Exelixis, Inc. (NASDAQ:EXEL)
Q3 2010 Earnings Call
November 04, 2010 5:00 pm ET
Mike Morrissey - President and CEO
Frank Karbe - CFO
Ted Tenthoff - Piper Jaffray
Ziad Bakri - Cowen & Company
Joel Sendek - Lazard Capital Markets
Good day, ladies and gentlemen, and welcome to the third quarter 2010 Exelixis earnings conference call. My name is Kares and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions)
I would now like to turn the call over to your host for today, Mr. Charles Butler, Vice President of Investor Relations. Please proceed, sir.
Thank you. Thank you for joining us on the Exelixis third quarter 2010 earnings call. Joining me on today's call are Mike Morrissey, our new President and CEO; Frank Karbe, our CFO who will review our corporate, financial, and development progress for the quarter ended October 1, 2010. They will also discuss upcoming objectives and provide an update on 184, our lead clinical development program. As a reminder, we are reporting our financial results on a GAAP basis only and as usual, the complete press release with our results can be accessed through our website at exelixis.com.
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 the future development of 184 and our plans related there to, the clinical, therapeutic and commercial potential of 184, future presentations on data and development priorities, and our 2010 financial outlook.
These statements are only predictions and are based upon 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 Q&A session, and the Risk Factors section of our 10-Q for the quarter ended October 1, 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 statement.
With that, I will turn the call over to Mike Morrissey.
Thank you Charles and thanks to everyone joining us on the call today. We’ve had a productive quarter and made progress across nearly all aspects of our business. Our call today is taking place ahead of the EORTC data release for XL184 in two weeks. We’ll focus our brief comments today on XL184; the Q4 events that will help us end the year and our Q3 financial summary, including our recently announced transaction with BMS.
(inaudible) saying that 2010 has been a truly transformative year for Exelixis and we continue to focus on two key objectives, developing new oncology drugs for cancer patients with significant unmet medical need and building value for our shareholders. Let’s first start today with XL184.
Our development activities with this compound remain the top priority for the company. We are advancing the XL184 clinical program across multiple fronts and are evaluating 13 tumor types across eight clinical trials in the initial development effort. Today, objective responses have been seen in seven distinct tumor types thus demonstrating the potential of XL184 as a broadly acting anti cancer agent.
In addition to the activity observed in patients with advanced medullary thyroid cancer or MTC and refractory glioblastoma, objective responses were documented at ASCO and patients with five other tumor types from our ongoing randomized discontinuation trial or RDT study including advanced ovarian cancer with 3PRs hepatoma, with 2PRs patients after progression of sorafenib and non small cell lung cancer also with 2PRs.
The pivotal phase III trial of XL184 in MTC patients is projected to read out top line data in the first half of 2011 and we planned to file our first NDA in the second half of 2011 assuming a positive outcome of that trial. In addition, we are preparing to initiate a phase II pivotal trial in refractory glioblastoma patients in the fourth quarter based on the encouraging data that was presented at ASCO in June.
The RDT study is an important single search trial that is investigating the activity of XL184 in nine different tumor types. This study will be the focus of our six upcoming presentations at the EORTC meeting on November 18 in Berlin and our R&D day on December 2 in New York City. We will have a closer presentation on the overall study results as well as individual posters with the new data from hepatoma, prostate, ovarian, melanoma, and non small cell lung cancer. We are planning report data on approximately 40 to 60 valuable patients for the later four cohorts.
Rapid enrollment into the RDT study continues and is now at 400 patients overall. This we believe reflects investigative enthusiasm for the trial and the emerging data obtained so far. Of these five tumor types, metastatic castration-resistant prostate cancer is evolving into an opportunity of significant interest. We have enrolled 101 patients into the prostate cohort to-date including 59 patients since September 1st.
Investigators interest were peaked by our initial data released during ASCO which documented a single post Taxotere patients who experienced a truly unique clinical response to XL184. A complete resolution of the bone scan at 6 and 12 weeks confirm partial response of this measurable lung lesion, a 50% decrease in its PSA level and a marked reduction in the symptomatic pain that is often associated with bone metastasis.
This clinical profile appeared potentially different from that observed previously with first and second generations antigens (inaudible) based chemotherapies, bone targeting agents as well as other VEGF directed TKIs or biologics. Bone metastases are present in more than 90% of patients with metastatic prostate cancer and are a major driver of both morbidity and mortality in these late stage patients.
Our early, but nonetheless unique clinical signal for XL184 presented during ASCO highlights potential new approach to address a major unmet medical need to advanced prostate cancer. I’ll wrap up here by reiterating that we look forward to sharing Exelixis progress throughout the fourth quarter of 2010 and early into 2011. In addition to the EORTC presentation on November 18, we will host a conference call with Dr. Matthew Smith, Program Director of GU Oncology at Mass General Hospital and Associate Professor of Medicine at Harvard Medical School.
Dr. Smith is one of our key clinical investigators in the RDT study and we’ll discuss the EORTC data for the prostate cancer cohort and provide contexts for the role that XL184 could potentially play in regard to both currently approved agents or those in development. We will host our Annual R&D Day on December 2 in New York. This event will be an important opportunity to discuss how we are incorporating the EORTC data into the strategy and priorities for advancing XL184.
