Exelixis Inc. Q1 2008 Earnings Call Transcript

| About: Exelixis, Inc. (EXEL)

Exelixis Inc. (NASDAQ:EXEL)

Q1 2008 Earnings Call

May 6, 2008 5:00 pm ET


Charles Butler - Senior Director of IR

George Scangos - CEO

Frank Karbe - CFO

Mike Morrissey - President of R&D


Cory Kasimov - JPMorgan

Eric Schmidt - Cowen and Company

Ted Tenthoff - Piper Jaffray

Ying Huang - Wachovia


Welcome to the first quarter 2008 Exelixis Earnings Call. My name is Amanda and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Charles Butler, the Senior Director of Investor Relations. Please proceed sir.

Charles Butler

Thank you everyone for joining us today. Joining me on the call as usual is George, our CEO; Frank, CFO; and Mike Morrissey is also here, President of R&D; who will be joining us for the Q&A portion of the call.

George will review our Q1 accomplishment and business activities and Frank will review the financials for the quarter, but before I turn the call over to George, I would like to take note that this afternoon we issued our earnings release for the first quarter 2008. We have posted the earnings release as well as a slide presentation of the company's prepared remarks today on our website at exelixis.com.

Before we get started, I would like note that during our presentation today, we will be making certain statements that are forward-looking including without limitation those relating to the future development and potential efficacy of our compounds, timing for initiation of clinical trials, the duration of, and potential costs associated with our clinical trials, the timing of potential compound selections by our partners, and the timing and success of future partnerships and other business activities. These statements are only predictions and are based upon our current assumptions and expectations and are subject to risk and uncertainties.

Our actual results and the timing of events could differ materially from those anticipated in such forward-looking statements because of risks discussed in the materials for this presentation and that comments made in the presentation and in the risk factor section of our 10-Q for the quarter ended March 28, 2008, and other reports filed with the SEC. We expressly disclaim any duty, obligation or undertaking to make any update or revisions to any forward-looking statements.

With that, I will turn the call over to George for more on the quarter and further presentation.

George Scangos

Okay. Thanks Charles and thanks to everyone for joining us this afternoon. I just want to take a few minutes to update you on the status of our pipeline, highlight some of the data that will be presented at ASCO and provide a snapshot of our financial position and give you a little business outlook for the rest of the year. Frank, will then take you through the details of the Q1 financial performance and then I will come back at the end for some closing remarks and Q&A.

So, as may know, we will have seven presentations at ASCO covering four of our compounds. I think, we will meaningful data presented on the following compounds, XL184 in patients with medullary thyroid cancer, XL765, which is an inhibitor of PI3 kinase and mTOR. We will have Phase I data and both of those compounds will be presented in oral presentations. We have 647 Phase I data and then Phase II from the first line trial and third line trial in non small-cell lung cancer. XL880 will have two posters which will be in GSK Orange, Exelixis Green. They will have the Exelixis number 880 as well as the GSK number, GSK 089.

The first poster will be in patients with papillary renal cell carcinoma and the second in patients with gastric cancer. Additionally, we will present data on XL147, an inhibitor of PI3 kinase and an XL281, an inhibitor RAF at our analyst and investor briefing on Monday, June 2nd. Finally, data on a trial of XL228, our inhibitor of BCR-ABL, in patients with chronic myelogenous leukemia, will be presented at the EHA on June 13. So, in the next month or so, we will have presented substantial additional data on seven of the compounds in our pipeline.

Remember that six of our programs already have been selected by pharma companies, XL880 by GSK, XL139 and 652 by BMS, XL518 by Genentech, XL550 by Daiichi-Sankyo, and FXR compound by Wyeth. In each case, after a lot of due diligence our partners selected the compounds and are moving them forward internally. These are compounds which passed substantial due diligence and which are being moved forward with substantially reduced or no development costs to Exelixis, but in which we retain substantial economic interest.

These compounds, plus the data to be presented at ASCO, I think demonstrate the quality and depth of our pipeline of which we are really quite proud. Our goal here is to make a difference in the lives of patients, and I think we are well on our way to achieving that goal.

