Exelixis Inc (EXEL) 2005 Q3 法說會逐字稿

Greetings and welcome to the third quarter Exelixis third quarter conference call. [OPERATOR INSTRUCTIONS] It is now, my pleasure to introduce your host, Mr. Charles Butler.

Thank you for joining us on our Q3, 2005 earnings conference call. Participating in the call is George Scangos, President and CEO and Frank Harbor, our Senior Vice President and CFO. Before I turn the call over to George and Frank I need to read our disclosure statement.

Please note the following discussion contains statements that are forward-looking including our estimated future revenues and expenses as well as estimated future balance of cash, cash equivalent, short-term investments, evolution and restricted cash. These statements are only predictions and based upon our current expectations. Forward-looking statements involve risks and uncertainties and actual results and time or events could differ materially from those anticipated in our forward-looking statement.

As a result of these risks and uncertainties which include our ability to enter into new collaborations, continuing existing collaborations and receive milestones in royalties derived from future products developed from research efforts under collaborative agreements. Potential failure of our product candidates, to demonstrate safety and ethicist in clinical testing , the ability of conducting clinical trial in XL119 efficient to achieve FDA approval, our ability to complete Phase one, initiate Phase II trials, XL784 ,647,999 at the reference times.

Our ability to conduct Phase one clinical trials of XL784 ,647, 999, 880, 820, 844, and 184, sufficient to achieve positive completion. Our ability to file IND application at the reference time and our ability to successfully advance and develop additional compounds. These and other risk factors are discussed under Risk factors in our quarterly reports for the three month ending on September 30, 2005, and other SEC reports. We expressly disclaim any obligation or undertake publicly any updates or revisions in forward-looking statements contained herein. With that said I will now, turn it over to George.

Thanks, all of you, for listening in. This call really marks the beginning of a new era. We have eight high quality compounds in clinical development, we have are the three in preclinical development, we filed 3 IND on the third quarter alone. All trials are enrolling well and we sitting today on a lot of clinical data.

The First Data that we will make public, will be presented at the EORTC meeting in Philadelphia, two weeks ago and we are entering a new clinical era and with 11 compounds in development from the earlier stage project we should have plenty to talk about in the coming weeks, months and years. I would like to digress and talk about the level of productivity that it takes to generate this pipeline and move it forward, which I think is quite extraordinary. The pipeline is really uncommon for a company of our side and our stage of maturity and it represents unprecedented output to that rivals many big Pharmacy Companies can do. Different business model, I will come back to that at the end.

We've got a lot of questions, how is it we have done this? I heard Andy Grove speak about it and it really struck a chord with me.

What Andy said was, To be successful you needed to do three things, one is hire the best people, two, give them the resources and environment to be successful and hold them accountable, hold their feet to the fire. That is what we have done here. We have an extraordinary group of people, not only the management team but all throughout our organization, we work with critical mass, aggressively, we have held ourselves accountable, we have a culture of people helping us out and as a result of all of that's the pipeline has merged. The size of the pipeline is obvious. Everybody can count but the other question is how good is it, what is the quality? Thinking about what I wanted to say at today's call I was thinking about what is it I can say today that reflects on the quality of the pipeline. Let me make a few points.

First, three compounds to get laid into Phase one, XL784, 647 and, 999, all three are going to jump onto Phase two. Two of these compounds are being orally administered in Phase I and those two both have good oral profitability, all three are proportional, have good half-life and are being given to patients at plasma levels their results in good efficacy in animal models. We have two additional compounds, XL 880 and 820, that are far enough along in Phase one so that we can say they have good oral availability and could half life.

That means that the first five compounds that we put into humans that are internally generated and behave well in terms of availability, half-life and other pharmaceutical properties, those data don't speak to the efficacy of the compounds but they demonstrate that the compounds are very high quality. The data demonstrates to me we have achieved a high level of productivity not by cutting corners but by optimizing these compounds for DMPK the pharmacodynamics and efficacy. Prior to statistically significant clinical data how else can we speak to the following pipeline?

One aspect is mechanism of action of the compounds and have the compound validated, we believe the compounds themselves have potential advantages over competitive compounds. The compounds are generally more potent in three clinical assets weather chemicals or animal models, they seem to be superior in terms of pharmacodynamics and efficacy. They target unique combinations of targets. 647, for example directed against EGF, VEGF and HER2, 999 targets VEGF, FGF and PDGFR and have something to say about that particular combination in a couple minutes. The other half of our compounds are directed toward will characterize targets with a good chance of success and these compounds potentially represent first in class compounds.

