Exelixis, Inc. — Form 10-Q Summary
Period: The filing covers the quarter and nine months ended September 29, 2017 (financial statements are presented using September 30, 2017 for convenience), compared with the corresponding 2016 periods. The request metadata says 2016 Q3, but the supplied filing is for 2017 Q3.
Business context and key financial metrics
Exelixis is a biotechnology company focused on oncology. Its principal commercial products are CABOMETYX and COMETRIQ, both based on cabozantinib; it shares economics on COTELLIC with Genentech. Exelixis commercializes its products in the U.S. and licenses cabozantinib rights internationally to Ipsen and, in Japan, Takeda.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $152.5 million | $62.2 million | $332.4 million | $113.9 million |
| Net product revenue | $96.4 million | $42.7 million | $253.3 million | $83.5 million |
| Operating income (loss) | $81.2 million | $7.3 million | $128.5 million | $(67.0) million |
| Net income (loss) | $81.4 million | $(11.3) million | $115.7 million | $(105.3) million |
| Diluted earnings (loss) per share | $0.26 | $(0.04) | $0.37 | $(0.44) |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $112.3 million | $125.3 million |
- Q3 revenue increased 145%; nine-month revenue increased 192%. CABOMETYX sales drove the product growth, rising 189% for the quarter and 379% year to date. COMETRIQ revenue declined 47% and 43%, respectively, as customers shifted to CABOMETYX.
- Q3 collaboration revenue was $56.1 million, including $45.0 million of Ipsen milestones tied to EMA validation of a first-line advanced RCC indication. The milestones were recognized in revenue; $20.0 million was due in Q4 2017 and $25.0 million in Q1 2018.
- Gross margin on product revenue was 95% in Q3 and 96% for the first nine months, versus 94% in both 2016 comparison periods. Q3 operating margin was approximately 53% and net margin approximately 53%.
- Q3 R&D expense was $28.5 million, up 41%; SG&A was $38.1 million, up 17%. For nine months, R&D was $80.0 million and SG&A was $113.1 million. Higher personnel, clinical-trial and support costs contributed to increases.
- At September 30, cash and investments totaled $422.3 million, including $417.6 million available for operations and $4.7 million restricted. Current assets were $470.9 million and current liabilities $109.0 million. The company reported no debt after repaying its bank term loan in March and Deerfield notes in June 2017.
Changes, outlook and material developments
- Net income improved substantially from the 2016 loss, reflecting higher CABOMETYX sales and collaboration revenue, as well as lower debt-related interest expense following repayment of debt. Nine-month operating cash flow was lower year over year, partly because the prior-year period included Ipsen’s $200 million upfront payment.
- Debt repayment included $185.8 million of financing cash outflows during the first nine months. The Deerfield repayment also produced a $6.2 million extinguishment loss, including a prepayment penalty.
- After quarter-end, the FDA accepted the first-line advanced RCC supplemental application for Priority Review, with a February 15, 2018 action date. The company also reported that the CELESTIAL phase 3 HCC trial met its overall-survival endpoint and said it planned to submit an HCC application in Q1 2018. These are management-reported developments, not guaranteed approvals.
- Management expects continued significant spending on cabozantinib development and commercialization, pipeline discovery and potential licensing or acquisitions. It said available cash, product revenue and collaboration revenue were expected to fund operations for at least 12 months after the filing date; this depends on assumptions about sales and expenses. No specific financial earnings or revenue guidance is provided.
- Exelixis and Genentech settled their COTELLIC arbitration without settlement payments and amended their collaboration terms, including revised revenue and cost allocation effective July 1, 2017. U.S. promotion of COTELLIC with Zelboraf was scheduled to be scaled back beginning January 2018.
- The company entered a 10-year Alameda facilities lease, with $24.1 million of lease payments over the term, before taxes and operating expenses. It also disclosed a future accounting change: adoption of revenue standard ASC 606 in Q1 2018 is expected to affect timing of collaboration revenue and result in a transition adjustment reclassifying some deferred revenue to accumulated deficit.
Risks, contingencies and unusual items
- Results depend heavily on CABOMETYX commercial performance, reimbursement and pricing, and regulatory approval and market adoption in additional indications. Competition, clinical-trial outcomes and the benefit-risk profile of treatments may affect growth.
- Exelixis relies on Ipsen and Takeda for international commercialization and on Genentech for cobimetinib development and commercialization. Manufacturing and distribution also depend on third parties.
- Q3 collaboration revenue included the $45 million Ipsen milestones; Q3 other income included a reported $2.3 million gain related to the Akarna investment. Such items may not recur at similar levels.
- Product discounts and allowances were expected by management to rise as government-program participation and commercial contracting increased. The filing also highlights drug-pricing policy, payer coverage, regulatory, intellectual-property, cybersecurity and financing risks.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no material off-balance-sheet arrangements.
Investor facts to verify
- Confirm the actual reporting period: this supplied filing is for Q3 2017, despite the request metadata identifying Q3 2016.
- Track CABOMETYX sales growth, discount and rebate levels, and whether the first-line RCC and HCC regulatory milestones are achieved.
- Verify collection of the $45 million Ipsen milestones and monitor revenue concentration: Ipsen represented 55% of receivables at quarter-end.
- Assess recurring cash generation against rising development and commercial spending, lease costs and management’s stated cash runway.
- Review the eventual ASC 606 transition adjustment and its effect on reported collaboration revenue and accumulated deficit.