Exelixis, Inc. 10-Q Summary: Quarter Ended October 2, 2009
Business Context and Reporting Period
Exelixis, Inc. is a biopharmaceutical company focused on discovering and developing novel small molecule drugs for cancer and other serious diseases. This report covers the quarterly period ended October 2, 2009 (the third quarter of fiscal year 2009). The company has no approved pharmaceutical products and relies on collaboration agreements for revenue.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sept 30, 2009 | Nine Months Ended Sept 30, 2009 |
|---|---|---|
| Total Revenues | $54,976 | $107,681 |
| Net Loss (Attributable to Exelixis) | $(25,445) | $(106,386) |
| Loss Per Share (Basic & Diluted) | $(0.24) | $(1.00) |
| Operating Cash Flow | N/A | $36,159 |
| Cash and Cash Equivalents (Sept 30, 2009) | $170,570 | |
| Total Liquidity (Cash + Marketable Securities) | $301,000 | |
| Total Debt (Principal & Interest) | $106,400 |
Note: The company reported a stockholders' deficit of $142.8 million as of September 30, 2009.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 84% for the quarter and 22% for the nine-month period compared to the prior year. This was driven primarily by new collaboration agreements with sanofi-aventis and Boehringer Ingelheim, and amortization of upfront payments from the Bristol-Myers Squibb (BMS) deal.
- Operating Expenses: Research and development (R&D) expenses decreased 8% for the quarter and 15% for the nine-month period, largely due to headcount reductions and the wind-down of specific clinical trials (e.g., XL647, XL820).
- Deconsolidation of SEI: The company deconsolidated Symphony Evolution, Inc. (SEI) in June 2009 following the expiration of a purchase option, resulting in a one-time loss of $9.8 million recorded in the second quarter.
- Collaboration Cost Sharing: A new line item, "Collaboration cost sharing," appeared in the current period ($3.0 million for the quarter), reflecting net payments owed to BMS for joint development of XL184.
Guidance, Outlook, and Risks
Outlook and Liquidity: Management anticipates that current cash, marketable securities, and expected collaboration funding will support operations for at least 12 months. The company expects to continue incurring substantial losses as it advances clinical programs.
Key Developments:
- sanofi-aventis: Received $133 million net upfront payment (after withholding tax) for licenses to XL147 and XL765 and a PI3K discovery collaboration.
- GlaxoSmithKline (GSK) Loan: On October 27, 2009, the company paid $34.7 million in cash toward its GSK loan, reducing the outstanding balance to $70.4 million.
- Stock Option Exchange: Completed a program exchanging 9.9 million options for new awards, expected to result in incremental compensation costs of approximately $0.8 million.
Risks and Contingencies:
- Financial Covenants: The company must maintain specific "working capital" and "cash and investments" thresholds to comply with its GSK loan agreement. Failure to meet these could trigger immediate repayment of the full loan balance.
- BMS Cash Reserves: Co-development rights for XL184 with BMS may be terminated if "cash reserves" fall below $80 million and are not restored within 90 days.
- Deerfield Facility: The company has a $150 million credit facility with Deerfield Entities but does not expect to draw on it before its expiration in December 2009.
Investor Verification Checklist
- Verify the company's ability to meet the $80 million "cash reserves" covenant required to maintain co-promotion rights with Bristol-Myers Squibb.
- Confirm the status of the $70.4 million remaining GSK loan and the company's plan for the subsequent installments due in 2010 and 2011.
- Monitor the progress of Phase 3 trials for XL184, the company's most advanced asset, as this drives future milestone potential.
- Review the impact of the $7.0 million withholding tax paid to French authorities on the sanofi-aventis deal on future cash flows.
- Assess the timeline for recognizing the $140 million upfront payment from sanofi-aventis, which is being amortized over an estimated four-year term.