Exelixis, Inc. — Form 10-Q Summary
Period clarification: The request identifies 2018 Q2, but the supplied filing is Exelixis’s 2019 second-quarter Form 10-Q, for the quarter and six months ended June 30, 2019 (fiscal quarter ended June 28). Comparisons below are with 2018.
Business context and reporting period
Exelixis is an oncology-focused biotechnology company. Its principal product is CABOMETYX (cabozantinib), marketed in the U.S. for advanced renal cell carcinoma (RCC) and previously treated hepatocellular carcinoma (HCC). The company also sells COMETRIQ and receives collaboration revenues, royalties and milestones from partners.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $240.3 million | $186.1 million | $455.8 million | $399.8 million |
| Net product revenue | $193.7 million | $145.8 million | $373.3 million | $280.1 million |
| Collaboration revenue | $46.6 million | $40.3 million | $82.5 million | $119.7 million |
| Operating income | $92.0 million | $85.8 million | $176.5 million | $202.1 million |
| Net income | $79.0 million | $87.5 million | $154.8 million | $203.4 million |
| Diluted EPS | $0.25 | $0.28 | $0.49 | $0.65 |
- Q2 total revenue increased 29%; net product revenue rose 33%, led by CABOMETYX, up 34% to $189.0 million. COMETRIQ revenue declined 1% to $4.7 million.
- Six-month total revenue rose 14%, while collaboration revenue fell 31%, primarily reflecting lower milestone revenue versus the prior-year period. 2019 milestones included $20 million from Daiichi Sankyo for MINNEBRO’s Japanese launch and a Takeda regulatory-submission milestone.
- Q2 operating expenses were $148.3 million, including R&D of $81.9 million, up 93%, and SG&A of $58.8 million, up 13%. Higher development and pipeline investment more than offset revenue growth at the operating-income level.
- Product gross margin was 96% in both Q2 periods and both six-month periods. Q2 operating margin was approximately 38% and net margin approximately 33%, calculated from reported figures.
- Income tax provision was $20.7 million in Q2 2019 versus $0.9 million in Q2 2018. The 2019 effective tax rate was 20.8%; the prior-year tax provision was largely offset by a deferred-tax-asset valuation allowance. Exelixis released substantially all of that allowance at year-end 2018.
- Six-month operating cash flow was $293.3 million versus $146.3 million. The company attributed the increase mainly to milestone cash receipts and higher product sales, partly offset by higher operating expenses. Investing cash outflow was $250.6 million, largely reflecting purchases of investments; financing cash inflow was $12.3 million.
Financial position and liquidity
- At June 30, 2019, cash and cash equivalents were $369.8 million; short- and long-term investments were $790.1 million. Cash and investments totaled $1.161 billion, compared with $851.6 million at December 31, 2018.
- Total assets were $1.643 billion and total liabilities were $154.5 million. The filing reports no material off-balance-sheet arrangements and does not report outstanding borrowings. Lease liabilities totaled $25.3 million, including $25.2 million of operating lease liabilities.
- Management said available cash, investments and expected product and collaboration revenue should fund operations for at least 12 months following the filing date, while cautioning that this depends on assumptions about sales, spending and other risks.
Changes, outlook, commentary and risks
- Management expected R&D expense to increase in 2019 as cabozantinib trials and pipeline activities expand, and SG&A to increase modestly. It expected gross margin to remain broadly stable through the rest of 2019. No specific revenue or earnings guidance was provided in the supplied text.
- The cabozantinib development program included more than 80 ongoing or planned trials. CheckMate 9ER completed enrollment; COSMIC-313, a Phase 3 combination trial, began; and COSMIC-021 enrollment was expanded in selected cohorts. Exelixis cited competition, clinical and regulatory uncertainty, pricing and reimbursement pressure, and reliance on collaborators as significant risks.
- Genentech reported that the Phase 3 IMspire170 cobimetinib combination trial did not meet its primary endpoint. Genentech continued development work on other cobimetinib studies.
- Exelixis paid $7.5 million and committed preclinical funding under its May 2019 Iconic option agreement. In July, after quarter-end, it announced an Aurigene agreement covering options to license up to six oncology programs, with upfront and research-funding commitments and potential future exercise fees and milestones.
- There were no material legal proceedings reported. Management stated disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- Confirm the filing period: the supplied document is Q2 2019, not Q2 2018.
- Track CABOMETYX sales growth, discount and rebate levels, and the effect of HCC commercialization and competition on net revenue.
- Assess whether increased R&D spending and major trial results support future approvals and revenue growth; note the IMspire170 setback.
- Separate recurring product and royalty revenue from milestone revenue, which can vary materially between periods.
- Review cash-flow drivers, the company’s 12-month liquidity assumptions, lease commitments, and the financial terms and obligations of Iconic and Aurigene agreements.