Exelixis, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 27, 2013 (presented in the filing as September 30, 2013), with nine-month results through that date. The request metadata says 2012 Q3, but the filing itself is for 2013 Q3.
Business context
Exelixis is a biotechnology company focused on developing and commercializing cabozantinib (COMETRIQ). The FDA approved COMETRIQ for progressive, metastatic medullary thyroid cancer (MTC) in November 2012; U.S. sales began in late January 2013. Cabozantinib was also in Phase 3 trials for prostate, renal cell and hepatocellular cancers. Other compounds were being developed by collaborators.
Financial results and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Total revenue | $5.5 million | $13.3 million | $27.0 million | $39.6 million |
| Net product revenue | $4.8 million | — | $10.7 million | — |
| Operating expenses | $61.4 million | $38.8 million | $168.2 million | $120.1 million |
| Operating loss | $55.9 million | $25.4 million | $141.2 million | $80.5 million |
| Interest expense | $11.4 million | $7.7 million | $33.7 million | $15.8 million |
| Net loss | $67.1 million | $32.8 million | $174.0 million | $95.5 million |
| Basic and diluted loss per share | $0.36 | $0.20 | $0.95 | $0.63 |
| Operating cash used | — | — | $151.4 million | $84.4 million |
At September 30, 2013, cash and cash equivalents were $92.0 million; total cash, investments and restricted cash/investments were $464.7 million, including $28.1 million restricted. Current assets were $306.2 million and current liabilities $77.9 million. Total assets were $556.0 million, total liabilities $423.2 million, and stockholders’ equity $132.8 million. Accumulated deficit was $1.4 billion.
Debt carrying value was $341.6 million, including $287.5 million face amount of 2019 convertible notes, $114.0 million principal outstanding on Deerfield notes, and $82.9 million outstanding under Silicon Valley Bank term loan and credit lines. The filing reports total consolidated indebtedness through maturity of $467.8 million. Cash and investments declined by $169.2 million from December 31, 2012; cash and cash equivalents alone fell by $78.1 million. No company-wide margin measure was provided; reported cost of goods sold was $0.3 million for Q3 and $0.9 million for the nine-month period.
Changes versus prior comparable periods
- Q3 revenue declined 59% and nine-month revenue declined 32%, primarily reflecting lower collaboration revenue as deferred revenue was recognized in earlier periods, the absence of a $5.5 million Daiichi Sankyo milestone received in 2012, and the prior-year $10.7 million Merck technology-transfer revenue.
- Research and development expense increased 54% in Q3 and 34% year to date, mainly due to cabozantinib Phase 3 trial costs, including COMET-1 and trial start-up costs in renal cell and liver cancer.
- Selling, general and administrative expense increased 85% in Q3 and 70% year to date, partly reflecting launch-related sales and distribution costs.
- Net loss widened to $67.1 million in Q3 and $174.0 million year to date. Higher interest expense, including non-cash debt discount amortization, contributed to the increase.
Outlook, commentary and risks
- Management expected cash and investments plus product revenue to support operations for at least 12 months after Q3 2013, while cautioning that substantial future capital may be needed. It expected continued net losses and negative operating cash flow.
- Management expected top-line results from the two Phase 3 prostate trials, COMET-1 and COMET-2, and an overall-survival analysis from the MTC EXAM trial in 2014. The filing also reported that COMET-1 reached its 960-patient enrollment target and that the Phase 3 CELESTIAL liver cancer trial began in September 2013.
- The company did not anticipate further collaboration revenue for the remainder of 2013. COMETRIQ’s U.S. wholesale acquisition price was set at $10,395 for a 28-day supply effective October 29, 2013.
- Liquidity is subject to collateral and financial-covenant requirements under the Silicon Valley Bank agreement. A covenant breach could permit acceleration of debt and suspension of credit. A minimum $10 million Deerfield prepayment was due in January 2014.
- Key risks include clinical-trial outcomes and delays, regulatory approval and market acceptance, reimbursement and pricing, dependence on third-party manufacturers and distributors, collaboration revenue variability, significant debt and potential dilution or financing needs.
- In September 2013, Exelixis Bermuda acquired existing and future cabozantinib intellectual-property rights for territories outside the United States. The transfer created a taxable gain, primarily offset by current-year losses. A former-officer lawsuit was settled for an immaterial amount during Q3; the filing reports no material legal proceedings.
Important facts for investors to verify
- Whether the 2014 clinical-trial data expectations were achieved, and how results affected the development plan and financing needs.
- COMETRIQ sales growth, net pricing, access and reimbursement, and the estimates for rebates, chargebacks and patient assistance that affect recognized product revenue.
- Available liquidity after accounting for restricted funds, bank collateral requirements, debt service and the January 2014 Deerfield prepayment.
- Compliance with debt covenants and any subsequent financing, refinancing, dilution or changes to the stated cash runway.
- Actual future collaboration milestones and royalties versus management’s statement that no further collaboration revenue was anticipated for the remainder of 2013.