These includes 880, directed toward MET that, 844 which inhibits check one and check two, 784 which inhibits ADAM-10. 418 which hits AKT and N6K, 281 which is a specific inhibitor of rats and 228, which is an inhibitor of IGF1 receptor and both wild type mutant forms of the [abel]t. Let me digress for a minute and talk about 228 and mention 880. As you know, Genentech is a wonderful drug for patients with CML but it is it inhibits --the [abel] provides patients with benefits. Most of the patients were treated with Genentech eventually have tumors relapse and that almost always is because it has mutate and is resistant to Genentech.

There are a number of second-generation inhibitors moving forward BMS, from other companies that target and are effective against many of the mutant forms --. that arrive. Interestingly, and importantly, none of those second-generation inhibitors have activity against one particular mutant calls the T315I mutant form of the [abel]. Which represents 20% of all of the mutant forms. None of the existing compounds have activity in that particular mutant. 228 is extremely potent, is extremely potent against the T315I mutation, its extremely potent against the wild type enzyme and as we move this compound into the clinic we can demonstrate clinical efficacy which potentially we have a very rapid straight to the clinic and to the market for that compound.

Same thing for 880, 880 hits met, as many of you know, hereditary tumors, renal carcinoma, which all have activated versions of met and a lot of data indicates that met driving those tumors, we can show that 880 has activity against those tumors types, this could be another route to rapidly move 880 through the clinic into and the market. I hope it is becoming apparent to people who follow us that we have a deep pipeline of high-quality compounds. That their diverse , their directed against a variety of compelling targets and each of which has substantial clinical and commercial potential. What have we done lately?

Let me start with some of the highlights for the third quarter. I was there with the most advanced compounds, XL119, (becatecarin) continues to move forward and enroll patients and we are pleased with the enrollment rate. Helsinn, are partner for project has taken over the expenses of the trial. We expect to complete the hand over of the management of the trail to Helsinn, by about year end. XL784 remember is our compound that targets ADAM-10 and MMP2 it showed great data in models of renal failure we had recently completed a single dose Phase one in which we take patients up to 1700 milligram of the drug. There were no side effects, no toxicity, no adverse events. We have completed a repeat dose Phase I study with our new capsule formulation at two different doses. All of the subjects are clinically fine. Half of the formulation in two different doses.

All of the subjects are clinically fine, no side effects, no adverse reactions. We don't have analytics back. We have that back in the middle of the month but in the absence of anything surprising the compounds will move into Phase two trial. We will select a moderate levels of impairment, looking for an improvement. We are having an R&D day in New York City on the afternoon of December 6th, invitations the that will go out in the next day or two and we hope you will be able to attend that and at that time we will give everybody an update on the study design for that trial.

Phase I data from the next group of compounds, 999, 880 and 647 will be presented to at the meeting in Philadelphia. I don't want to save too much and steal the thunder from the investigators but I can say this potential both clinically and commercially, as you know, Phase one is designed to affect profitability and many of you know Phase I data, biological activity, excited to share the data for each of these three compounds in a couple weeks.

Let me talk briefly about each of those. 999 as you know inhibits VEGF, FGF, and PDGF, we have reached the MPD in Phase I based on the mechanism of action. Preclinical data and but we have seen in Phase I a compounds will move forward into a Phase two program which we will initiate before the end of the year. The Phase two trials will be conducted in colon cancer, lung , ovarian, renal cell cancer as well as melanoma and AML patients. Now, there was recently new preclinical data from UCSF that indicates tumors can become resistant to VEGF therapy and when they do that they often to that by activating FGF. A lot of excitement based on that observation in a number of companies now, making dual VEGF and FGF inhibitors. I would like to point out we made that observation in 2002, so we have a 3-year head start and based on that particular insight we made 999 so that it inhibits the FGF and VEGF. Inhibiting those both simultaneously, we believe it seems to be confirmed by the data that we have broader anti tumor activity and the potential for resistance. We have approximately three years head start in this area.

647, inhibitor EGF, VEGF and HER2 its continuing in it dose escalation. We expect to hit the maximum tolerated dose before now, but we have not yet encounters a dose from a toxin to continue and that is both good and bad. The bad is since the Phase two trial can start until we identify the proper dose, the start of the Phase two program 647 will occur later than expected and we will hear in a few minutes our R&D expenses are reduced to reflect that. The good things is that the drug is not tolerated we are able to achieve higher plasma levels than we anticipated which may bode well for the ultimate efficacy. Data from the Phase I trial for its 647 also will be presented at the EORTC meeting in two weeks and I can say we're planning to move 647 into Phase two trials for breast cancer, lung cancer and we are considering trials in colon cancer and renal cancer as well.

