Exelixis, Inc. Q1 2010 Earnings Call Transcript

May.11.10 | About: Exelixis, Inc. (EXEL)

Exelixis, Inc. (NASDAQ:EXEL)

Q1 2010 Earnings Call Transcript

May 11, 2010 5:00 pm ET

Executives

Charles Butler – VP, IR & Corporate Communications

George Scangos – President and CEO

Frank Karbe – EVP and CFO

Mike Morrissey – President, R&D

Analysts

Karen Jehn [ph] – JPMorgan Chase & Co.

Joel Sendek – Lazard Capital Markets

Ted Tenthoff – Piper Jaffray

Eric Schmidt – Cowen & Company

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2010 Exelixis' earnings conference call. My name is Kyana and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session. (Operator instructions) I would now like to turn the conference over to your host for today, Mr. Charles Butler. You may proceed.

Charles Butler

Thank you. Thank you for joining us for the Exelixis' first quarter 2010 earnings call. Joining me on today's call are, as usual, George Scangos, Frank Karbe, and Mike Morrissey, who will collectively review our corporate, financial, and development progress for the quarter ended March 31, 2010, and discuss upcoming milestones and our progress towards achieving goals that we outlined during our last earnings call.

Before we get started, I would like to note that during our presentation and question-and-answer session today, we will be making certain statements that are forward looking, including without limitation statements related to data to be presented at ASCO, expectations regarding development activities, expectations regarding our 2010 year-end cash balance and future funding, our 2010 goals and financial outlook with respect to revenues, operating expenses, and cost savings and charges related to the restructuring, and the continued development and therapeutic and commercial potential of XL184, XL147, and XL765. 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 factors section of our 10-Q for the quarter ended April 2, 2010, 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.

With that, I'll turn the call over to George who will start the formal remarks.

George Scangos

Okay. Thanks, Charles, and thanks to all of you for joining us today. On today's call as usual, I'll give an overview of the business and the quarter, and then Frank and Mike will give you updates on the financials and R&D respectively.

At this point, ASCO is less than a month away and we are really focused on getting ready. There will be 12 presentations on Exelixis compounds at ASCO, four on XL184 alone and the amount of data we’re presenting is more substantive than we have previously. So we are looking at ASCO as an important event for us.

We believe that data will reflect the potential of 184 in thyroid cancer, in glioblastoma, and beyond those first indications in some of the major tumor types as well. The abstracts for ASCO will be released next week. We will have the 12 presentations at ASCO itself, and in addition we hold two investor meetings at ASCO.

Consequently, we won't spend a lot of time today discussing our clinical program, but we would release a lot of data in the next month or so. So please stay tuned.

As we described previously, we are focused on the development of our late stage compounds. However, it's important to remember we have retained a world-class drug discovery group with the ability to bring forward a select number of earlier stage compounds. Our discovery group has repeatedly demonstrated its ability to bring forward high-quality compounds, and currently there are 14 Exelixis compounds in clinical development by us and our partners.

It should come as no surprise, then that we're engaged in multiple advanced business development discussions with potential partners who are interested in accessing our discovery capabilities. We are confident that we will successfully conclude some of these discussions during the course of the year.

Additionally, we are in advanced discussions with multiple companies about several of our compounds and we are also confident that one or more of these discussions with result in partnerships this year. So 2010, like 2009 and 2008, looks to be a year in which we will be able to bring in substantial cash through partnering to help support our operations.

In addition to the partnering activity, there are other factors that give us confidence about our financial situation. First, our expense base going forward will be lower due to our recent downsizing. We had projected approximately $90 million in savings in 2010 and 2011, and we are on track to achieve that number. Second, reimbursements from our partners are expected to increase for the remainder of the year. These factors, our ongoing business development activities, our lower expense base and the increase in reimbursement give us confidence in our ability to fund our operations into the future.

