Exelixis, Inc. 10-Q Summary: Quarter Ended July 3, 2009
Business Context and Reporting Period
Exelixis, Inc. is a biopharmaceutical company focused on discovering and developing small molecule drugs for cancer and other serious diseases. This report covers the quarterly period ended July 3, 2009 (fiscal Q2 2009). The company operates primarily through collaborations with major pharmaceutical partners, including Bristol-Myers Squibb, sanofi-aventis, and Boehringer Ingelheim, while maintaining an internal pipeline of drug candidates.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Revenues | $27.4 million | $52.7 million |
| Net Loss (Attributable to Exelixis) | $(44.8) million | $(80.9) million |
| Operating Expenses | $65.4 million | $127.5 million |
| Cash and Cash Equivalents | $152.9 million | $152.9 million (Ending Balance) |
| Total Debt (Notes & Convertible Loans) | $110.1 million | $110.1 million |
| Net Cash Used in Operating Activities | N/A | $(54.5) million |
Note: The company reported a net loss per share of $(0.42) for the quarter and $(0.76) for the six-month period.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by 9.9% in the quarter and 9.7% year-to-date compared to 2008. This was primarily driven by the conclusion of the collaboration agreement with GlaxoSmithKline in October 2008, which reduced research funding and milestone revenues.
- Expense Reduction: Research and development (R&D) expenses decreased by 20.1% in the quarter and 18.1% year-to-date. This reduction resulted from a November 2008 restructuring (10% workforce reduction), the wind-down of specific clinical trials (XL647, XL820, XL844), and the transfer of the XL518 program to Genentech.
- Unusual Items: The company recognized a $9.8 million loss due to the deconsolidation of Symphony Evolution, Inc. (SEI) following the expiration of a purchase option. Conversely, a $1.8 million gain was recorded from an amendment to the sale of the plant trait business.
- Collaboration Revenue: License revenue increased due to the amortization of upfront payments from the 2008 Bristol-Myers Squibb collaboration and a new 2009 collaboration with Boehringer Ingelheim.
Guidance, Outlook, and Risks
Recent Developments: On May 27, 2009, Exelixis entered into a global license and collaboration agreement with sanofi-aventis for cancer programs XL147 and XL765, plus a discovery collaboration for PI3K inhibitors. The agreement became effective July 7, 2009, with an upfront payment of $140 million (net $133 million after tax withholding) received in July 2009. Additionally, a collaboration with Boehringer Ingelheim for autoimmune therapies was finalized in May 2009 with a $15 million upfront payment.
Liquidity and Capital Resources: As of June 30, 2009, the company held $213.1 million in cash, cash equivalents, and marketable securities. Management anticipates these resources, combined with the Deerfield credit facility ($150 million available, undrawn) and future collaboration funding, will support operations for at least 12 months.
Key Risks and Contingencies:
- Debt Repayment: A $103.9 million loan from GlaxoSmithKline requires principal and interest payments beginning October 27, 2009. Repayment may be made in cash or stock, but stock repayment is subject to market price restrictions and could cause dilution.
- Financial Covenants: The company must maintain specific "working capital" and "cash and investments" thresholds to avoid default on the GlaxoSmithKline loan and the Deerfield facility. Failure to meet these could trigger immediate repayment demands.
- Collaboration Dependencies: Future revenues are heavily dependent on achieving milestones and the commercial success of partners. The Bristol-Myers Squibb agreement includes a "cash reserve" covenant; if reserves fall below $80 million, Exelixis may lose co-development rights on XL184.
Investor Verification Checklist
- Debt Maturity: Verify the company's plan to repay the $103.9 million GlaxoSmithKline loan due in October 2009, specifically the feasibility of stock repayment given current market prices.
- Covenant Compliance: Monitor quarterly cash balances to ensure compliance with the $80 million "cash reserve" threshold required to maintain co-development rights with Bristol-Myers Squibb.
- Revenue Recognition: Review the amortization schedule for the new $140 million sanofi-aventis upfront payment to understand future revenue impact.
- Cash Burn Rate: Assess the sustainability of the current operating cash burn (~$54.5 million for six months) against the $213 million cash balance and the $150 million undrawn credit facility.
- Deconsolidation Impact: Confirm the long-term financial impact of losing the SEI variable interest entity and the associated $9.8 million loss.