880, we are in the dose escalation phase, very exciting dual inhibitor of Met and VEGF it showed remarkable in preclinical model. The compound is or orally available in humans has dose plasma levels and based on the data that they have a half life in humans of 60 hours, we're very excited about this compound and you will see data from this compound in at EORTC in a couple weeks.

820, is in its dose escalation phase. The potent inhibitor, of -- and -- a major mutant KIT enzyme, so these escalation faces proceeding extremely rapidly. XL 844 and 184 those IND's were filed in Q3 The 184 trial is progressing well. The 844 trial is being done in CLL patients at MD Anderson in Houston. The start of the was delayed a little bit by Hurricane Rita. It is cutting back on track. We have earlier compounds in preclinical development. I will skip over those for now.

Let me comment briefly on our task of what we're doing. This is an uncommon strategy, high-quality pipeline is virtually unprecedented for our state in maturity. I am always surprised that more people are not jumping up and down with excitement at the potential of this pipeline. There have been a couple concerns. One concern has been the quality of the compounds, how good are they really and we are now, able to share some data with you and I am sure everyone is able to see the data for themselves those concerns will go away. The other concern is how we are going to pay for all of this pipeline.

I think this year we have demonstrated that we are taking, in a few minutes Frank will go through the numbers. The most important number is cash, how much do we have the beginning year, how much do we spend, bring in as what to look like at the end of the year. We started the year with $170 million. The third quarter, we had $214 million in the bank. By the end of the year we expect to have $200 million in the bank. This number includes $15 million financing and without the financing we would be advancing this amazing pipeline and only running down our bank account by $20 million.

It is a remarkable accomplishment that speaks to our ability to maintain our minimum and advance the pipeline in the long term. You have scenes this year and in the past three years, if not an anomaly, the way we do business from the scientific and business and financial perspective. In continent of our continued ability to finance the development of this pipeline, the group continues to be extremely productive. We now have advance five preclinical compounds in the mid stage lead optimization completely outside of our cancer collaboration. Compounds are very high quality and substantial interest in all of them. In typical fashion these programs have multiple co-tenancy, high resolution structural data and they have promising activity.

Between nuclear homeowners receptor projects that we pursued through our acquisition of accepter have proceeded exceptionally well and we have substantial interest in all three of those compounds from multiple potential partners. When we manage this pipeline carefully we will retain substantial focus as a company, retains substantial outside the pipeline and proprietary and partner programs. We can adjust the ratio of programs that are proprietary and partnered according to our financial needs so we can provide a substantial portion of the cash we need for the pipeline. I will talk more but turn the call over to Frank to go through the numbers.

Thank you. Usually we have recording results on a GAAP and non-GAAP basis. Non-GAAP results exclude restructuring expense the quiet process R&D and non-cash charges for amortization of intangibles. Reconciliation of gap results and non-cash results contained in our third quarter press release which is posted on our website at www. Exelixis .com. Net loss on the generally accounting principle $22.8 million or $ 0.29 cents per share on $27.2 million or $0.38 per share on the third quarter of 2004.

Non-GAAP net loss was $22.5 million, $0.28 per share compared to $27.1 million or $0.37 per share on the third quarter of 2004. Cash equivalents, short-term investments, and restricted cash and investments totaled 214 million on September 30, 2005 compared to 202.3 million at the end of the second quarter and 139.1 million at the end of the first quarter of this year. Revenues were 14.4 million for the compared to 12.7 million year in 2004. The increase from 2004 to 2005 was due to revenue recognition related to the GSK milestone in 2005, a increase R&D funding on our collaboration and payments received from our new license agreements from Helsinn as well as our Genentech agreement. These were offset by a loss of revenue due to the completion of our collaboration and chemistry, aberrations and one of our collaborations with Bristol-Myers Squibb.

Research and development expenses were 35.2 million compared to 35.1 million in 2004. The increase from 2004 to 2005 was due to the increase development expenses associated with advancing and expanding our clinical and preclinical development activities. The increase was partially offset by a 30% decrease in expenses for lab supplies as the result of determination of most of our chemistry collaboration. General and administrative expenses were 6.8 million compared to 5.1 million in 2004. The increase from 2004 to 2005 was the result of an increase in personnel and facility related expenses as well as increased expense for professional services.

Let me briefly comment on the impact of our arrangement with Symphony Evolution on the third quarter of 2005. As a reminder of the development expenses associated with our compound XL647, XL999 and XL784, fully reimbursed by Symphony Evolution. We fully consolidated that evolution in our financial statement and so the development expense associated with the three compounds is part of our R&D expense but an space item in our PL calls loss of that tribute to noncontrolling interest shows a reimbursement to those expenses and in the third quarter of 2005, these reimbursements amount to approximately $5.1 million.