The last and most important area I want to discuss is the significant progress we are making in the clinic. Over the last year, we have dramatically expanded the scope of our late stage clinical programs for XL184, XL147 and XL765. Each compound has demonstrated its ability to inhibit some of the most important targets in oncology.

We believe that they have significant potential in a number of tumor types and we are working together with our partners to develop them in broad-based clinical programs, including focused indications that can lead to a rapid market introduction and large indications with significant unmet medical needs.

The promise of these compounds I think has been increasingly recognized by clinical trial patients and investigators. The number of presentations at ASCO reflects the significant interest in these compounds and the data that they've generated to date. We look forward to sharing that data with all of you in the near future.

So at this time, I will turn the call over to Frank to go through the first quarter financials, and then Mike will give you an R&D update before I come back for a few closing remarks. Frank?

Frank Karbe

Thanks, George. Before I review the Q1 results in detail I would like to provide an update where we stand vis-a-vis our financial objectives for the year. Summary, we believe we are on track to meet our year-end financial goals for revenue, operating expense and cash.

We ended Q1 with almost $170 million in cash. We anticipate that we will bring in substantial additional funding through a variety of channels; including new business development activities, as George has just point out, though increased reimbursements and our collaborations with BMS and Sanofi-Aventis, through potential milestones, and possibly by refinancing the remaining tranches of the GSK loan.

We made significant progress in reducing our expenses following the restructuring in Q1, and we are on track to meet our target of reducing cash expenditures by $90 million net of restructuring cost through 2011. This includes subletting one of our buildings for which we have entered into a letter of intent.

Revenue is expected to increase throughout the year, and we expect revenues in the second half of the year to be substantially higher than in the first half. This increase in revenues is driven by two factors; one, our increase in reimbursements from BMS and Sanofi-Aventis as a result of the continued expansion of our clinical programs XL184 as well as XL147 and XL765; and two, the commencement of quarterly reimbursements, specifically from BMS, as a result of the exhaustion of certain prepayments made by BMS on the XL184 program.

As we have mentioned previously, when we signed the collaboration with BMS they prepaid their portion of the first $100 million of development expenses on XL184. We exhausted these prepayments in the second quarter of this year and now expect to receive further payments from BMS to reimburse us for their 65% share of the cost incurred on XL184. This is in addition to the ongoing reimbursements for 100% of the expenses for XL281.

Let me now turn to the results for the first quarter in detail. As a reminder, we are reporting our financial results on a GAAP basis only, and as usual complete press release with our results can be accessed through our Web site at exelixis.com.

Let me begin with revenues; revenues for the first quarter were $42.2 million compared to $25.3 million for the comparable period in ‘09. The approximately 67% increase in revenues was primarily due to revenue from our XL147, XL765 and the discovery PI3K collaborations with Sanofi-Aventis, as well as increased revenue from our collaboration with Genentech on XL518 following a $7 million milestone payment in Q1.

These increases are partially offset by a reduction in revenues related to the BMS ‘07 cancer collaboration and the completion of revenue recognition under the BMS/LXR collaboration. As I mentioned previously, from the second quarter onwards we anticipate that we will receive reimbursements from BMS on XL184, which we expect to increase our cash inflows as well as our revenues.

R&D expenses for the quarter totaled $64.8 million compared to $55.3 million for the comparable period in ‘09. The increase in expenses in the quarter is primarily due to the significant expansion of clinical development activities for XL184 and XL147.

G&A expenses for the quarter amounted to $8.8 million and were roughly in line with the comparable period in 2009.

Restructuring expenses for the quarter amounted to $16.1 million, of which approximately $12.2 million is related to one-time termination benefits to employees, and the remainder to various write downs and facility related charges. We expect further restructuring expenses of approximately $9 million in the second quarter associated primarily with the anticipated exit and sublease of one of our buildings as I mentioned previously.