So with a complex pipeline like that, comes complex decisions. And we are now in a position, I think to provide some clarity on the future development of some of our compounds.

Based on the data that you will see at ASCO, we'll move XL184 into a pivotal trial in patients with medullary thyroid cancer this summer. We believe that this trial will last approximately 2.5 years, so that if successful an NDA for this compound could be filed in 2011. The specific design of the trial is still in discussion with the FDA. We have estimated an SPA and hope to reach agreement with the agency on the design of that trial soon.

We believe that this is a relatively low cost, low-risk program that can be completed in a relatively short period of time. On top of that, we believe that this compound may have potential in major indications and we already have started a trial of XL184 in combination with Tarceva in patients with non-small cell lung cancer and will soon start a Phase II trial in glioblastoma.

For XL019 our JAK2 inhibitor you may remember that we saw apparent clinical activity at all doses tested in the initial part of our Phase I program but we also saw signs of neuropathy. A number of factors make us optimistic that we will be able to retain efficacy and reduce or eliminate the neuropathy with lower doses and/or different dosing regimens. You may remember that in the data that we reported, the lowest dose we had administered was a 100-milligram, per patients, per day.

We have now begun administering the compounds to patients with myelofibrosis at a dose of 25 milligram per day in one cohort, another dose of 25 milligram every Monday, Wednesday and Friday in the second cohort. If these doses prove to be efficacious, we will continue to explore even lower doses. We will follow these patients and expect to have data on the activity and tolerability of the various dose levels later in the year.

As we anticipate we are able to find a safe and efficacious dose, the compound can then move rapidly into a pivotal trial around the end of this year or early next year. We expect to have data from this trial available for presentation at ASH in December.

Let us turn to 647. As you know, we have been considering the design of an appropriate program to move this compound forward to registration. Over the past few months, we have accumulated substantial additional data from all of the ongoing trials and we are nearing completion of a commercial and competitive analysis of the compound and of the treatment of non-small cell lung cancer in general.

At this point we can make the following general statements which you will see substantially in more detail at ASCO. The compound continues to show activity in patients with non-small cell lung cancer. The compound appears to be well tolerated, with few adverse events that require dose interruption and a reduction and very few occurrences of grade III/IV for rash or diarrhea at the maximum tolerated dose.

We now have QTc measurements on a substantial number of patients and the data have reassured us that this issue if unlikely to be limiting for the compound. So we have an agent that appears to be active and well tolerated for the treatment of non-small cell lung cancer.

Without preempting the data to be shown at ASCO, let me say that in the first line population that we addressed in our trial, the compound appears to show activity roughly in line with other agents when it is administered on an intermittent schedule. Its possible that we will see additional activity from the daily dosing regimen but the number of patients is still too small too reach that conclusion.

Similarly, in the third and fourth line settings, the data seems to be in line with what is seen with other agents. So the bottom-line is that the compound appears to be active and well tolerated; and its activity appears to be equivalent to or potentially somewhat superior to what has been reported for other agents.

The question we have been asking and which many of you have been asking is how best to take the compound forward and given what we know about the compound and the market. Based on the data, which you will see at ASCO in a few weeks and on the commercial and competitive analysis that we have conducted, we believe the best opportunity for this compound is to conduct a trial as a first-line agent in patients with activating mutations in/or amplifications of the EGF receptor.

Accordingly, we will narrow our approach to focus on this population. We believe that we have a good chance of success in this trial that can be completed in a reasonable time, at a reasonable cost and that it addresses a substantial market.

Accordingly, we intend to begin as soon as possible a controlled Phase II trial of 647 versus doublet chemotherapy as a first-line treatment in patients who have activating mutations in/or amplifications of the EGF receptor. If this trial is positive, we could roll into a Phase III trial in this population which could begin in the middle of 2009. We're in discussions with Symphony and we believe that we will be able to use the remaining cash in our Symphony deal to fund some or all of this Phase II trial.

