Exelixis, Inc. Q2 2009 Earnings Call Transcript

| About: Exelixis, Inc. (EXEL)

Exelixis, Inc. (NASDAQ:EXEL)

Q2 2009 Earnings Call

July 31, 2009 5:00 pm ET


Charles Butler - Executive Director, IR

George Scangos - President and CEO

Frank Karbe - CFO

Michael Morrissey - President of R&D


Eric Schmidt - Cowen & Company

Joel Sendek - Lazard Capital

Joe Pantginis - Merriman Curhan Ford


Good day, ladies and gentlemen, and welcome to the Second Quarter Exelixis Earnings Conference Call. My name is Evet and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator instructions)

I would now like to turn the call over to Mr. Charles Butler, Executive Director, Investor Relations. Please proceed.

Charles Butler

Thank you. Thank you for joining us on the Exelixis second quarter 2009 earnings call. Joining me today as usual, are George Scangos, President and CEO; Frank Karbe, CFO and Michael Morrissey, President of R&D. Collectively they will review the corporate financial and clinical development progress over the quarter and discuss our goals and objectives going forward.

Before I turn the call over to George, I'd like to read the forward looking statement. I'd like to note that during our presentation today, we will be making certain statements that are forward-looking, including without limitation, statements related to our financial and business development objectives, expectations regarding our year-end financial guidance, development plans and goals for XL184, 147 and 765, the clinical and commercial potential of our compounds, and the execution of our business strategy.

These statements are only predictions and are based upon our current assumptions and expectations. Our actual results and the timing of events could differ materially from those anticipated in such forward-looking statements, because of risks and uncertainties discussed in the presentation materials, the comments made during this presentation, and the risk factor section of our 10-Q for the quarter ended April 3rd, 2009, and our other reports filed with the Securities and Exchange Commission. We expressly disclaim any duty to make any updates or revisions to any forward-looking statements.

And with that, I will turn the call over to George to get started.

George Scangos

Okay. Thanks Charles, and thanks to everyone who is joining us this afternoon for our second quarter earnings call. We are now more than half way through 2009, and thus far, this has been an extraordinary year for us. Despite the challenges facing most pre-commercial companies in this economic environment, we've exceeded even our own ambitious objectives.

We've signed collaboration that brought in excellent partners and their capabilities, as well as substantial cash. We've effectively managed our resources, and as you'll hear, our expenses are down despite our advancing pipeline. And importantly, we've moved that pipeline aggressively forward.

Those were the objectives that we laid out at the end of last year, and I hope it's clear to everyone that we're making great progress. Key to our continued successes is our ability to enter into high-value business development transactions. Since early December of 2008, Exelixis has received more than 400 million from new and existing partnerships.

Not only does this funding help to advance our clinical program, but it also enables us to continue to evaluate earlier stage compounds that have the potential to yield a substantial return on our investment down the road.

As we announced in May of this year, we entered into a global license agreement with Sanofi-aventis for our two clinical stage inhibitors of the PI3 Kinase pathway, XL147 and XL765, as well as a broad collaboration for the discovery of second generation inhibitors of the pathway for the treatment of cancer.

We've recently announced in an 8-K filing that this transaction successfully closed on July 7, after clearing the Antitrust review. We believe that the PI3K inhibition holds great promise on the treatment of cancer, and Sanofi-aventis and Exelixis are both committed to building on our leadership position in this area, just as we are doing with Bristol-Myers Squibb in the area of MEK inhibition.

The MEK and PI3K kinase pathways are two of the most exciting targets in oncology and the size and scope of our collaborations with BMS and Sanofi-aventis in each of these areas reflect Exelixis ability to discover and develop novel compounds that have substantially clinical and commercial potential.

As a result of Exelixis's early efforts in these areas, our MET and PI3K programs are now the most advanced of any in our industry, and we believe that our partnerships around each program provide us with the resources necessary to help bring first-in-class therapies to market.