Under other income and expense, we recorded income of $4.2 million for the quarter compared to an expense of $1.6 million for the comparable period in ‘09. The difference is primarily related to a $4.5 million payment associated with our ‘07 divestiture of our Plant Trait Business to Agrigenetics as well as the termination of the Deerfield credit facility and decreased interest expense due to the lower GSK principal balance.

Net loss attributable to Exelixis for the quarter, including the restructuring expense of $16.1 million totaled $43.2 million, or $0.40 per share, compared to $36.2 million, or $0.34 per share, for the comparable period in ‘09. Excluding the restructuring charge, our net loss in Q1 of this year would obviously have been substantially over than in the same period last year. To be clear, going forward we do in fact expect our quarterly net loss to the lower than in Q1 for the remaining quarters of the year, mainly due to higher revenues, lower operating expenses and lower restructuring charges.

The increase in revenues will be primarily driven by higher reimbursements and new business developments. We will see the full impact of the March restructuring on our operating expenses and no material restructuring charges are anticipated after the second quarter.

Cash and cash equivalents, marketable securities, and restricted cash and investments totaled $168.5 million at March 31, 2010, compared to $221 million at the end of last year. As I mentioned previously, we expect substantial additional cash inflows for the remainder of the year through a variety of channels, and we feel confident to reach our year-end guidance of ending the year with approximately $200 million in cash.

So in summary, we have made a lot of progress in the first quarter and as a result going forward the unfunded portion of our operating expenses will be reduced and a portion of our operating expense that is funded through collaborations will increase. All in all, we believe we are on track to meet our financial expectations for the year.

And with that, I will turn the call over to Mike.

Mike Morrissey

Thanks, Frank. The Exelixis R&D team has continued to focus on advancing XL184, XL147 and XL765 as our most advanced clinical compounds. I’ll provide a short R&D update on the call today as we’ll have a full data download in a couple of weeks at ASCO. You will have 12 presentations covering our dual MET/VEGFR inhibitor XL184; our leading PI3K inhibitors, XL147 and XL765; our IGF1R/SRC inhibitor, XL228; and our Hedgehog antagonist, XL139.

Let's start first with XL184. The clinical and commercial opportunity for dual MET/VEGFR inhibition is significant and we with BMS have built our XL184 clinical development program to maximize success from both the medical and commercial perspective. A growing body of clinical data for XL184 clearly validates dual MET/VEGFR inhibition as a promising mechanism approach for cancer therapy. MET plays a key role in nearly all aspects of tumor biology, including cellular proliferation, invasiveness, migration and angiogenesis.

In addition, a growing body of preclinical evidence demonstrates that MET may be the key component that drives the acquired resistance to antigenic therapies, which highlights the potential advantage of simultaneously inhibiting both MET and VEGF receptors. As the most clinically advanced MET inhibitor, we believe that XL184 has the potential to be a first-in-class and best-in-class therapy that could provide the treatment options for large numbers of cancer patients.

We will have for substantial data presentations for XL184 at ASCO. First, we’ll have an oral presentation of the data from the XL184-201 trial, which is currently evaluating a 125 milligram daily dose of XL184 in patients with recurrent glioblastoma. Second, we'll have a poster presentation with the first data from our randomized discontinuation trial evaluating XL184 in melanoma, small cell and non-small cell lung, gastric and GE junction, breast, ovarian, pancreatic, prostate, and hepatocellular cancers.

Third, a poster presentation with discussion covering the preliminary data of XL184 in combination with Erlotinib in non-small cell lung cancer; and finally, we will have an oral presentation of the long-term follow up from our initial Phase I trial of XL184 in patients with medullary thyroid cancer.

We are pleased to update the oncology in investment community with the latest clinical data from the XL184 development program and hope to demonstrate that XL184 has emerging clinical activity in multiple tumor types that validates the role of dual MET/VEGFR inhibition in a variety of different cancers.

