Exelixis, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the first quarter of 2020, not 2019 Q1 as stated in the request metadata. The cover identifies the quarter ended April 3, 2020; the financial statements and comparisons use the three months ended March 31, 2020 and March 31, 2019, which the company says are convenience dates under its fiscal calendar.
Business context
Exelixis is an oncology-focused biotechnology company. Its principal commercial product is CABOMETYX (cabozantinib); it also sells COMETRIQ and receives collaboration and license revenue, including from partners commercializing cabozantinib outside the U.S. The company reported one operating segment.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $226.9 million | $215.5 million | +5% |
| Net product revenue | $193.9 million | $179.6 million | +8% |
| Operating income | $52.8 million | $84.6 million | -38% |
| Net income | $48.6 million | $75.8 million | -36% |
| Diluted EPS | $0.15 | $0.24 | Lower |
| Operating cash flow | $56.1 million | $161.6 million | Lower |
- CABOMETYX revenue was $189.2 million, up 8%; COMETRIQ revenue was $4.7 million, up 26%. Management attributed product growth to higher average net selling prices and, for both products, higher unit sales.
- License revenue fell 18% to $20.9 million, while collaboration services revenue rose 18% to $12.2 million. Total collaboration revenue declined 8% to $33.0 million.
- Cost of goods sold was $9.3 million; reported gross margin was 95%, versus 96% a year earlier. Operating margin was approximately 23%, versus 39%; net margin was approximately 21%, versus 35%.
- Research and development expense increased 61% to $101.9 million, mainly from higher clinical-trial costs, personnel and collaboration costs. Selling, general and administrative expense rose 5% to $62.9 million.
- Cash and cash equivalents were $357.3 million at March 31, 2020. Cash and investments totaled approximately $1.44 billion, versus approximately $1.39 billion at December 31, 2019. Current assets were $1.14 billion and current liabilities $140.5 million.
- The balance sheet presents no borrowing or debt line item. Total liabilities were $208.0 million; stockholders’ equity was $1.75 billion.
- Cash from operations decreased by $105.5 million year over year. Management cited $48.0 million less in milestone payments received, increased operating-expense cash outflows, and other working-capital changes, partly offset by higher product-sale receipts. Investing activities provided $32.6 million, primarily reflecting investment maturities and sales exceeding purchases.
Material changes and notable items
- Revenue growth was outweighed by sharply higher operating expenses, particularly R&D, contributing to lower operating income and net income.
- Gross product revenue grew 13%, but discounts and allowances increased 33% to $58.7 million. The company cited higher government-program chargebacks and rebates.
- A $5.4 million adjustment to the estimated Branded Prescription Drug Fee increased SG&A and reduced basic and diluted EPS by $0.02. The related total accrual was $13.4 million at quarter-end.
- Exelixis recognized a $10.0 million Takeda milestone during the quarter, which was achieved, invoiced and collected; the filing says the milestone was tied to Japanese CABOMETYX development/regulatory activity. The 2019 comparison included substantial Takeda milestone revenue.
- Accumulated other comprehensive income moved to a $0.2 million loss from $3.1 million income at year-end, reflecting unrealized investment-security losses. The company said these losses were not credit-related and recorded no investment credit-loss allowance or impairment charge.
Outlook, commentary and risks
- Management expected 2020 remaining-period net product revenue to be in line with 2019, license revenue to decrease because of fewer anticipated milestones, collaboration services revenue to increase with development reimbursements, R&D expense to continue rising, and SG&A to increase modestly.
- The company stated that cash, short-term investments, product revenue and collaboration revenue were expected to fund operations for at least 12 months after the filing date. It also noted that pipeline investment or strategic transactions could require additional financing.
- COVID-19 had a “relatively modest” impact as of the filing, but the company reported slower screening and enrollment and delayed site activation in some trials, a temporary suspension of internal laboratory discovery, and remote working. It had not reported material commercial ordering changes or significant supply-chain disruption, and cited substantial safety-stock inventories. Further pandemic effects could delay trials and discovery, disrupt supply, reduce sales or increase costs.
- Clinical and commercial developments included positive top-line CheckMate-9ER results announced in April 2020 for cabozantinib plus nivolumab in advanced renal cell carcinoma; Takeda’s Japanese approval of CABOMETYX for advanced renal cell carcinoma; and plans for additional trials and pipeline development. These are developments reported after quarter-end where indicated.
- MSN Pharmaceuticals’ CABOMETYX generic ANDA litigation is a material intellectual-property risk. In May 2020, MSN added Paragraph IV certifications against two additional patents; Exelixis said it would defend its patent estate. A bench trial on the existing case was scheduled for April 2022.
- Other key risks include dependence on CABOMETYX and collaboration partners, clinical-trial and regulatory uncertainty, competition and payer pricing/reimbursement pressure, and the possibility that COVID-19 or other factors impair operations or access to capital.
Most important facts for investors to verify
- Confirm the period: this is a 2020 Q1 filing, despite the 2019 Q1 request metadata; reconcile the cover’s April 3 date with the statements’ March 31 presentation.
- Track CABOMETYX sales, gross-to-net discounts and government-rebate trends against management’s 2020 expectations.
- Assess whether elevated R&D spending and lower operating cash flow are consistent with trial progress, milestones and available liquidity.
- Monitor COVID-19 effects on clinical enrollment, laboratory work, commercial activity and manufacturing/supply continuity.
- Follow CheckMate-9ER and other pivotal-trial data, regulatory plans, and the MSN ANDA patent litigation and potential generic-entry timing.