash and investments were reported by management as approximately $1.5 billion, compared with $1.4 billion at December 31, 2019. Current assets were $1.408 billion and current liabilities $201.3 million. The balance sheet reports no debt. Management said available resources and expected product and collaboration revenue should fund operations for at least 12 months after filing.
Material changes versus the prior comparable period
- Q3 total revenue declined 15%; net product revenue declined 12%, with CABOMETYX revenue down 15% to $159.6 million. Management cited lower prescriptions and customer inventory, with COVID-19 believed to have contributed to prescription weakness.
- Q3 net income of $97.5 million in 2019 became a $32.0 million net loss in 2020, as operating expenses increased substantially while revenue fell.
- Lower milestone revenue contributed to the decline in license revenue. For the nine months, collaboration services revenue increased to $63.0 million from $30.0 million, primarily reflecting development-cost reimbursements.
- Nine-month operating cash flow fell by $193.2 million; management cited higher operating cash spending, $53.0 million less in milestone payments received, and other working-capital changes.
Outlook, commentary, risks, and unusual items
- Management expected 2020 net product revenue and license revenue to decline modestly from 2019, collaboration services revenue to increase, and R&D and SG&A expenses to increase. It expected gross margin to remain broadly stable.
- The company reported a modest COVID-19 impact at the time of filing, including earlier trial enrollment and site delays, reduced CABOMETYX prescriptions, and remote-work and laboratory constraints. Further pandemic-related disruption could affect trials, sales, supply, and development timelines.
- Key development and regulatory events included FDA Priority Review of the CABOMETYX plus Opdivo advanced-RCC applications, with a February 20, 2021 target action date; management also anticipated COSMIC-312 results in the first half of 2021 and aimed to complete COSMIC-313 enrollment in early 2021, subject to risks and timing uncertainty.
- Exelixis paid upfront fees of $10 million to Catalent and $25 million to NBE in September 2020 for ADC discovery and licensing options. These added pipeline investment alongside significant planned clinical-development spending.
- A $5.1 million adjustment to the branded prescription drug fee estimate increased SG&A for the first nine months and reduced basic and diluted EPS by $0.02. Q3 stock-based compensation was $55.7 million, versus $13.1 million a year earlier.
- Exelixis is litigating against MSN Pharmaceuticals over a proposed generic CABOMETYX. The consolidated case had a bench trial scheduled for May 2022; the company said an early generic launch could materially harm revenue, and it could not estimate the likelihood or amount of loss.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is for 2020 Q3, not 2019 Q3.
- Track CABOMETYX prescription trends, customer inventory, gross-to-net discounts, and the extent of COVID-19 effects on U.S. sales.
- Monitor trial readouts, regulatory decisions, and whether projected milestones and collaboration reimbursements occur on schedule.
- Assess whether rising clinical-development, pipeline, and stock-based compensation costs remain consistent with revenue and cash generation.
- Follow the MSN generic-patent litigation and the potential implications for CABOMETYX exclusivity and sales.