We’ve also made substantial progress in the clinic with XL147 and XL765, our leading PI3K inhibitors. Recognition of our progress in XL147 and XL765 will be the subject of six separate presentations at ASCO, which will highlight the early experience with these compounds in single agents and in various combination studies that we have discussed previously.

Again, we are optimistic that the data presented at ASCO will provide a strong foundation on which to continue building the leading PI3K inhibitor franchise in conjunction with our partner, Sanofi-Aventis.

I think it's worthwhile to take a step back and look at the breadth and depth of the clinical programs supporting XL184, XL147 and XL765. Currently these three compounds are the focus of 15 individual trials investigating 15 unique tumor types with significant commercial potential as both single agent and combination treatment modalities. These development programs are designed to provide potential clinical benefits to the broadest number of patients while maximizing the commercial potential of these compounds.

So I’ll close here and reiterate that we are generally excited about the upcoming ASCO meeting in June and eagerly look forward to providing an in-depth update on up-to-the-minute datasets for XL184, XL147, and XL765 at their individual ASCO presentations. Due to the depth and breadth of the data we'll be presenting at ASCO this year, we plan to hold two separate investor meetings in Chicago. The first will be on Saturday, June 5 that highlights our XL184 second line GBM data, and a second on Monday, June 7 to review the key data and results from the other 11 posters. You will be able to join us either live in Chicago or over the Internet.

And with that I will turn the call back to George for closing remarks.

George Scangos

Thanks, Mike. There really are two factors that are important for Exelixis right now. First is the clinical data on our compounds and moving up through the clinic and on to the market as quickly as possible; and second, it is the strong financial position that will enable the continued aggressive development of the compounds. So I'm not going to say more about the data, we’ll save that for ASCO.

But financially, we believe that the factors that we outlined, our reduced expense base and expected increase in reimbursement and our projected BD [ph] activities give us a solid base on which to move forward. The goals that we laid out on our last call were to ensure that the organization is focused on our late stage compounds, to extend our cash runway into the second half of 2011, to reduce our unfunded expense base and end 2010 with approximately $200 million in cash.

We’ve made significant progress towards all four of these goals and we are on track to meet them all. We are looking forward to ASCO and believe that the data presented at the meeting will help to position Exelixis as a leading innovator in oncology.

Before we conclude, I’d like to say that as the clinical trials progress and the data from the various trials mature, we are preparing for the potential approval and market introduction of our compounds. With that in mind we’ve hired a new VP of Strategic Marketing who was previously at Genentech where he was a key member of the Avastin marketing team and led the Avastin marketing effort in glioblastoma. His first day at Exelixis was yesterday and we are very happy to have him on board. He obviously will play a key role as move XL184 and our other compounds through the clinic and on to the market.

The first quarter of this year has been a very challenging and busy time for all of our employees and I'd like to thank them all for their dedication, for their hard work to advance the pipeline and help improve the treatment of patients with cancer. So I believe Exelixis is well positioned to meet our near and our long-term objectives and I look forward to updating you all on our progress as we continue to execute on our strategic plan.

So with that, I think, we’ll close our remarks and be happy to open up the call for questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line of Cory Kasimov of JPMorgan. You may proceed.

Karen Jehn – JPMorgan Chase & Co.

Hi, this is actually Karen Jehn [ph] for Cory. Thanks for taking my questions. My first is on you commented in the past you expect one or two business developments per year. Could you give us an update on your outlook for the year, maybe on timing, scope and whether or not you are expecting similar type of deals to the ones you've done in the past?

George Scangos

Sure. We can talk a little bit about our business development expectation. We are having a lot of discussions as I said during the prepared remarks. We are having discussions with multiple companies around our discovery capabilities and our discovery capabilities have been recognized as being world class by many of the pharma companies. We continue to talk to them about doing drug discovery on their behalf as part of the strategic collaboration. And so we do expect to sign one or more collaborations around our discovery capabilities as the year goes on.