As we advance our lead programs in MET and PI3K inhibition, we also continue to make progress on our other compounds. Remember the XL880 is moving forward with GSK; XL281 our inhibitor at RAF; XL413 inhibitor of CDC7; and XL139 our Hedgehog inhibitor are moving forward with BMS; and XL518 our MEK inhibitor is moving forward with Genentech.

Additionally, our early phase discovery work continues to generate interesting compounds that could potentially be the basis for additional relationships in the future. Many of these programs are where our MET and PI3K programs were a while ago, and we believe that we'll have multiple opportunities to continue to expand and diversify our clinical stage pipeline.

We have a great deal of momentum, a lot of credibility in the pharma industry and a robust early pipeline. We continue to explore paradigms on which we can work with pharma and ways to maximize the return to our shareholders and help us to bring exciting new medicines to patients in need.

Not only have we been able to sign strategic collaborations for some of our key assets, we also continue to generate promising clinical data. Nine abstracts on six of our compounds were presented at the recent American Society of Clinical Oncology Annual Meeting. The feedback from the medical and investor community on this data has been quite positive.

As our clinical programs continued to advance and generate additional data, the medical and commercial potential of our multiple pipeline opportunities becomes clear. This in turn enhances our efforts to invest our financial resources in those programs that offer the highest potential for success in the clinic and in the marketplace.

So with that, I'll turn the call over to Frank who will review our second quarter financial results and provide an update on our progress towards our 2009 financial objective.

Frank Karbe

Thank you. As you have heard from George, in the second quarter of '09 we continued to make substantial progress towards our operational and financial goals. And the financial results for the quarter as well as for the first half of the year reflect that we are well on track to meet our long-term financial objectives.

Compared to 2008, in the first half of '09, we've booked over $26 million in revenue from our new collaborations with Bristol-Myers Squibb and Boehringer Ingelheim. Operating expenses have come down by 17% and net loss for the first half of the year has been reduced by about 6%, which includes a one-time loss of $9.8 million in Q2'09 due to the de-consolidation of Symphony Evolution as a result of our deal with Symphony coming to an end in June.

Important to note, that these accomplishments do not yet reflect the impact from our new deal with Sanofi-aventis which became effective on July 7th. Now since December '08, we have secured a substantial amount of financing through our business development activities. We have continued to offload a substantial portion of our operating expenses to partners.

As a reminder, we are still booking most of these expenses on our P&L as we continue to conduct a substantial portion of the work. However, we're being reimbursed for the majority of the associated costs.

So, all in all, we've just navigated the difficult environment exceptionally well. We've executed objectives that we articulated at the end of last year and we are on track to meet our year end financial guidelines that we provided in our last quarterly call.

With that, let me turn to the Q2 financial results in detail. As a reminder, we are reporting our financial results on a GAAP basis only and as always, the complete press release with our result can be accessed through our website at exelixis.com.

Let me begin with revenues. Revenues for the quarter ended June '09 were $27.4 million compared to the $30.4 million for the comparable period in '08. The change from '08 to '09 primarily reflects the decrease in revenue due to the conclusion of various collaboration agreements which, however, was largely offset by revenues associated with the license fees under the new collaborations with Bristol-Myers Squibb for XL184 and XL281 and Boehringer Ingelheim for S1P1 program.

Research and development expenses for the second quarter '09 amounts to $55 million compared to $68.9 million for the comparable period in '08. The decrease from '08 to '09 primarily reflects decreased personnel cost to drive restructuring in November 2008, impact from other cost containment measures initiated in '08, as well as the wipe down of development expenses for discontinued programs which were partially offset by increased development activities related mainly to XL184.

General and administrative expenses for the quarter ended June '09 were $8.7 million compared to $10.2 million for the comparable period in 2008. The decrease from '08 to '09 was again primarily due to decreased personnel cost due to our November '08 restructuring mentioned previously, partially offset by an increase in facility cost.