Finally, we will soon begin a combination trial of 647 and one of our inhibitors of PI3K XL147. We will have substantially more data on the 647 by Q2 of next year and both plans for a pivotal trial program and a resolution to our collaboration with Symphony will be done at that time.

We are continuing to have partnership discussions around 647 and we will see how those play out. However, I believe that the compound is likely to have substantially higher value at the conclusion of the controlled Phase II trial and we expect the expenses between now and then to be largely offset by the funding from Symphony. So, it maybe preferable to wait after we have those data in hand.

XL765 and 147, as you would see at ASCO we have good data for both compounds, showing that they inhibit the PI3-kinase pathway. This pathway is certainly one of the most attractive targets for a number of indications and we intend to begin an aggressive for these compounds in combination with a variety of agents. And we will discuss some of those trials that we are initiating at our ASCO briefing.

So, I think we are seeing the fruits of our strategy pay off. We have many interesting compounds, some of those which I highlighted, several others as well. We are constantly reevaluating all the compounds in the pipeline to make sure that we put our resources behind those compounds and trials that have the highest potential to make a difference to patients and provide a good return to our investors.

On the business side, we continue to have a number of discussions with potential pharma partners. These discussions are taking a number of different directions and although it is not appropriate to go into specifics at this time, we are confident about our ability to generate additional partnerships this year. This will be important for us not only in terms of cash, but also in getting access to more bandwidth as the compounds mature until later stage development.

And we expect events with our current partners as well as with potential new ones. We expect to submit a PoC package to GSK on 184 in the summer and so, we will have decision from GSK within 90 days later in the fall. Later in the year, we expect to reach one or two opt-in points as well, so the second half of the year promises to be very active. Of course opt-in decisions in new partnerships come with milestones and upfront payments, which as in the past year we will use to defray the cost of our pipeline.

As for cost, I'll just make a couple of comments and then turn the call over to Frank. We ended the quarter with a healthy cash balance of $250 million. We are being thoughtful and deliberate in the use of our resources and have focused our expenses on our most important priorities.

Exelixis has gone to where it is because for the past several years, we've adopted a pedal to the metal approach to our R&D programs. We have pushed things forward very aggressively. We have taken calculated risks, most of which have paid off, and the result is our deep, large pipeline of high-quality compounds. I just want to reassure everyone that while we fully intend to continue to move forward aggressively, we understand that we can't push everything forward into later stage trials.

Accordingly, we're being thoughtful and deliberate in the use of our resources for 2008 and beyond and we are making tough decisions based on scientific, medical, commercial, and competitive analysis to decide where to put our money, so that it will generate the highest medical benefit and greatest return. We have a luxury of choice, because of the strategy we have adopted to date and will now carefully exercise our options.

So with that, I will close and turn the call over to Frank.

Frank Karbe

Thanks George. 2008 is off to a good start. We anticipated several opt-in decisions under our various partnerships for this year, and two of them occurred in the first quarter. Bristol-Myers Squibb opted in on our Hedgehog pathway inhibitor XL139. So we gain a $20 million milestone payment and Genentech opted in our MEK inhibitor, XL518, triggering $3 million milestone, which will be followed by an additional $7 million milestone once Genentech initiates a Phase II program for this compound.

Importantly, each of these decisions involve potential of significant economic interest in the compound for Exelixis and helps offload substantial future development expenses. As George mentioned, there are now a total of six programs that were derived from our own discovery efforts, which are moving forward in the hands of high quality partners.

Further more, our pipeline continues to advance rapidly and our financial results reflect our progress. Our first quarter financial results were right on target with our expectations and we are on track to achieve our financial goals for the year.

Now let me turn to the first quarter financial results in detail, and 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.

I will start with revenues. Revenues for the quarter ended March 31, '08 were $27.9 million, compared to $28.1 million for the comparable period in '07. Revenues for '08 were generally consistent with '07, but reflect the completion of revenue recognition associated with our collaboration with the Daiichi-Sankyo for our mineralocorticoid receptor program, as well as the exclusion of revenue from our former German subsidiary, Artemis Pharmaceuticals, which is no longer consolidated as a result of the sale of 80.1% of our ownership in 2007.

