Exelixis, Inc. — Form 10-Q Summary
Reporting period: The filing is for the quarterly period ended April 3, 2015. For convenience, the financial statements refer to the quarter as ended March 31, 2015, compared with the three months ended March 31, 2014.
Business context
Exelixis is a biopharmaceutical company focused on cancer therapies. Its principal development program is cabozantinib, marketed as COMETRIQ for medullary thyroid cancer (MTC) and being studied in other cancers. Cobimetinib is licensed to Genentech, with Exelixis eligible for a share of U.S. profits or losses and royalties on ex-U.S. sales.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Net product revenue | $9.4 million | $4.9 million |
| Cost of goods sold | $0.8 million | $0.3 million |
| Gross margin | 92% | 94% |
| Research and development | $22.3 million | $54.8 million |
| Selling, general and administrative | $9.5 million | $14.7 million |
| Operating loss | $22.8 million | $65.0 million |
| Interest expense | $12.4 million | $11.8 million |
| Net loss | $35.2 million | $74.6 million |
| Net loss per share | $0.18 | $0.39 |
| Net cash used in operating activities | $45.1 million | $72.1 million |
All Q1 2015 revenue was from COMETRIQ. Revenue rose 91%; the increase included $2.6 million of one-time revenue recognized after moving U.S. sales from a sell-through to a sell-in method, as well as continued sales growth. The lower net loss primarily reflected reduced operating expenses following trial terminations and workforce reductions, not an established path to profitability.
At March 31, 2015, cash and investments totaled $197.6 million, but only $107.2 million was identified as available for operations. The remainder included $6.1 million of restricted investments for debt service, $81.6 million of required bank compensating balances, and $2.7 million of long-term restricted investments. Cash and cash equivalents were $85.0 million. Total debt carrying value was $368.4 million; stockholders’ deficit was $146.8 million. The company reported an accumulated deficit of $1.8 billion.
Investing activities provided $49.9 million, principally from investment maturities. Financing activities used $0.2 million; unlike Q1 2014, the quarter included no equity issuance proceeds. The company had no material off-balance-sheet arrangements.
Material changes versus the prior period
- Revenue increased 91%, though the sell-in accounting change contributed a one-time $2.6 million benefit.
- R&D expense declined 59%, mainly due to ending COMET-1 and COMET-2 spending, lower general program costs, and the absence of a $7.5 million METEOR comparator-drug purchase made in Q1 2014.
- SG&A expense declined 35%, principally from workforce reductions and lower consulting, legal, and stock-based compensation costs; higher marketing expenses partly offset the decline.
- Operating cash use improved by $27.0 million year over year, but remained substantial.
- The company elected to extend the Deerfield Notes’ maturity to July 1, 2018, subject to customary closing conditions expected to be satisfied at that date. Consequently, $97.4 million of principal was classified as long-term at quarter-end.
Outlook, developments and risks
- Management expected available operating cash, cost savings and product revenue to fund operations through the first quarter of 2016. This estimate depended materially on clinical results, COMETRIQ sales and cobimetinib economics; management warned additional capital may be needed and financing may not be available on acceptable terms.
- METEOR, the Phase 3 cabozantinib trial in metastatic renal cell carcinoma (mRCC), had a results timing change: top-line results were expected late in Q2 or early in Q3 2015 because progression-free-survival events were occurring more slowly than anticipated. The FDA granted cabozantinib Fast Track designation for advanced RCC after one prior therapy on April 8, 2015.
- Top-line results from the Phase 3 CELESTIAL trial in advanced liver cancer were expected in 2017. CABOSUN, a Phase 2 first-line RCC study, met its enrollment target; data were anticipated in 2016.
- A separate Phase 2 cabozantinib trial in recurrent or persistent ovarian, fallopian-tube or primary peritoneal cancer did not meet its primary endpoint. The failed COMET-1 and COMET-2 prostate cancer trials had already led to deprioritization of cabozantinib in that setting and the 2014 workforce restructuring.
- Cobimetinib’s U.S. NDA, filed by Genentech for combination use in advanced melanoma, received FDA priority review with an August 11, 2015 action date. Exelixis remained dependent on Genentech’s development and commercialization decisions and was obligated to share specified U.S. commercialization costs.
- The 2014 restructuring left approximately 85 full-time employees. The company expected about $2 million to $6 million of additional facility-related restructuring charges during 2015, in addition to remaining employee-related charges.
- Key risks include continued operating losses and cash burn, clinical and regulatory uncertainty, dependence on COMETRIQ and partners, substantial debt and covenant requirements, possible dilution or difficulty raising capital, and uncertainty in realizing restructuring savings. No material legal proceedings were reported.
Important facts for investors to verify
- Whether the Deerfield extension closed as expected on July 1, 2015, and its resulting cash interest and in-kind interest burden.
- METEOR top-line results and any resulting change to cabozantinib’s clinical, spending or facility plans.
- COMETRIQ sales growth excluding the one-time $2.6 million revenue-recognition adjustment, and the trend in discounts, rebates and gross margin.
- Actual operating cash burn and remaining unrestricted liquidity versus management’s first-quarter 2016 runway estimate.
- The cobimetinib FDA decision and the resulting U.S. cost-sharing or profit-and-loss obligations for Exelixis.
- Final restructuring charges, facility sublease progress, and compliance with Silicon Valley Bank collateral and other debt covenants.