Exelixis, Inc. — Form 10-Q Summary
Period clarification: The supplied metadata says 2013 Q1, but this filing reports the quarter ended March 28, 2014 (presented as March 31, 2014), with the three months ended March 29, 2013 as the comparable period. Filed May 1, 2014.
Business context
Exelixis is a cancer-focused biopharmaceutical company concentrating its development and commercialization efforts on cabozantinib (COMETRIQ), approved in the U.S. for progressive, metastatic medullary thyroid cancer (MTC) and approved by the European Commission in March 2014 for specified advanced MTC. Its partnered asset cobimetinib is being developed by Genentech/Roche. Six Phase 3 pivotal trials of the two assets were ongoing.
Financial results and liquidity
| Metric (USD millions, except per-share data and percentages) | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | 4.9 | 9.7 |
| Operating loss | (65.0) | (34.0) |
| Net loss | (74.6) | (44.7) |
| Net loss per share | (0.39) | (0.24) |
| Operating cash used | 72.1 | 54.4 |
| COMETRIQ gross margin | 94% | 85% |
- Q1 2014 revenue was entirely COMETRIQ product revenue; Q1 2013 included $1.9 million of product revenue and $7.8 million of license and contract revenue, including Bristol-Myers Squibb collaboration revenue. Product revenue increased, but total revenue fell 49% as prior-period collaboration revenue did not recur.
- Research and development expense rose 68% to $54.8 million, principally from higher clinical-trial costs, including a $7.5 million comparator-drug purchase for the METEOR renal-cell-cancer trial. Selling, general and administrative expense increased 39% to $14.7 million, partly reflecting sales-force expansion.
- Cash and cash equivalents were $157.5 million at March 31, 2014. Cash, investments and restricted cash/investments totaled $407.7 million, including $23.0 million restricted. The company said available resources and product revenue were expected to fund operations for at least 12 months after quarter-end; it also cautioned that future capital needs were substantial.
- Cash from financing was $65.3 million, primarily the January offering of 10.0 million shares that generated $75.6 million net proceeds, partly offset by $10.5 million of debt principal payments. Cash and cash equivalents increased $53.6 million during the quarter.
- Debt carrying value was $343.0 million, including $169.4 million for the 2019 convertible notes, $92.0 million for Deerfield notes and $81.6 million of Silicon Valley Bank borrowings. The filing separately states total indebtedness through maturity of $473.1 million, excluding trade payables. Silicon Valley Bank collateral requirements tied up approximately $83.2 million in investments.
- Total assets were $497.6 million and stockholders’ equity was $71.5 million at quarter-end. Accumulated deficit was $1.6 billion.
Material changes, outlook and risks
- Management expected top-line results in 2014 from the two Phase 3 cabozantinib trials in castration-resistant prostate cancer (CRPC), the overall-survival analysis of the MTC COMET-1 trial, and Genentech/Roche’s cobimetinib melanoma trial. These were expectations, not reported results.
- The independent monitoring committee recommended that COMET-1 proceed to final analysis. The filing also describes ongoing Phase 3 trials in renal cell cancer and hepatocellular cancer.
- In January, Exelixis amended its Deerfield financing to obtain an option, exercisable by March 31, 2015, to extend $100 million principal of the notes’ maturity to July 2018. If exercised, interest from July 2015 would total 15% annually, split between cash and payment-in-kind interest. The company had no obligation to exercise.
- After quarter-end, GlaxoSmithKline notified Exelixis of its intent to terminate foretinib development and return the program. Exelixis expected the transition to finish in Q3 2014; it would then lose foretinib-related milestones and royalties, while specified cabozantinib royalties would continue.
- Management expected continued net losses and negative operating cash flow for the foreseeable future, driven mainly by cabozantinib development. Additional capital may be needed sooner than anticipated. Risks include clinical-trial failure or delay, limited MTC market size and reimbursement, reliance on collaborators and third-party manufacturers/distributors, debt service and financial covenants, potential dilution from financing or conversions, and competition.
- COMETRIQ sales since U.S. launch through March 31, 2014 were $19.9 million. Management expected limited revenue from the approved MTC market and noted that European reimbursement decisions could take 12–18 months in some countries.
- No material legal proceedings were reported. Management stated disclosure controls were effective and there had been no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the reporting-period discrepancy: the filing is for Q1 2014, not Q1 2013.
- Track the timing and outcomes of the 2014 pivotal-trial readouts and their regulatory implications.
- Monitor operating cash burn, unrestricted versus restricted liquidity, bank collateral covenants and the stated 12-month runway.
- Review debt principal and cash-interest obligations, including Deerfield extension terms and the 2019 notes.
- Assess COMETRIQ uptake, reimbursement progress in Europe and whether product revenue can offset rising development costs.
- Confirm completion and financial effects of the foretinib return, and the extent to which future revenue depends on partner milestones and royalties.