Exelixis, Inc. — Form 10-Q Summary
Period: Quarter and six months ended June 30, 2013. The request metadata labels this “2012 Q2,” but the filing itself is for 2013 Q2.
Business context
Exelixis is a biotechnology company focused on developing and commercializing cabozantinib (COMETRIQ). The FDA approved COMETRIQ for progressive, metastatic medullary thyroid cancer (MTC) in November 2012; U.S. sales began in late January 2013. The company was advancing cabozantinib in Phase 3 trials for metastatic castration-resistant prostate cancer (CRPC) and renal cell carcinoma (RCC), and planned to start a Phase 3 hepatocellular cancer trial later in 2013. Revenue also continued to depend on collaborations and licensing arrangements.
Key financial results
| Metric | Three months ended June 30, 2013 | Six months ended June 30, 2013 | Comparable 2012 period |
|---|---|---|---|
| Total revenue | $11.9 million | $21.5 million | $7.8 million; $26.3 million |
| Net product revenue | $4.0 million | $5.9 million | None reported |
| Research and development expense | $49.1 million | $81.8 million | $32.6 million; $65.7 million |
| Selling, general and administrative expense | $13.2 million | $23.7 million | $6.8 million; $14.7 million |
| Operating loss | $51.3 million | $85.3 million | $32.7 million; $55.0 million |
| Net loss | $62.2 million | $106.9 million | $36.5 million; $62.6 million |
| Basic and diluted loss per share | $0.34 | $0.58 | $0.25; $0.43 |
| Cash used in operating activities | $94.4 million for six months | $50.4 million for six months |
Second-quarter revenue increased 52% year over year, reflecting the launch of COMETRIQ. Six-month revenue declined 18%, mainly because 2012 included $10.7 million of Merck PI3K-delta license revenue upon completion of a technology transfer. Bristol-Myers Squibb accounted for $15.6 million, or 73%, of first-half 2013 revenue; Diplomat Specialty Pharmacy accounted for 26%.
Six-month operating expenses rose as cabozantinib clinical-trial activity expanded, including COMET-1 and startup work for RCC and hepatocellular cancer trials. R&D expense increased 25%, with clinical-trial costs up $16.6 million; SG&A increased 62%, partly reflecting commercialization and marketing costs. Interest expense rose to $22.3 million for the half-year, largely due to the 2019 convertible notes issued in August 2012. Product cost of goods sold was $0.6 million for the half-year, but pre-approval manufacturing costs had been expensed as R&D, so early reported product margins may not reflect future economics.
Financial position and liquidity
- At June 30, 2013, cash and cash equivalents were $131.8 million; total cash, investments and restricted cash/investments were $524.3 million, versus $634.0 million at December 31, 2012. Restricted balances totaled $34.2 million.
- Current assets were $375.0 million and current liabilities $74.6 million, yielding working capital of approximately $300.4 million.
- Total liabilities were $415.8 million. Debt carrying value was $336.1 million, including $12.5 million classified as current. The company separately described $466.3 million of total indebtedness through maturity, excluding trade payables.
- Cash and cash equivalents decreased $38.3 million during the first half. Investing activities provided $66.8 million, principally from investment maturities; financing activities used $10.7 million, mainly for debt principal payments.
- Management expected existing cash, investments and product revenue to fund operations for at least 12 months after the second quarter, while warning that substantial future capital needs could require additional financing.
Material changes, outlook and risks
- Exelixis completed the last of five restructurings in May 2013, following a strategic shift to focus internal resources on cabozantinib. The restructurings reduced headcount by 429 employees and generated $52.8 million of cumulative charges. The company expected about $2.5 million of additional charges and $15.6 million of remaining facility payments, extending through 2017.
- No formal earnings or revenue guidance was provided. Management expected continued net losses and negative operating cash flow, significant cabozantinib development spending, and only limited collaboration revenue in 2013.
- Key uncertainties include clinical-trial safety and efficacy, regulatory review and post-marketing requirements, COMETRIQ adoption and reimbursement, competition, reliance on third-party manufacturers and distribution providers, and dependence on collaboration milestones.
- Debt and covenant risks are significant. The company had $287.5 million principal amount of 4.25% convertible notes due 2019, $114.0 million principal outstanding on Deerfield notes, and $83.7 million owed under Silicon Valley Bank facilities. A $10.0 million minimum Deerfield prepayment was due in January 2014; bank covenants required collateral balances tied to outstanding borrowings.
- The filing describes a former officer’s lawsuit seeking unspecified damages, which was at an early stage and for which the company could not estimate a possible loss. Elsewhere, it states that Exelixis was not party to material legal proceedings.
Most important facts for investors to verify
- Whether COMETRIQ sales grow sufficiently and whether reported early product economics translate into sustainable margins.
- Progress, enrollment, endpoints and results of the Phase 3 cabozantinib trials, including the planned hepatocellular cancer trial.
- Cash burn and unrestricted liquidity after accounting for restricted funds and bank collateral requirements.
- Debt repayment and conversion terms, covenant compliance, and the potential need for dilutive or restrictive financing.
- Actual restructuring costs and facility-sublease assumptions, and the status and potential exposure of the former officer litigation.