Exelixis, Inc. 10-Q Summary: Quarter Ended April 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 April 3, 2009 (fiscal Q1 2009). The company has no approved products and relies on collaboration agreements for revenue. As of May 1, 2009, there were 106,448,343 shares of common stock outstanding.
Key Financial Metrics
| Metric (in thousands) | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenues | $25,302 | $27,944 |
| Net Loss (Consolidated) | $(38,336) | $(45,170) |
| Net Loss Attributable to Exelixis | $(36,180) | $(41,274) |
| Loss Per Share (Basic & Diluted) | $(0.34) | $(0.39) |
| Cash and Cash Equivalents (End of Period) | $201,425 | $121,883 |
| Total Cash, Equivalents & Marketable Securities | $237,700 | N/A |
| Net Cash Used in Operating Activities | $(42,122) | $(39,218) |
| Accumulated Deficit | $(990,684) | $(954,504) |
Debt and Liquidity: The company reported total liabilities of $444.0 million. Significant obligations include a $103.1 million loan from GlaxoSmithKline (principal and accrued interest) with installments due beginning October 27, 2009. The company has an undrawn $150.0 million credit facility with Deerfield Entities. Management believes current resources will sustain operations for at least 12 months.
Material Changes vs. Prior Period
- Revenue: Total revenue decreased 9.5% to $25.3 million. This was driven by a decrease in contract revenue (R&D funding and milestones) due to the conclusion of collaborations with GlaxoSmithKline and others. However, license revenue increased significantly due to the amortization of upfront payments from the December 2008 Bristol-Myers Squibb (BMS) collaboration.
- Expenses: Research and Development (R&D) expenses decreased 16.1% to $55.3 million, primarily due to the wind-down of clinical trials for XL647 and XL820, and a 10% workforce reduction implemented in November 2008. General and Administrative expenses remained relatively flat at $8.5 million.
- Collaboration Cost Sharing: A new line item, "Collaboration cost sharing," showed a benefit of $1.8 million in Q1 2009 (reducing operating expenses) due to net receivables from the BMS collaboration. This is expected to reverse to a net expense for the full year 2009.
- Cash Flow: Net cash used in operating activities increased slightly to $42.1 million compared to $39.2 million in the prior year, largely due to changes in working capital (decreases in accounts payable and deferred revenue).
Guidance, Outlook, and Risks
Outlook: Management expects to incur substantial losses for the foreseeable future. The company is focusing on cost control and prioritizing the development of XL184 (co-developed with BMS) and a limited number of other programs. The company aims to operate independently of capital markets for a substantial period.
Recent Developments: On May 7, 2009 (subsequent to the period end), Exelixis entered into a collaboration with Boehringer Ingelheim for autoimmune disease therapies, receiving a $15.0 million upfront payment.
Risks and Contingencies:
- Liquidity Covenants: The company must maintain specific "working capital" and "cash and investments" levels to comply with the GlaxoSmithKline loan agreement. Failure to do so could trigger immediate repayment of the $103.1 million debt.
- BMS Collaboration Terms: Co-development and co-promotion rights for XL184 may be terminated if "cash reserves" fall below $80.0 million and are not restored within 90 days.
- Deconsolidation of SEI: The company expects to deconsolidate Symphony Evolution, Inc. (SEI) in June 2009 upon the expiration of a purchase option, which may result in a recognized loss.
- Stock Repayment Risk: Repayment of the GSK loan may require issuing common stock, which could be dilutive, or cash if stock price conditions are not met.
Investor Verification Checklist
- Verify the company's ability to meet the $25.0 million working capital and $50.0 million cash/investment covenants required by the GlaxoSmithKline loan agreement.
- Monitor the "cash reserves" level relative to the $80.0 million threshold required to maintain co-development rights with Bristol-Myers Squibb for XL184.
- Assess the impact of the upcoming deconsolidation of Symphony Evolution, Inc. (SEI) on the balance sheet and potential loss recognition.
- Review the progress of Phase 3 clinical trials for XL184, the company's most advanced asset.
- Confirm the status of the $103.1 million GSK loan repayment plan (cash vs. stock) given current market conditions.