These items were offset by the revenue recognition associated with our collaborations with Bristol-Myers Squibb for various oncology programs, and with Genentech for the co-development of our MEK Inhibitor XL518.

Research and development expenses for the first quarter of '08 were $66 million, compared to $50.2 million for the comparable period in '07. The increase from '07 to '08, primarily reflects the increased development expenses associated with the advancement of our pipeline and the continued expansion of our clinical trial activity. We have added significant resources in our development organization over the last twelve months and as many of our compounds progress through Phase I and Phase II, and sometime it's Phase III, we naturally see an increase in patient enrollment, manufacturing and other trial related expenses.

The year-over-year increase in R&D expenses is to some degree also driven by a greater allocation of corporate overhead costs to our R&D organization, as R&D continues to be grow faster than the G&A parts of the company.

General and administrative expenses for the first quarter '08 were $8.7 million compared to $11.2 million for the comparable period in '07. The decrease from '07 to '08 was primarily due to the allocation of a greater portion of general corporate costs to research and development, which I mentioned a moment ago and which mainly reflects the relatively higher growth of the research and development function compared to the general and administrative part of the organization.

Net loss for the first quarter '08 was $41.3 million, or $0.39 per share, compared to $24.2 million, or $0.25 per share, for the comparable period in '07. The increase in net loss from '07 to '08 is again primarily due to the progress in our research and development activities and advancing compounds into and through the clinic.

Cash and cash equivalents, short-term and long-term marketable securities, investments held by Symphony Evolution, and restricted cash and investments, totaled $252.2 million at the end of Q1 '08, compared to $299.5 million at December 31, '07.

Let me make an additional comment here about the quality of our cash investments. We have perceived many questions lately regarding our exposure to asset-backed or mortgage-backed securities. I'd like to reassure everyone that we have no exposure to these types of securities.

With that, I'll turn the call back over to George.

George Scangos

Okay. Thanks Frank. So the rest of the year I think could be a big step forward for Exelixis. We have, I think built a truly excellent pipeline of compounds, which are increasingly mature. And I'm optimistic that the data we will present at ASCO will help everyone to appreciate the potential therapeutic and economic value of our compounds and of the pipeline in general.

So, let me quickly review the data presentations at ASCO but first I want to remind everyone that the abstracts for those presentations were submitted in January, and we have accumulated a lot of additional data since that time. So the data in the presentations will be substantially more than you see in the abstracts.

So, on Saturday May 31st there will be three presentations on Exelixis' compound. There will be an oral presentation on XL765, our inhibitor of PI3 kinase and mTOR in a session beginning at 1:15 pm. There will be a poster presentation with discussions on Phase I data from XL647 and together with GSK, there will be poster presentation on XL880 in papillary renal cell carcinoma.

On Sunday, June 1st, there will be two presentations on our compounds and there will be an oral presentation on an XL184 Phase I trial, including an expanded cohort of medullary thyroid cancer patients in a session that starts at 10 am. And there will be a poster presentation on 647 in the first-line non small-cell lung cancer patient. And then on Monday, June 2, there will two additional presentations. There will be a poster presentation with discussion on XL647 in third line non small-cell lung cancer patients and a poster presentation again together with GSK on XL880 in gastric cancer patients.

And of course on Monday evening at 6 pm, we will have our analyst and investor briefing at the Hyatt McCormick Place. At that event, we will provide a review of the data that have been presented and provide additional data on XL147, our PI3-kinase inhibitor and XL281, an inhibitor of RAF. Also on June 13th, data on XL228 from the Phase I trial in patients with CML will be presented at EHA in Copenhagen.

So, we have a lot of upcoming data and we are intending to submit many more abstracts to EORTC and ASH including an updated data on XL019 or JAK2 inhibitor. We will submit the XL184 proof of concept package to GSK in the summer with a decision in the fall. And later in the year, we will have one or two more opt-in decisions. And we fully expect to have a kind of partnership or two during the course of the year as well.

