Exelixis, Inc. — Form 10-Q Summary
Reporting period: Third quarter and nine months ended September 28, 2012; financial statements use September 30 for convenience. The request metadata says 2011 Q3, but the filing is for 2012 Q3.
Business context
Exelixis is a clinical-stage biotechnology company concentrating its proprietary development resources on cabozantinib, an investigational cancer therapy. Other compounds are primarily advanced through partner collaborations. The company reported no revenue from product sales.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $13.3 million | $128.3 million | $39.6 million | $196.3 million |
| Operating expenses | $38.8 million | $48.6 million | $120.1 million | $158.4 million |
| Operating income (loss) | $(25.4) million | $79.7 million | $(80.5) million | $38.0 million |
| Net income (loss) | $(32.8) million | $77.9 million | $(95.5) million | $29.4 million |
| Net income (loss) per diluted share | $(0.20) | $0.59 | $(0.63) | $0.23 |
Revenue fell 89.6% in Q3 and 79.8% for the nine-month period, chiefly because 2011 included accelerated license revenue associated with terminated or amended collaborations. Q3 2012 revenue included $7.8 million from Bristol-Myers Squibb and a $5.5 million Daiichi Sankyo milestone. Research and development expense declined 18.1% for the quarter and 23.5% year to date, reflecting lower trial, personnel and facility costs, partly offset by expanding COMET trial activity. General and administrative expense also declined.
Cash flow, nine months: Operating activities used $84.4 million, investing activities used $159.8 million, and financing activities provided $478.8 million. Cash and cash equivalents rose to $308.8 million from $74.3 million at year-end 2011.
Liquidity and debt: Cash, cash equivalents, marketable securities, restricted cash and investments totaled $674.7 million. This included $40.2 million of restricted cash and investments and $82.9 million of cash and marketable securities required to be maintained on deposit under the Silicon Valley Bank arrangement. Current assets were $493.4 million and current liabilities $85.4 million. The filing states total consolidated indebtedness through maturity of $497.5 million, excluding trade payables. Debt includes $287.5 million face value of 4.25% convertible notes due 2019, Deerfield notes, and Silicon Valley Bank and equipment obligations.
Material changes and notable items
- In August 2012, Exelixis raised $416.1 million in net proceeds from concurrent offerings: $277.7 million from the 2019 convertible notes and $138.4 million from 34.5 million common shares. The notes’ initial conversion price is approximately $5.31 per share; conversion or settlement may involve cash, shares, or both at the company’s election.
- The notes are separately accounted for as debt and equity components. Their effective interest rate was approximately 10%; reported interest expense related to them was $3.2 million for Q3 2012.
- Common shares outstanding were 183.5 million at September 30, 2012, versus 135.6 million at December 31, 2011.
- Restructuring charges were $1.7 million for the first nine months, down from $6.2 million a year earlier. The company expects approximately $1.3 million of additional restructuring charges, primarily related to facility exits; leases extend as late as 2017.
Outlook, risks and contingencies
- The FDA accepted the cabozantinib medullary thyroid cancer application for Priority Review, with a stated action date of November 29, 2012. Subject to approval, management anticipated a potential U.S. launch in late 2012 or early 2013. A European marketing application was submitted and undergoing validation.
- COMET-1 and COMET-2, Phase 3 trials in metastatic castration-resistant prostate cancer, were underway; top-line results were expected in 2014. Exelixis proceeded with COMET-2 without an FDA Special Protocol Assessment after it could not reach timely agreement with the agency on trial design.
- Management expected current liquid resources and anticipated collaborator funding to support operations for at least 12 months after Q3 2012, but also anticipated future net losses, negative operating cash flow, and a need for additional capital. Clinical progress, commercialization costs, collaborator payments, and debt obligations could change funding needs.
- Key risks include cabozantinib’s clinical and regulatory outcomes, launch readiness and market acceptance, reliance on third-party manufacturers and collaborators, and competition. Debt covenants and repayment obligations could constrain liquidity; future equity issuance or conversion of notes could dilute shareholders.
- Management said disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the FDA acted on the cabozantinib MTC application by the stated November 29, 2012 date, and the terms and timing of any approval or launch.
- Subsequent COMET-1 and COMET-2 progress, including results, timelines, and any regulatory feedback, particularly given the absence of a COMET-2 SPA.
- Cash use, restricted and covenant-maintenance balances, and compliance with Silicon Valley Bank and Deerfield requirements.
- Terms and potential dilution from the 2019 notes and Deerfield obligations, including cash-versus-share settlement decisions.
- Whether collaborator milestones, licensing revenue, or commercial revenues can offset continuing operating cash burn.