In addition we will present at the Lazard and Pier Jaffray healthcare conference on November 16 and 30th respectively. We have also recently submitted an abstract for the ASCO GU Meeting in February 2011 which if accepted would help us extend our news flow into the early part of next year. I’ll stop there and at this point turn the call over to Frank for a review of our financial results for the third quarter. Frank?
Thank you, Mike. Continuing with the new format that we adopted last quarter, I will again focus just on the highlights of our financial performance in the quarter and refer you to our press release and quarterly SEC filings for additional details.
We continue to see the impact from our restructuring decisions earlier this year (inaudible) in a significant decrease of our quarterly net loss in spite of rapidly advancing and expanding the clinical development of XL184. We also continue to maintain a solid cash position with over $260 million at the end of the third quarter and we still expect to end the year with approximately 250 million in cash.
Revenues for the third quarter were flat year-over-year, but increased from Q1 and Q2 of this year by approximately 29 and 14% respectively. Note that the third revenue includes the full $17 million payment from BMS in connection with their opt out from the XL184 program. With regard to our full year forecast we expect to end the year within our previously provided guidance of 190 to 210 million, but we anticipate to come out at the lower end of this range mainly due to the expected effective state for the Bristol Myers-Squibb transaction being later than originally anticipated.
R&D expenses are down by about 18% year-over-year despite the progress in our development activities for XL184 including the significant increase in enrollment in the RDT study that Mike alluded to. This decrease is mainly due to our cost containment efforts which includes most notably our reduction in March of this year.
Net loss decreased by approximately 66% from the same quarter last year and by about 80% and 62% as compared to Q1 and Q2 respectively of this year. Including, however, a restructuring charge in Q1 and Q2 of approximately 16 million and 9 million respectively. Despite restructuring charges decreases again mainly reflect the impact from our cost reductions. Let me stress that managing our expenses will remain a high priority for us going forward.
Subsequent to the end of the third quarter, we announced our latest transactions with Bristol Myers-Squibb around our TGR5 and ROR assets on October 11. In addition, we opted out of the co-development for XL139 for selective inhibitor which provides upfront cash and relieved us of our co-funding obligations going forward. In total we will receive a $60 million upfront payment, pending HSR approval and potentially up to 505 million in new development and regulatory milestones and up to 300 million in new commercial milestones as well as attractive royalties across all three programs.
These agreements increase our financial flexibility and provide funding that we can apply to our development efforts on XL184 while enabling other promising programs to move forward with one of the world’s leading pharmaceutical companies. We are very pleased to continue to our long and productive relationship with BMS in these exciting new areas. Also subsequent to the quarter end, the second tranche of our GSK loan became due at the end of October which we decided to repay in cash.
The total payments including principal as well as accrued interest amounted to approximately $37 million. The third and final tranche under this loan agreement which due in October next year. It will be of a similar amount and can again be repaid in cash or in stock at our discretion.
We have more work ahead of us, the impact of our strategy announced in December last year is clearly reflected in the improvement of our financial performance in the third quarter. With that I will turn the call back to Mike.
Before we move into Q&A, I would take a moment to thank all of your employees for their great focus, energy and efforts over the last few months to help us move Exelixis forward. The next few months should be very exciting time for us in between the data release and conference call from EORTC Meeting on November 18th and our R&D Day on December 2; we hope to be able to demonstrate the clinical promise and commercial potential of XL-184. We certainly look forward to having you join us at those events either in person or via the webcast.
I will stop here and be happy along with Frank to answer questions. Operator?
(Operator Instructions) Your first question comes from the line of Ted Tenthoff with Piper Jaffray. Please proceed.
Ted Tenthoff - Piper Jaffray
One just quick one for Frank, a little bit housekeeping. What was the other income in the quarter? I was looking in the Q and I don’t see that yet. Do you know what it was off the top of your head? That was in 'other loss' that took net income below to negative.
Yes, if you look at total other income was negative $4.4 million and the biggest contributor to that was our interest expense of about $4 million.
Ted Tenthoff - Piper Jaffray
Looking forward to seeing the data of (inaudible). As you kind of start to process that, what do you see for 184 plans going into 2011?
Yes, Ted, that's going to be the main focus of our R&D Day presentation where we are able to use the data from EORTC to be able to lay the foundation for our priorities moving forward into '11. We need a data to be able to really put that into some level of context. I want to reiterate that we are going to move forward in a very thoughtful pragmatic fashion.
We certainly have opportunity. We have some challenges as well that we have to be able to balance and we are going to move forward with a very, I would say, a whole view of the information, clinical data, regulatory issues, competition etc to be able to put together and frame a plan that makes a lot of sense where we are at right now.
Ted Tenthoff - Piper Jaffray
I will stay put for that. Lastly, just with respect on new collaboration how will you recognize that $60 million upfront from Bristol? Frank, you said that because of the timing of that or the effective data, revenues would be at the low end of the range. What exactly does that mean? Does it occur later than you expected or took longer to clear?
