Exelixis, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter ended June 27, 2014 (financial statements present dates as June 30, 2014). The request metadata says 2013 Q2, but the filing itself is for 2014 Q2.
Business context
Exelixis is a cancer-focused biopharmaceutical company concentrating its development and commercialization efforts on cabozantinib (COMETRIQ), approved in the U.S. and EU for progressive, metastatic medullary thyroid cancer (MTC). Its other principal asset, cobimetinib, is partnered with Genentech. Exelixis reported five ongoing Phase 3 pivotal trials of cabozantinib.
Financial results and position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Total revenue | $6.6 million | $11.9 million | $11.5 million | $21.5 million |
| Net product revenue | $6.6 million | $4.0 million | $11.5 million | $5.9 million |
| Operating loss | $61.7 million | $51.3 million | $126.7 million | $85.3 million |
| Net loss | $73.4 million | $62.2 million | $148.0 million | $106.9 million |
| Basic and diluted loss per share | $0.38 | $0.34 | $0.77 | $0.58 |
| Cash used in operating activities | — | $127.4 million | $94.4 million |
- COMETRIQ gross margin was 93% in Q2 2014, unchanged from Q2 2013; six-month margin was 93%, versus 90%.
- At June 30, cash and cash equivalents were $147.3 million; total cash and investments, including restricted balances, were $352.0 million, down from $415.9 million at December 31, 2013. Some investments were pledged or restricted.
- Debt carrying value was $349.0 million, including $94.2 million current and $253.7 million long-term. The filing separately reports $472.6 million of total indebtedness through maturity, excluding trade payables. Principal obligations include $287.5 million face value of 2019 notes, $104.0 million of Deerfield notes, and $81.1 million owed to Silicon Valley Bank.
- Stockholders’ equity was $3.2 million; accumulated deficit was $1.6 billion.
Material changes versus the prior comparable period
- Q2 revenue fell 45% and six-month revenue fell 47%, primarily because Exelixis completed recognition of Bristol-Myers Squibb collaboration revenue in 2013. Product revenue rose as COMETRIQ sales ramped.
- Six-month R&D expense rose 29%, mainly from higher cabozantinib trial costs, including METEOR, COMET-2 and CELESTIAL. Six-month SG&A rose 31%, including costs to expand the U.S. sales force.
- Losses and operating cash use increased year over year. Financing included $75.6 million net proceeds from a January 2014 common-stock offering; shares outstanding increased to 195.1 million at July 24, 2014.
Outlook, commentary and risks
- Management expected 2014 top-line results from two Phase 3 cabozantinib trials in metastatic castration-resistant prostate cancer (CRPC) and an overall-survival analysis of the EXAM MTC trial. Five Phase 3 studies were described as ongoing, including trials in CRPC, renal cell cancer and hepatocellular cancer.
- After quarter-end, Genentech reported that the Phase 3 coBRIM study of cobimetinib plus vemurafenib met its primary endpoint of statistically significant improvement in progression-free survival. Regulatory filings were planned before year-end, according to Genentech.
- Management stated current cash, investments and product revenue were expected to fund operations for at least 12 months after Q2 2014, while warning that substantial future capital needs could require additional financing. It expected continued net losses and negative operating cash flow and gave no assurance of when, or whether, profitability would be achieved.
- Potential contingent payments from partnered programs were approximately $2.3 billion on a non-risk-adjusted basis; these depend on partners meeting clinical, regulatory and commercial milestones and are not assured revenue.
- Deerfield offered an extension option through March 31, 2015 for $100 million principal of notes to mature in 2018; if exercised, the applicable rate after July 2015 would total 15% annually. The company was not obligated to exercise it. Silicon Valley Bank collateral covenants and debt maturities create liquidity risks.
- Restructuring liability was $10.5 million, expected to be paid through lease expirations ending in 2017; approximately $1.1 million of additional restructuring charges were anticipated. The company reported no material legal proceedings and stated disclosure controls were effective.
- Key risks include clinical-trial failure or delay, limited MTC market size and product revenue, reimbursement and competition, dependence on third-party manufacturing and distribution, collaboration termination, potential dilution, and the need to maintain debt covenants or secure further financing.
Important facts for investors to verify
- Confirm the reporting-period discrepancy: the supplied metadata says 2013 Q2, while this filing reports Q2 2014.
- Track the announced 2014 cabozantinib trial readouts and subsequent regulatory developments for cobimetinib.
- Assess cash runway against operating cash burn, restricted and pledged investments, and upcoming debt payments and covenant requirements.
- Monitor COMETRIQ sales, European reimbursement and launch progress, and the company’s dependence on its specialty pharmacy and distribution partners.
- Review the terms and potential cost of any Deerfield extension, additional financing, dilution, and milestone or royalty receipts; contingent partner payments are not guaranteed.