Exelixis, Inc. — Form 10-Q Summary
Period clarification: The request identifies 2017 Q3, but the supplied filing is for the quarter ended September 28, 2018 (reported as September 30, 2018), with 2017 comparatives. This summary covers 2018 Q3 and the nine months ended September 30, 2018.
Business context and reporting period
Exelixis is a biotechnology company focused on oncology medicines. Its principal product is CABOMETYX (cabozantinib), sold in the U.S. and commercialized internationally by partners Ipsen and Takeda. It also sells COMETRIQ and shares in COTELLIC (cobimetinib) collaboration economics with Genentech. The filing is unaudited and covers one business segment.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $225.4 million | $152.5 million | $625.2 million | $332.4 million |
| Net product revenue | $162.9 million | $96.4 million | $443.1 million | $253.3 million |
| Operating income | $125.2 million | $81.2 million | $327.3 million | $128.5 million |
| Net income | $126.6 million | $81.4 million | $330.0 million | $115.7 million |
| Diluted EPS | $0.41 | $0.26 | $1.05 | $0.37 |
| Gross margin | 95% | 95% | 96% | 96% |
- Q3 revenue rose 48%; net product revenue rose 69%. CABOMETYX revenue increased 75% in Q3, primarily on higher sales volume. COMETRIQ revenue declined 23%.
- Q3 operating expenses were $100.2 million, including $44.7 million in R&D and $48.1 million in SG&A. For nine months, operating expenses were $298.0 million.
- Operating cash flow was $311.1 million for nine months, versus $112.3 million in 2017. Investing activities used $155.1 million; financing activities provided $10.8 million. Cash, cash equivalents and restricted cash ended at $355.2 million.
- Cash and investments totaled $750.3 million at September 30, 2018, of which $748.7 million was available for operations. Total liabilities were $108.4 million. The company reported no outstanding debt; lease liabilities totaled approximately $15.0 million.
- Management said existing resources, product revenue and collaboration revenue were expected to fund operations for at least 12 months after the filing date, subject to assumptions and risks.
Changes versus the prior comparable period
- Growth was led by CABOMETYX: Q3 net sales were $158.3 million versus $90.4 million, supported by a 59% increase in units sold. Nine-month CABOMETYX revenue rose 83%.
- Collaboration revenue increased 11% in Q3 and 130% year to date. The year-to-date increase reflected milestones, higher Ipsen royalties and development reimbursements, among other items.
- R&D expense increased 57% in Q3 and 56% year to date, reflecting clinical trial activity, personnel, license costs and stock compensation. SG&A increased 26% in Q3 and 36% year to date.
- Topic 606 adoption materially changed collaboration revenue timing. It increased reported Q3 collaboration revenue by $32.6 million and reported nine-month collaboration revenue by $9.8 million versus results without the new standard. The filing reports Q3 net income of $95.3 million without adoption of Topic 606 and Topic 842, versus $126.6 million as reported.
- Topic 606 adoption reduced opening accumulated deficit by $258.5 million, primarily due to revised accounting for Ipsen and Takeda upfront and milestone payments. It did not affect product revenue. Topic 842 adoption also changed lease presentation.
Outlook, commentary, risks and unusual items
- Management expected R&D expense to increase as cabozantinib trials and pipeline discovery expand; near-term R&D was expected to focus primarily on cabozantinib. The filing did not provide quantitative full-year revenue or earnings guidance.
- The FDA had accepted the U.S. supplemental application for cabozantinib in previously treated advanced HCC, with a January 14, 2019 action date. Ipsen had received a positive EU committee opinion. Exelixis recorded $36.9 million in Q3 collaboration revenue for a $40 million Ipsen milestone it expected to earn upon EU approval in Q4, following the committee’s positive opinion; final approval was still pending.
- Other material milestones included a $50 million Ipsen milestone for first-line advanced RCC approval in the EU, a $25 million Ipsen commercial milestone, a $5 million Canadian approval milestone, and a $20 million Daiichi Sankyo milestone. These contributed to reported collaboration revenue and make period-to-period comparisons less indicative of recurring performance.
- Key risks include dependence on CABOMETYX sales and partner execution; clinical and regulatory uncertainty for additional indications; competition, including immune checkpoint combinations and potential generic entry; pricing, payer coverage and reimbursement pressures; and reliance on third parties for manufacturing, distribution and clinical trials. Exelixis noted FDA draft bioequivalence guidance for cabozantinib could indicate generic interest, though it did not establish that an application had been filed.
- Exelixis reported no material legal proceedings and no material off-balance-sheet arrangements. It cited no material change in market risk; a one-percentage-point interest-rate increase would have adversely affected investment fair value by approximately $2.5 million at quarter end.
Important facts for investors to verify
- Confirm the reporting period: this filing is 2018 Q3, not 2017 Q3.
- Track CABOMETYX sales growth, net pricing, discounts and rebates, and whether commercial growth offsets rising operating and development costs.
- Assess how much reported collaboration revenue and earnings depend on milestone recognition, including the expected $40 million Ipsen HCC milestone and the effects of Topic 606.
- Monitor regulatory decisions and clinical results for HCC, differentiated thyroid cancer, RCC combinations and other cabozantinib programs, alongside competitive and generic developments.
- Reassess liquidity against operating plans and collaboration receipts; reported cash generation includes timing effects, including revenue recognized before related milestone cash collection.