Exelixis, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended March 29, 2013 (presented as March 31, 2013 for convenience); compared with the quarter ended March 30, 2012. The request metadata says “2012 Q1,” but the filing itself is for 2013 Q1.
Business context and results
Exelixis is a biotechnology company focused its proprietary development and commercialization efforts on cabozantinib (COMETRIQ). The FDA approved COMETRIQ for progressive, metastatic medullary thyroid cancer in November 2012; U.S. sales began in late January 2013. The company also receives collaboration revenue and has partnered drug programs.
| Metric | Q1 2013 | Q1 2012 | Change / context |
|---|---|---|---|
| Total revenue | $9.7 million | $18.5 million | Down 48% |
| License revenue | $4.0 million | $14.7 million | Decline primarily reflected $10.7 million recognized in 2012 following Merck PI3K-delta technology transfer |
| Contract revenue | $3.8 million | $3.8 million | Flat |
| COMETRIQ product revenue | $1.9 million | None | Initial commercial quarter |
| Operating expenses | $43.7 million | $40.8 million | Up 7%; higher SG&A partly offset by slightly lower R&D |
| Operating loss | $(34.0) million | $(22.3) million | Loss widened |
| Interest expense | $11.1 million | $4.0 million | Higher mainly following issuance of 2019 convertible notes |
| Net loss | $(44.7) million | $(26.2) million | Loss per share: $(0.24) vs. $(0.18) |
| Operating cash flow | $(54.4) million | $(15.0) million | Higher cash use; 2012 included collaboration-related cash receipts |
Financial position and liquidity
- Cash and investments totaled $566.8 million at March 31, 2013, down from $634.0 million at year-end 2012. This total includes $34.1 million of restricted cash and investments; some unrestricted investments also serve as loan collateral.
- Cash and cash equivalents were $171.2 million. Cash increased $1.2 million during the quarter, as $66.4 million of investing cash inflow offset operating and financing outflows.
- Total liabilities were $404.7 million and stockholders’ equity was $254.9 million. Accumulated deficit was $1.3 billion.
- Debt carrying amount was $330.9 million, including the 2019 convertible notes, Deerfield notes, and Silicon Valley Bank term loan and credit line. The company reported $84.5 million outstanding under the bank facility. Debt fair value and carrying amount differ; the Deerfield notes’ fair value was not practicably determinable.
- Management expected available cash, investments, and product revenue to fund operations for at least 12 months after quarter-end, while warning that future capital needs would be substantial and additional financing might be needed.
- Product gross margin was not considered representative at this early launch stage. Cost of goods sold was $0.3 million; management expected gross margin to increase as product sales rise.
Material changes, outlook, and risks
- SG&A rose 33% to $10.5 million, reflecting launch and commercialization costs. R&D was $32.7 million, down 1%; increased clinical-trial costs were largely offset by personnel, facility, and other reductions.
- Two Phase 3 pivotal trials were ongoing in metastatic castration-resistant prostate cancer. Exelixis planned to initiate Phase 3 trials in metastatic hepatocellular and renal cell cancers later in 2013. It expected significant cabozantinib development spending and continued net losses and negative operating cash flow.
- COMETRIQ’s U.S. wholesale acquisition cost was set at $9,900 for a 28-day supply. Management estimated 500–700 eligible first- and second-line metastatic MTC patients annually in the United States. These were company estimates, not reported patient counts or sales guidance.
- The EMA was reviewing the European marketing application for COMETRIQ. Exelixis entered a distribution and commercialization agreement with Sobi for metastatic MTC in the EU and potentially other countries, including named-patient access before potential approval.
- Partnered programs could generate milestone payments totaling approximately $2.8 billion on a non-risk-adjusted basis; receipt depends on development, regulatory, and commercial success. Bristol-Myers Squibb represented 81% of quarterly revenue, creating collaborator concentration.
- Debt service, required collateral balances and financial covenants constrain liquidity. Deerfield notes required a minimum $10 million prepayment in January 2014; bank-facility covenant breaches could allow acceleration of obligations.
- Key operating risks include clinical-trial efficacy, safety, timing and regulatory uncertainty; early commercial uptake, reimbursement and pricing; reliance on third-party manufacturers, logistics providers and a single U.S. specialty pharmacy; and the need for future financing. The filing also disclosed a former officer’s lawsuit seeking unspecified damages; the company said it could not estimate potential loss.
- Restructuring liabilities were $16.8 million at quarter-end, expected to be paid through 2017; the company anticipated approximately $2.5 million of additional restructuring charges.
Important facts for investors to verify
- Whether COMETRIQ prescriptions, net sales, access and reimbursement develop sufficiently beyond the initial $1.9 million revenue quarter.
- Progress, safety and results from the ongoing prostate cancer Phase 3 trials and the planned liver and kidney cancer trials.
- Cash burn and unrestricted liquidity after accounting for restricted balances, bank collateral requirements, debt payments and covenants.
- Timing and potential revenue from the EU review and Sobi arrangement, and whether collaboration milestones or royalties are achieved.
- Actual restructuring cash costs, the former officer litigation outcome, and any changes in financing needs or ability to meet debt obligations.