Collaboration cost sharing reflects the net impact of the amount due to Exelixis under the agreement with BMS for expenses incurred by BMS on XL184, which was offset by our spent on XL281. For Q2 '09, BMS has spent for XL184 exceeded our spend for XL281 and we, therefore, recorded an expense of $1.6 million.

Net loss attributable to Exelixis for the second quarter '09 amounted to $44.8 million or $0.42 per share compared to $45.1 million or $0.43 per share for the comparable year in '08. It's important to note that the net loss attributable to Exelixis in the second quarter of '09 included a one-time charge of $9.8 million as a result of the deconsolidation of Symphony Evolution.

So, despite the one-time charge related to SCI, our net loss still decrease from '08 to '09 primarily due to decreased expenses as I just described a few moments ago. Cash and cash equivalents, short-term and long-term marketable securities and restricted cash and investments totaled $213.1 million at the end of June.

Keep in mind that this cash balance does not include the 140 million upfront payment from Sanofi-aventis, which we received in July at a required tax withholding nor does it include our financing facility with the Deerfield.

We finally turn to our deal with Sanofi-aventis for a moment. As you know, our new collaboration agreements with Sanofi-aventis became effective on July 7th. While there is no accounting impact in Q2, I wanted to address how we will be accounting for these agreements going forward.

The upfront fees of $140 million from both the development and discovery collaborations will be recognized as license revenue starting on July 7th over the estimated committed research term of four years. The income tax withholding associated with the upfront fees will be recorded as a tax expense now Q3 financial statements. Future milestone payments will be recognized as contract revenue and spread over the same estimated research period as the upfront fees.

Due to a reimbursements of clinical activities conducted on behalf of Sanofi-aventis will be recognized as contract revenue as well. In the same period the expenses will be recognized. Finally, the research support of $21 million under the discovery collaboration was recognized over three years, also as contract revenue, again as of July 7th.

With that I'll turn the call over to Mike.

Mike Morrissey

Thanks Frank. I'll start today by saying that we continue to execute the development programs for compounds in Exelixis pipeline. Let's focus first on XL184, which we are co-developing with Bristol-Myers Squibb. As George mentioned, we presented data from the ongoing Phase 2 trial of XL184 in patients with GBM at ASCO in June. The data were very well received by the oncology community at ASCO, and we believe it clearly demonstrates that XL184 is active in this population and has a potential to be a new agent in the treatment of GBM.

This program continues to progress as planned. We have initiated enrollment in the extended cohort in the ongoing Phase 2 GBM trial, starting at the 125 milligram dose, and continue to see a high level of interest and commitments from our PIs and sites involved in this study.

The expanded cohort with include patients with and without prior antiangiogenic and/or bevacizumab therapy and this expanded cohort will give us important information on both the clinical activity and tolerability of the 125 milligram starting dose for XL184, as well as important additional information on the effectiveness of XL184 in patients with and without prior bevacizumab treatments. In addition, we remain on track to initiate our Phase 3 trial for XL184 in second line GBM by the end of 2009 to compliment the ongoing Phase 3 trial of XL184 in Medullary Thyroid Cancer.

We and BMS also believe that XL184 has potential beyond GBM and MTC. We recently initiated a previously planned, randomized discontinuation trial of XL184 in multiple tumor types, including pancreatic, prostate, heterocellular, gastric and GE junctional, melanoma, small cell lung and small cell lung with variant and breast cancers. This trial is designed to identify potential clinical activity across multiple indications as part of our long term plan with BMS to develop XL184 for the treatment of a variety of cancers.

Other than taking a hit on this approach of conducting Phase 2 trials in a small number of tumor types, we are undertaking a more comprehensive trial that should yield information about the potential activity of XL184 across a broad array of oncology indications. We and BMS believe that this approach will provide us with the data we need to maximize both the clinical and commercial opportunities for these very promising compounds.