Let me finally turn to our outlook for year end 2005. With respect to financial allocations for the full year, we maintain our revenue guidance, $75 million to $80 million by reduce our operating expense guidance to $170 million to $180 million primarily reflecting the update on our 647 outlined by George. We're raising our guidance for the company's cash equivalent short-term investments -- now, expect to end the with the balance of $200 million. The increase reflects the impact from our transaction in August of this year as well as the lower operating expense.

As a reminder, the cash balance does not include the second capital draw of $40 million from Symphony Evolution which we can draw before June 2006. As George noted previously, we are set to finish the year with solid financial position. Despite significant expansion in our development activities in 2005 we have continued to increase our cash reserves by drawing on four pillars of our financing strategy. I will now, turn the call back to George.

I hope it is now, clear to everyone why we believe we are on our way to a great year and building a great Company. I wanted point out a few things in closing. We have a few months left in the year and a number of additional goals. As we said previously we will present data for 647, 999, and 880 at the AACR EORTC meeting on November 15, and 17. The data for 647, and 880 will be presented on the 15th and on the evening of the 15th we will post a briefing to discuss each of those compounds in more detail. There will be at 8:00 p.m. The data for 999 will be presented on the 17th and again on the evening of the 17th we will have a briefing at the same time, 8:00 to discuss 999. We are excited about presenting our clinical data and our opportunity to discuss them.

Also on December 6, in the afternoon in New York City, we will have an R and D day and invite you all to attend said. We will have a more in-depth discussion of our compounds or clinical data, in 2006 and beyond. We look forward to potentially completing additional business development transactions this year to moving forward our clinical trials and initiates in the near future clinical Phase II trials for 999, 647, in multiple cancers and 784 in diabetic.

Additionally, XL880 and 820, proceeding extremely well in Phase I trials and we were initiating that Phase II programs in data warranting and certainly in 2006, certainly 844, and 184 seem well and it is likely that we will get to the end of Phase I and start those Phase II trials data warrant 2006 so I think we are taking our place among Phase II Companies. I am happy with what we achieved in 2005. I'm happy with moving our pipelines forward and the progress we made on the business and financial side. Is this is not an anomaly, and not a normal part of the way we do business. The third quarter was an important validation of our strategy, transforming the challenges we all face into opportunities for success by thinking large, moving fast and charting our own course to a goal.

Finally, I want to thank all of our employees who made this all happen for their extraordinary dedication and effort. We have an amazing group of people here, none of this would have happened without the dedication of our employees. I would like to think our supporters and investors for their confidence and belief that we can convert the vision in to reality, the benefit of cancer patients everywhere. With that, we will stop talking and thank you for your attention and open up the call for questions.

Thank you.

[ OPERATOR INSTRUCTIONS ] First question comes from Eric Schmidt with SG Cowen.

A little bit more information on XL880. The surprise in terms of timing of presentation, we are going to see data on this compound at EORTC. I am wondering if we proceed materially less given the Phase I study, may not be mature and if not, if XL 880 is caught up to 999, and 647 and when we will see a go / no go decision on the Phase two trials.

Good question. As you will see, there are not as many patients enrolled. Not as many co-workers in the 880 trial as we had in 647 or in 999. On the other hand there are several that have both. Investigators are very excited about the potential of the compound and are looking forward to presenting the data. The trial is going very fast but we -- [INAUDIBLE].

Any idea when we might make a Phase II decision?

Based on what we have seen so far there's no reason why we put him go into Phase II and we have no reason why we should. When we see the data you would get a better feel. Probably better to have that discussion later.

Last question from me on XL647, a little bit surprised that you need to reach an MTD before you go on to Phase II, I would of thought that with some of these -- potential more -- some of these are targeted therapies that would not be the requirements?

We, like everybody else, want to maximize the chances for success. It is still the case that I don't think any oncology drug developers thinks that less drug is better than more drug. So you want to get the maximum dose that you can in the Phase II trial and we don't know what the maximum dose is yet. We could certainly start the Phase II trials with what we have now, the we know are well tolerated, and we probably -- can't speculate on what we would find. It is not going to be that long until we come to a real dose and go forward with the maximum dose and maximize our chances for success in Phase II.

Thank you.

Next question is from Karen Buchkovich of J.P. Morgan.

I am looking forward to the data, at the molecular targets meeting in a couple weeks. I would like to ask about the increase in cash balance guidance is about 60 million since August and I realized that 15 million of that comes from lower operating expenses. Can you describe what the rest of the difference is do to?

