Exelixis, Inc. — Form 10-Q Summary
Reporting period: Quarter ended June 29, 2012 (the filing presents results using June 30 for convenience); six months ended June 30, 2012. Comparative periods are 2011. Unless noted, figures are in U.S. dollars.
Business context
Exelixis is a biotechnology company with no approved products or product-sales revenue. It is concentrating its internally funded development on cabozantinib, principally for metastatic castration-resistant prostate cancer (CRPC) and medullary thyroid cancer (MTC); partners advance many other programs.
Key financial metrics
| Metric | Q2 2012 | Q2 2011 | First half 2012 | First half 2011 |
|---|---|---|---|---|
| Total revenue | $7.8 million | $32.2 million | $26.3 million | $68.1 million |
| Operating expenses | $40.5 million | $50.2 million | $81.3 million | $109.8 million |
| Loss from operations | $(32.7) million | $(18.0) million | $(55.0) million | $(41.7) million |
| Net loss | $(36.5) million | $(21.0) million | $(62.6) million | $(48.5) million |
| Net loss per share, diluted | $(0.25) | $(0.16) | $(0.43) | $(0.40) |
| Cash used in operating activities | — | — | $50.4 million | $86.8 million |
At June 30, 2012, cash and cash equivalents were $68.1 million; marketable securities were $138.9 million; long-term investments were $83.7 million; and restricted cash and investments were $4.1 million. The filing reports total cash, cash equivalents and investments of $294.8 million, including restricted amounts. Current assets were $213.8 million versus current liabilities of $90.1 million. Total debt carrying value, including convertible loans, was approximately $182.7 million. Conventional product gross margin is not applicable: the company had no product sales.
Material changes versus prior comparable periods
- Revenue fell 75.8% in Q2 and 61.4% for the first half. The decline primarily reflected the transfer of XL147/XL765 development to Sanofi, termination of the Sanofi PI3K discovery collaboration and the end of the XL281 agreement with Bristol-Myers Squibb. First-half 2012 revenue included $10.7 million recognized under the Merck PI3K-delta license.
- R&D expense decreased 24.0% in Q2 and 25.8% for the first half, mainly from reduced trial activity and restructuring, partly offset by expanding cabozantinib trials. Management expected clinical-trial spending to rise in the second half of 2012.
- Net loss widened despite lower operating expenses, reflecting substantially lower collaboration revenue. First-half financing included a February 2012 stock offering that raised approximately $65 million net; 12.7 million shares were issued.
- Operating cash use improved year over year, partly because of timing and working-capital movements, including a smaller deferred-revenue reduction than in 2011. Cash and equivalents decreased by $6.1 million during the first half.
Outlook, commentary and risks
- Management estimated existing cash, investments and expected collaborator funding would support operations for approximately 12 months after Q2 2012, while cautioning that substantial additional capital would be needed and could be required earlier depending on development costs and other factors.
- The company initiated COMET-1, a Phase 3 CRPC trial with an overall-survival endpoint, in May 2012; COMET-2, with a pain-palliation endpoint, began in December 2011. Exelixis did not secure a Special Protocol Assessment for COMET-2 and disclosed FDA concerns about its design and endpoint.
- The MTC NDA submission was completed in May 2012. Subsequent to quarter-end, the FDA accepted it for filing and granted Priority Review, with a stated action date of November 29, 2012. Subject to approval, management anticipated a possible launch in late 2012 or early 2013.
- Management cited encouraging interim cabozantinib findings in multiple tumor types, but these are not assurance of trial success or approval. Clinical efficacy, safety, trial timing, regulatory review, manufacturing, reimbursement, competition and market acceptance remain material uncertainties.
- Restructurings reduced headcount by 422 employees in aggregate. The company recorded $43.9 million of cumulative restructuring charges and expected about $1.9 million of additional charges, including facility costs extending through lease terms as late as 2017.
- Debt and liquidity risks include Deerfield convertible notes, mandatory prepayments beginning in 2013, and an $80 million Silicon Valley Bank term loan due in a balloon payment in 2017. Approximately $83.7 million of cash and marketable securities were required to be maintained as collateral under bank covenants. Equity or convertible financing could dilute shareholders.
Important facts for investors to verify
- FDA review outcome and timing for the cabozantinib MTC NDA, including any requirements that could delay approval or launch.
- COMET-1 and COMET-2 enrollment, safety and efficacy progress, especially given the absence of an SPA for COMET-2.
- Cash burn, the stated approximately 12-month operating runway, and the timing and terms of any additional financing.
- Debt repayment and collateral covenants, including Deerfield prepayment obligations and the bank’s required deposit balance.
- Reliance on collaboration revenue and milestone payments, which can be uneven and depend on partner decisions and development outcomes.