The second quarter also was marked by important progress in our PI3 kinase program, which was recently partnered with Sanofi-aventis just before ASCO. We presented promising clinical data from the ongoing Phase 1 trials of XL148 and XL865 at ASCO, and the data from these trials continues to support the Phase 1b/2 trials that are ongoing for each compound.

The collaboration with Sanofi-aventis to develop these two compounds and discover other potential PI3K inhibitors is off to a great start, and we have completed the first series of joint planning meeting with the Sanofi-aventis teams. It give us very high degree of alignment and motivation on the part of both companies to work together to advance our leadership in the PI3k space.

Currently, we and Sanofi-aventis have six ongoing trials with XL147 and XL765. For XL147, we are conducting a Phase 1 trial in patients with solid tumors, Phase 1b/2 trial in combination with erlotinib and patients with non-small cell lung cancer and the Phase 1b/2 trial in combination with paclitaxel/carboplatin in patients with solid tumors.

For XL765 what you have is both PI3K and mTOR, we are conducting a Phase 1 trial in patients with solid tumors, a phase 1b/2 trial in combination with temozolomide in GBM patients, and the Phase 1b/2 trial in combination with erlotinib and patients with non-small cell lung cancer.

Any of these combination trials will be the subject of abstract submissions for the upcoming EORTC meeting to be held in November. As these trials continue, we are actively planning the next phase of the development program for these compounds, jointly with our colleagues and Sanofi-aventis. Both companies share the goal of realizing the near-term opportunities for these compounds, while establishing a durable position as the leader in PI3K inhibition.

Hope to provide additional insight into our joint development plans in this area towards the end of 2009. I'll keep today's R&D update short, as we had a complete portfolio review at ASCO during our investor update. Our clinical, pre-clinical and discovery efforts continue to progress with great speed and depth, and we look forward to our next date of release at the upcoming EORTC meeting in Boston in November.

So with that, I will turn the call back to George.

George Scangos

Thanks, Mike, and thanks again to all of you who have joined us for this afternoons call. I think we have had a great first half of 2009. We exceed our pipeline and financial goals; we maintained good control of our expenses; we made excellent progress in our key clinical programs, and to retain the ability to make prudent investments in our earlier non-partnered programs, which have the potential to generate substantially value down the road.

We stayed on track with respect to our goals of partnering thoughtfully, balancing our operating cost with our financial resources, and making prudent investments in our non-partnered programs. With what we have accomplished so far this year, we are on a course that will allow us to make continued progress in the months ahead.

As always, I want to thank all of our employees whose hard work and dedication have made all of this progress possible. And with that I will be happy to open up the call for questions.

Question-and-Answer Session


(Operator Instructions). Your first question comes from the line of Mr. Eric Schmidt with Cowen & Company. Please proceed sir.

Eric Schmidt - Cowen & Company

Good afternoon, thanks for taking my call. Maybe first a couple of questions for Mike on 184, first in rolling the expanded GBM cohort, are you having any trouble finding the Avastin naïve patients in your clinical studies?

Mike Morrissey

Eric, that's a great question. I don't want to get into the details of the specific ongoing trials. Just to reflect going on that, we have been able to enroll a Avastin naïve patients in the expanded cohort, so yes.

Eric Schmidt - Cowen & Company

Okay. And then in terms of the randomized discontinuation study, that's a fairly novel design as at least in my experience. It's got a bunch of tumor types in there. How do you, how do you work to separate any potential signal from the noise and what size study are we talking about?

Mike Morrissey

You know it's a trial design that I think was initially validated with sorafenib. Certainly that's where the RCC indication came from, and I believe other indications as well. So across the nine, nine different histologies that we're looking at, we project a total of 600 patients in total and again there is, as this works in the classic paradigm, there's various enrollments goals initially to see a signal along with rules for stopping either based upon success or utility in the running phase and then for patients with stable disease are then looking at a randomization to be able to generate a rough PFS [meet] out.