Remember we did a $50 million financing that wasn't included in our previous forecast, so it's $50 million higher because we did that. That leaves 10 million and that 's due to lower expenses.

Okay, Thanks. Do you have an idea when 784 we will move into Phase II?

Yes, early next year.

That is it. Thank you.

Next question comes from Bret Holley with CIBC World targets.

I have a question on 647, I guess George had said you were considering moving into Phase II in renal and colon rectal cancer as well as -- lung and breast. I guess the first guidance with lung cancer and breast and really that guidance isn't that old so I am wondering what might have changed with the Phase I or just with the thinking there in moving into additional Phase II indications.

This is a moving target. We have solid plans for non small cell lung and breast trials with 647. As we come to our clinical advisors, there is a feeling that the drug could have some potential benefits in combination therapy and colon the drug certainly could have some impact renal and so we are encouraged and considering. We are considering having those discussions, haven't made a final decision and we haven't made a decision whether this will be parallel or stagger then or before but there does seem to be -- for moving them forward.

What kind of combinations would you be considering if you have those discussions or you just have a broad outline?

I would rather not comment. It is preliminary and we finalize those things.

Fair enough.

Next question comes from May-Kin Ho with Goldman Sachs.

Hi, George, the pipeline seems to be progressing really well. Just wondering for 2006, potentially, you could have six or even more compounds in Phase II and for each one of them there could be multiple Phase II's. How do you to the infrastructure now, internally and how much of this can you handle?

A very good question. Let me direct that from two-points. What are our resources, people resources, and how much can the group the hands on and the other aspect is financial. From a personnel standpoint, we do not, as we say here today, have the capacity to handle that many trials That is very clear and we are actively hiring and expanding our clinical and regulatory group. Since we started building the Company we tried to have just in time hiring. We realize that we are going to have a big increase in the number of trials that we are carrying out next year. So we have been over the course of this year, making our clinical and regulatory groups, I am talking by the time we have that issue next year, we will be able to handle it. From a financial perspective, the Phase I trial, and frankly the proof of concept, we are not that -- and they're not cheap but they're not that expensive. The real expense comes in the programs in Phase III. Remember GSK will make their picks about which of the compounds that would like. Once we look at milestones, the compounds that we have, if they have good data, I don't think we will have any problems financing those trials with good proof of concept data. I am not worried about the financial aspects.

Worried about people and management time.

We have been thinking a lot about that. We are already planning that. You're absolutely right.

If GSK takes these picks some of these programs, would they then take over in total responsibilities?

Yes. For whatever they pick, they pay a milestone and take over both the financial and management responsibility for the trial.

In terms of milestone fees, each compound, how much? Taking a look at what they have done, $30 million for fighting 3 INd's, for example, to you imagine this would be more a more significant milestone?

Certainly bigger than the $30 million for filing the 3 IND's.

We actually said if GSK was to make use of that, $240 million.

I saw the total, but obviously it depends on how we figure that out.

Those are just selection models. That is just a milestone as they take those compounds. It is not straight line. You get $80 million. It doesn't deviate from that too much.

Thank you.

Next question comes from William Joe with Piper Jaffray A follow-up to the previous question.

How does the recruiting environment for project managers and regulatory individuals in the area --

It is tight. A lot of companies around here there's a lot of [bi-tech] companies around here. There are a lot of companies hiring. Genentech is hiring, we are hiring, a number of companies are hiring. We have reasonable success, we have managed to hire a lot of good people, we have gone out of our way to make ourselves an attractive place to work. We were voted the best mid-size Company to work for by that San Francisco Chronicle and one of the top biotech companies by the San Francisco Business Times. All of those things were taken for what they are, a grain of salt, but they are useful recruiting tools, and they do reflect employee opinions, based on employee surveys it, so they do reflect the fact that employees enjoy working here. We have been able to compete very well and continue to have good people but it is a challenge.

One of the questions I missed in the beginning, delays for 647 moving to Phase II because you haven't reached NTD. Is that because you haven't accrued all the cohorts or is the compound safer than you expected and you are moving into higher doses?

There hasn't been a delay in enrollment. The cohorts have been enrolled about as fast as cohorts can be enrolled. The execution of the trial, the enrollment of the patient will go on extremely well. We have more cohort's than we thought we would have. More drugs into the patient that we would be able to.

Thank you.

There are no further questions at this time.

Okay. If there are no more questions, thank you all for listening and we look forward to talking to you again at the briefing at the EORTC meeting and at the conductor aren't the date the we have in New York on December 6. Thank you, everybody.

Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.