Yes, the magnitude of the collaboration with BMS is exactly as we had anticipated. As you may imagine, it is difficult beforehand to estimate exactly when such a transaction will close. The anticipated effective date for this transaction now is a little bit later than we had initially assumed in our budgeting and forecasting, and so we will recognize a little less revenue this year than we had originally anticipated and more revenue in outer periods.
To your first question, how are we going to recognize revenue so there is an upfront payment of $60 million associated with this new agreement. Generally, we will recognize this over a period of 42 months. Now, I would guide you also towards the 8-K that we have filed in connection with this transaction where we have explained in quite some detail how the accounting works. To make it a little bit for the analyst community we've actually spelled out what we anticipate the revenue recognition to be in 2010 and 2011. It’s about $900,000 in 2010 and about $8.4 million in 2011.
However, keep in mind that this is an estimate and subject to the exact timing of the HSR approval which of course we have not yet received.
Your next question comes from the line of Ziad Bakri with Cowen & Company. Please proceed.
Ziad Bakri - Cowen & Company
The first question was on XL-184 and GBM. What's the rate limiting step here to starting the Phase 3 GBM? Also, is there any update in terms of how partnering discussions about compound are going?
On the GBM side of the equation for 184 what’s emitting right now is just the normal process, the blocking and tackling if you will to get the sites up contract done (inaudible) approved etcetera. I’d say there is little ordinary there.
In terms of partnering, our view on 184 in that respective is pretty straight forward. Our goal is here to maximize value in the compound, for the company for our shareholders. We would certainly like to maintain a large equity stake in the compound going forward. That being said, its not too surprising that in order to maximize the value of the compound on a global scale, we are going to need more help from that standpoint of bandwidth in terms of development, in terms of commercial certainly ex-US financially as well.
We were certainly looking at those issues very carefully. The whole discussion around partnering will come in to focus more clearly, once we have new data at EORTC and beyond to be able to again put the compound in the context of new data as opposed to maybe old perceptions based upon what happened early in the summer.
Issues that are very important to us and again very pragmatic and very focused in terms of how we operate here to again build value for the company and do the right thing in a very thoughtful manner.
Ziad Bakri - Cowen & Company
In terms of the day that we will see at EORTC, on CRPC specifically I guess you said that about we used to see on a day in about 40 to 60 patients in each of those 40 hemotype. Couple of questions, first of all, these patients they are all seen metastatic breast resistant, but the chemotherapy experienced, the chemotherapy naïve or maybe there are mix and then what duration of XL184 therapy relieve patients have received.
The patients in that cohort hour mix of either [preopposed] Taxotere in their treatment regimen. We focused primarily on the lead in phase across all cohorts for the updates at EORTC and be able to certainly speak to some duration of response again across all the different cohorts under discussion, but again relative to and where we added ASCO and marking forward by a number months.
It won’t be again the final (inaudible) sale in terms duration of response and those kind of things. Again I would recommend you to stay tune and you can join us in Berlin that would be great. We certainly have things on the website and certainly the call with GlaxoSmith very helpful to provide some color commentary on the data and again put the data in the context relative to other compounds in that area.
Your next question comes from the line of Joel Sendek with Lazard Capital Markets.
Joel Sendek - Lazard Capital Markets
The date of eminence here and obviously you guys that I would like to know once we have the data, are you going to be able to put a plan in place or at least articulate with the next step is because obviously it such a different indication, what we need to see more data after that or do you either at EORTC or at R&D Day, are we going to able to get a good feel for what the next step in the strategy?
In the two-week period between the data release at the EORTC and the R&D Day presentation on December 2nd. Our goal is to again laid a foundation for the next set of priorities for XL184 with the data from EORTC and then use the R&D Day presentation to really talk about the priorities, the commercial opportunities, some of the regulatory challenges etcetera to be able to give.
Everybody had clear sense of the priorities and the high level plans going forward. This obviously won’t be the last data update from the RDT study. Again we got an abstract in for ASCO GU in February and I would expect another updated ASCO in the summer.
It is going to be a pretty healthy data set from the standpoint of what we had back at ASCO in June where we had about 80 valuable patients, now we are factoring close to 300 across the study. It will be meaningful data set to be able to help us really frame the opportunity and talk about priorities in some detail.
Joel Sendek - Lazard Capital Markets
I just want to rule out the notion that we come out of that meeting and are still looking for more data to resolve with the strategy so if I am hearing you correctly we’re going to know pretty clearly what the next steps are?
You will see a very clear delineation of strategy and priorities that will be based on some very thoughtful and pragmatic analysis for the data, the commercial opportunity, the competition, the various regulatory issues, as well as the obvious financial considerations. It will be a good update to what we got data wise and where we were going moving into 2011.
At this time, there are no further questions in queue, and I will now like the call back to over to Mr. Michael Morrissey for closing remarks.
I just want to thank everybody for joining us on the call today and we will look forward to seeing you or certainly talking to you from Berlin and then from New York. Thanks again for your interest and we will see you soon.
Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.
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