Additionally, I think as we said on our last call, we have a number of compounds that are un-partnered, which have very interesting data as far as – and we are numerous discussions, I would say, with pharma companies as well. Some of those discussions involve single assets, some of them involve multiple compound. And we are moving a number of discussions forward in parallel, but there are enough discussions going on and they are serious enough and they are late stage enough. So we are very confident about bring couple of those two conclusion during the course of the year.

Now, I am not going to speculate on what month that will be certainly. But I think we are very confident that we’ll get the deals done this year.

Karen Jehn – JPMorgan Chase & Co.

Okay. Great. Thanks. And my second question is on the randomized discontinuation trial for 184. I know you're waiting until ASCO to give us the majority of the detail but any update or a sense of how enrollment is going along and how extensive a look we might get at ASCO?

Mike Morrissey

Yes, this is Mike. I would say enrollment in the RDT trial has gone extremely well. I’ll save all the quantitative details for ASCO. We’ve been very pleased by the interest of the PIs, the broad enrollment across all nine histologies included in that trial, and the initial signs of clinical activity. So I will hold further comments for the ASCO presentation and update. But we are very excited about how well that’s going and I would say the broad signal that we are seeing across multiple histologies in that trial.

Karen Jehn – JPMorgan Chase & Co.

Great. Okay. One more quick one. The original Phase I trial in MTC, are there patients that are still on drug in that trial?

Mike Morrissey

Yes, there are and we are very happy to provide the long-term follow up at the oral session as well at ASCO.

Karen Jehn – JPMorgan Chase & Co.

Okay. Great. Thanks for the update.

Operator

Our next question comes from the line of Joel Sendek of Lazard Capital Markets. You may proceed.

Joel Sendek – Lazard Capital Markets

Hi, thanks a lot. I just wondered if you could talk a little qualitatively about the data we'll get at ASCO. I mean, you seem very bullish in tone and in the press release about the potential for us to get new data that will – you say in the release, you know, clarify the potential of different tumor types. Are you going to show objective responses in many different tumor types or is it just going to be the extent of the – I mean, the efficacy of the drug or is there anything new with regard to different evidence of efficacy of this pathway? Can you help us with that, just to frame it going into the meeting?

George Scangos

Joe, this is George. I understand the basis for the question and we certainly would like to provide you with more details. We're trying to be respectful of the ASCO embargo, of course.

Joel Sendek – Lazard Capital Markets

Right.

George Scangos

But I can tell you there will be both new data and quantitatively more data on some of the indications that we talked about previously for the MTC trial where we published very high response rate, very high disease control rate in the Phase I study. We will now have data on the long-term follow up in those patients. So we will know about how long the response is, how durable the response is. There will be data there. For the GBM study, we will have a meaningful number of patients treated at 125 milligram and we will be able to – you will get some insight into the potential of the compound in glioblastoma.

I think in both patients who have been treated with prior anti-atherogenic therapy and patients who are naive for prior anti-atherogenic therapy. There is a long trial going on with combination with Erlotinib, we'll have data from that where I think we'll give you some insight into the potential for XL184 there. And we will have the first data coming out of the random discontinuation trial in a number of those indications.

I think we are looking at much broader dataset and a larger number of indications than we’ve shown previously as well as more in-depth data in those indications where we’ve already saw some data. That's why we're enthusiastic about the data. I think people will get a much better view of the potential of XL184.

Joel Sendek – Lazard Capital Markets

Okay, great.

Mike Morrissey

Maybe I could add a few comments as well just from the standpoint of we have been very aggressive in terms of our enrollment activities in a very proactive manner across certainly the 184 trial has been very successful at really ramping up enrolments. And I think you are going to see a very deep dataset with several hundred patients across these different presentations. So it's as George said, I think it's more qualitatively and quantitatively a very deep dataset. We are really carried about and look forward to getting it out there and to get some feedback.

Joel Sendek – Lazard Capital Markets

Excellent. I'll look forward to seeing the data. Thanks.