So, as usual we are in the midst of an important and busy year. I am excited about the prospects for our compounds and the company and I look forward to updating everyone on our progress in the months ahead.

And before, I close, I just want to thank you all the employees for Exelixis. I think everyone here has been working incredibly hard and I just want to express my sincere appreciation to all of the employees who made all of this progress possible.

So, with that we will close and open up the call for Q&A.

Question-and-Answer Session


(Operator Instruction) Your first question comes from the line of Cory Kasimov, with JPMorgan, please proceed.

Cory Kasimov - JPMorgan

Hey, good afternoon guys, thanks for taking the question. First on 647, could you elaborate a little bit on the plan, design and the primary end point for this Phase II.

Mike Morrissey

Yeah, Cory this is Mike. It is probably little bit early right now to do that, we have the trial designed and we are getting ready to roll that out. So, I think the plan would be to provide an update with the background of all the data at the ASCO investor presentation.

Cory Kasimov - JPMorgan

Okay, but as of this point you are comfortable that you have the data in hand or at least enough of it to make a decision with what to do with Symphony by next June, correct?

Mike Morrissey

Yeah, that's the point.

Cory Kasimov - JPMorgan

Okay, and then as relates to Glaxo and the collaboration there, can you just remind us about when their decision is to have to extend this collaboration and what that does in terms of the number of opt-ins?

George Scangos

Sure, the collaboration comes to an end at the end of this October in its normal term, GSK has option to extend it for another year or two. If they do not extend it, they get a total of two picks, they've already picked 880, so they would get one additional pick, if they do extend it then they get a third pick and the extension is at their discretion.

Cory Kasimov - JPMorgan

Great and then last question just quick on 019, the number of patients in that two cohort dosing study?

Mike Morrissey

We are -- again this is Mike, we're enrolling both right now we don't normally comment on patient numbers on these calls, but as we normally do we'll you guys posted on future calls and I would say the overall goal is to have a dataset to be able to present at ASH at the end of the year.

Cory Kasimov - JPMorgan

All right. Great. Thanks for taking the questions.

Mike Morrissey



Your next question comes from the line of Eric Schmidt with Cowen and Company. Please proceed.

Eric Schmidt - Cowen and Company

Good afternoon. Thanks for taking the call. In terms of the XL647 strategy, is there anything changed commercially when you talk about the landscape, and I guess the competitive landscape? I assume you’ve got may be Erbitux in the bank of your mind, but it's not clear to me exactly what you were referring to?

George Scangos

Well, yeah sure, as you know lung cancer is a crowded space. If anything, it's gotten a little less crowded recently than some compounds that haven't done so well there. But, I think what's changed in our minds Eric is that we've done a very careful commercial analysis of the various trials we could do and of the potential market size that each of those trials would lead to. What label would be we get? And what would be the size of the market based on that trial? We then factored in what we think our chances of success in each of those trials are. The cost of the trial, the time of the trials and of course you can then back-calculate a rough net present value for each of those.

And as we’ve gone thorough all of that, and looked at the data we believe that this focused trail that we have now presents the highest value indication. The market size it addresses is substantial, the cost of the trial is reasonable. The time is reasonable, and we think we have a good shot of success. So, with the philosophy that we are trying to put our resources behind those compounds in those trial, that really bring the most bang for the buck, we believe that this focused approach really is the best thing now for 647.

Eric Schmidt - Cowen and Company

So we shouldn't read into your decision to abandon the refractory indication as a sign that the relapsed responder trial isn't going well from an efficacy standpoint?

George Scangos

What I said in the prepared remarks was that we saw efficacy comparable to what is being seen with other agents. And beyond that I don't want to get into the data right now and preempt to the presentation at ASCO and we'll have all the date laid out at ASCO.

Eric Schmidt - Cowen and Company

And then for the 184, proof-of-concept opt-in from GSK, can you better quantify what is required to trigger that decision for that molecule?