So, in our view and certainly in the view of working closely with BMS, this is a very efficient way to really do some very careful analysis of variety of different tumor types in a very efficient manner. So we're excited about having this trial up and running and looking forward to wrapping it most.

Eric Schmidt - Cowen & Company

And then for Frank on the P&L in terms of modelings, we just assume that the collaboration cost sharing line with Bristol Myers includes, I don't know, plus or minus, some million or two each quarter depending on who has done the work and who is yet to be reimbursed or how do we look at that?

Frank Karbe

That really depends on the activity in each quarter going forward. I think for this year, we are bit in an unusual situation because of the first $100 million that we have to pay. You recall that BMS prepaid us for their 65% share of expenses. In 2010, you will see cash flow is coming back to Exelixis because we will get reimbursed to 65% of the expenses incurred. For the remainder of this year, I don't know exactly what the numbers will be but I think they will be fairly small.

Eric Schmidt - Cowen & Company

Then I think you have until December to decide whether to draw down on your Deerfield financing, if I'm not mistaken. Have you made any decision there? And if so when you do decide, will you press release that?

Frank Karbe

Well, as you may recall, we put the Deerfield facility in place quite a while ago, it was meant to act as a safety net and it's been very valuable for us. But, obviously, we are on very solid financial footing right now. So there really is no need for that type of safety net but we happen to have it and we'll keep it in place for as long as it lasts. You are right based on the current deal terms, this facility will expire at the end of the year. If we ever were to use it, then also see there would be some sort of filing, certainly an 8-K filing.


Your next question comes from the line of Joel Sendek with Lazard Capital. Please proceed.

Joel Sendek - Lazard Capital

I have a few questions. I am worrying, is it still possible that this extensive study in GBM is the potential registration trial?

George Scangos

Mike, do you want to take that?

Mike Morrissey

Sure. Joe, as if everything here is, this is all data driven, so I think that potential is one that we are willing to consider and look at carefully pending the data at the 125 dose. So we'll run the trial, look at the data and we'll see how it looks.

Joel Sendek - Lazard Capital

Then I know it's hard to tell, but can you give us some sort of brackets around when we might see the data. How long it will take based on the currency of enrollment?

Mike Morrissey

Yeah my expectation is that we'll have a certainly plan to have a update at ASCO in 2010. Exactly how that frames the actual data will, again we'll see how that flows.

Joel Sendek - Lazard Capital

Are you allowed or does the trial protocol contemplates the potential for dose escalation or are you going to stay at 125?

Mike Morrissey

We do not plan to escalate the dose above 125.


(Operator Instructions). Your next question comes from the line of Joe Pantginis with Merriman Curhan Ford. Please proceed.

Joe Pantginis - Merriman Curhan Ford

I was wondering also for 184, when you talk about the expanded cohort now, what initiatives have you undertaken with regard to communicating to physicians the ability to address the issues you saw, what you presented at ASCO for treatment discontinuations? Thanks a lot.

George Scangos

That's for you Mike

Mike Morrissey

Yeah, you know we have worked very closely with the PIs in the sites with the lessons learned from the data set that was outlined at ASCO and we are in very, very close contact with them about the whole issue around the tolerability, dose reductions and dose interruptions and so early days, but I'm very confident that the interaction there in terms of how we're, again, constituting the trial is really very, very diligent in terms of making sure we keep patients on drug without interruptions whenever possible. That's (inaudible) hypothesis we want to test at this dose.


With no further questions in the queue, I would now like to turn the call back to Mr. George Scangos for closing remarks. You may proceed sir.

George Scangos

All right. Well, thanks once again to everybody for dialing in. I think it was just a fairly straightforward quarter. We've had a great first half of the year and thank you all for your interest. With that we can sign off.


Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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