Operator

Our next question comes from the line of Ted Tenthoff of Piper Jaffray. You may proceed.

Ted Tenthoff – Piper Jaffray

Great. Thank you very much. Looking forward to ASCO, too, Chicago in June. So digging into, Frank, your comments a little bit more about reimbursements, revenue recognition, can you give us a sense in the current quarter what was R&D reimbursement from Bristol and Sanofi specifically?

Frank Karbe

Yes, I think I can give you a high-level sense. If you look in our Q1 in the 10-Q, you will see that we had about 33% of our revenues in the first quarter from BMS and about 47% of our revenues from sanofi-aventis. And the majority of those revenues are really linked to reimbursements. I can’t give you the exact split here but I think it’s fair to say that a big portion of that is linked to direct cost of reimbursements related to these studies under these two collaborations.

Ted Tenthoff – Piper Jaffray

But those percentages do include amortization, correct?

Frank Karbe

It does include amortization as well.

Ted Tenthoff – Piper Jaffray

Excellent. And just to be sure of this, but we will start to recognize the cost savings from the restructuring really more in the second quarter, correct?

Frank Karbe

Well, the impact from the restructuring will really be seen in Q2 and beyond because the restructuring was implemented in March of this year. So the real savings impact will not really be visible until Q2 and beyond. With regards to the charges, however, the majority of the charge was taken in Q1 with about $16 million and there is essentially one other significant charge in Q1 of about $9 million, which is related to us subletting and vacating one of our buildings.

Ted Tenthoff – Piper Jaffray

Excellent. Thanks for the extra color there.

Operator

Our next question comes from the line of Eric Schmidt of Cowen & Company. You may proceed.

Eric Schmidt – Cowen & Company

Good afternoon. Mike, you mentioned the rapid enrollment you're seeing in many of your trials. I was just wondering if you could give us an update on 184 in MTC and whether there's a more defined target for closing out enrollment in that trial?

Mike Morrissey

Yes. I think we are on track to, again, complete enrollment there in the second half of the year as we’ve guided previously, and looking forward to getting that done and moving that forward.

Eric Schmidt – Cowen & Company

Okay. And then still on 184, over in GBM, is there a sense of when you might be able to provide us with a regulatory strategy forward?

Mike Morrissey

Absolutely. Again we look at the GBM space as a broad area of both medical and commercial opportunity for XL184 in both first and second line study. We’re excited to have, again, a very deep data set in second line to have both presented and then have a chance to discuss at the ASCO meeting on Saturday. We are certainly planning to advance XL184 into future pivotal trials in GBM, and I think we’ll outline the timing and the details of that in Chicago when we can put that in the context of the data we present as well. So stay tuned couple of weeks and I think we will be able to make that fairly clear in terms of what our intent and what our plans are going forwards.

Eric Schmidt – Cowen & Company

Great. And then last question, maybe either for Frank or for George, in terms of the targeted moneys that you hope to bring in in order to reach your year-end cash guidance, will most of the influx of cash be coming from new collaborations or are there any milestones under the existing deals that are pretty significant that we should know about?

Frank Karbe

It’s really a mixture of variety of things. And a portion of it we expect to come from new deals. A portion of it from milestones, maybe characterizes it, we expect some milestones, not huge milestones, but we do expect some cash inflows from that. And I think the reimbursement factor is an important one too. We have significant ongoing cash inflows from the cost reimbursements under the BMS and sanofi-aventis collaborations. And it’s a mixture of all of those.

Eric Schmidt – Cowen & Company

Are there any specific milestones we should be aware of, Frank?

Frank Karbe

No.

Eric Schmidt – Cowen & Company

Okay. Thank you. We'll see you in a couple weeks.

Operator

With no further questions, ladies and gentlemen, that concludes today’s conference. We want to thank you for your participation. You may now disconnect and have a great day.

George Scangos

Thanks, everybody.

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