George Scangos

Yeah, I mean we have to reach what's called proof-of-concept, which is a contractually defined term and it differs from compound to compound. And so when we reach a certain level of clinical efficacy for that compound, we submit the package to GSK and we believe we'll reach that some time in the summer and then submit the package.

Eric Schmidt - Cowen and Company

Right, so you can't tell us how POC is defined in this case?

George Scangos

We have considered that in the past to be proprietary information together with GSK. I think you will see at ASCO a very impressive data set on this compound.

Eric Schmidt - Cowen and Company

Okay. And is there any update on 518? I think that's the one molecule that you haven't talked much about today. I know you've got a lot in your plate, and I'm sure you didn't mean to ignore it?

George Scangos

I didn't mean to ignore it. I actually like that compound a lot but as you know, Genentech opted into the compound and so we have to respect the wishes of our partners.

Eric Schmidt - Cowen and Company

So do they make the decision now on whether or not to present data at meetings like ASCO?

George Scangos


Eric Schmidt - Cowen and Company

Okay, thank you.


Your next question comes from the line of Ted Tenthoff with Piper Jaffray. Please proceed.

Ted Tenthoff - Piper Jaffray

Great. Thank you very much. Just kind of revisiting a little bit the previous questions on this kind of refocusing on the 647 effort. What went into your thinking in terms of working at the chemo doublet versus some of the other new therapies that are coming along. And can you say anything about what kind of controls you should be using, would it be 647 chemo doublet versus chemo doublet alone?

George Scangos

Well, chemo doublet is a standard therapy for these patients, so that becomes the de facto comparator arm for 647. What you will see at ASCO is, efficacy and more data on efficacy in that population includes time to progression data, includes response rate, we have a lot of data on 647’s activity in that particular population. There is a lot of historical data on doublet chemotherapy, what the impact is of that in that same population.

So, with all the caveats of looking at historical data and making those kind of comparisons that we all know, we think we have really good shot at success in this trial and that if we are successful, it is I say a really meaningful substantial market. So, it makes a lot of sense to us to carry out that focused program. So, in our view a relatively good chance of success and address the big market.

Ted Tenthoff - Piper Jaffray

Great, thanks George. And obviously, we are excited to see the PI3K stuff at ASCO. Can you just kind of wet our appetite a little bit with potential future programs. I know you mentioned the 647 combo, so what are the common things are you thinking about with PI3K?

George Scangos

We have a number of trials planned for both 147 and 765 as both single agents and in combination variety of other targeted agents and chemotherapeutic agents and I think we will go into that in more at the analyst investor briefing at ASCO. But some of those trials are actually starting up in real time. I mean both of those compounds now have data which you will see, which indicate they are inhibiting the PI3-kinase pathway, we are excited about the data, and we are pushing those forward quite aggressively.


Your next question comes from the line of [Ying Huang] with Wachovia, please proceed.

Ying Huang - Wachovia

Hi, thanks for taking my question. Do you still have plans to go into pivotal trials for XL019 this year?

George Scangos

Well, we are continuing the Phase I study at lower doses, 25 milligrams per day and 25 milligrams every Monday, Wednesday and Friday. To see the efficacy with those doses we will test even lower doses, we are going to use the majority of this year to probe those lower doses in terms of both efficacy and tolerability and towards the end of the year, we see that we have a dose and dosing regimen that appears to be efficacious and well tolerated, then we will immediately push that forward into pivotal trials and whether that get started up at the end of this year or in the first part in next year, its too early to say, it really depends on how the current trial goes.

Ying Huang - Wachovia

And also on Phase II control trial of XL647, so it is going to just compared to paclitaxel and carboplatin combo, right?

George Scangos

Well, again I think we'll go in to more details at ASCO.

Ying Huang - Wachovia

Okay, thanks.


(Operator Instructions) There are no further questions at this time.

George Scangos

Okay, then let me thank everybody for your attention. I think we had a really good quarter. We are looking forward to the rest of the year and we will see many of you at ASCO. So thanks a lot of for calling in today. Bye.


Ladies and gentlemen thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.

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