Exelixis Inc (EXEL) 2006 Q3 法說會逐字稿

Greetings ladies and gentlemen, and welcome to the Exelixis third quarter 2006 financial results conference call. [OPERATOR INSTRUCTIONS] It is now my pleasure to introduce your host Mr. Charles Butler, Director of Corporate Communications. Thank you Mr. Butler, you may begin.

Thank you all for joining us for our third quarter conference call. Joining me as usual is George Scangos, CEO and Frank Karbe our CFO. But first, before we get into their remarks, let me turn to the forward-looking statement. Please note that the following presentation contains certain statements that are forward-looking, including statements about our estimated future revenues and expenses, our estimated future balances of cash, cash equivalence, short and long-term marketable securities, investments held by [Century Evolution], and restricted cash as well as the anticipated two-week to three-month delay with respect to the clinical program for XL999 and the general clinical development plans for XL999.

These statements are only predictions and are based upon our current expectations. Forward-looking statements involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in our forward-looking statements as a result of these risks and uncertainties. The risk and uncertainties affecting Exelixis are set forth in the forward-looking statement slide at the beginning of this webcast. I'll now turn it over to George for a brief introduction.

Thanks, Charles. I know what everybody wants to hear about today are our progress on our clinical compounds, especially those in phase two and, of course, particularly those 999 given the announcement of this morning. We'll address these issues, but first I'll turn the call over to Frank who will go through the third quarter numbers.

Thank you, George. From a financial perspective, the third quarter was again a strong quarter. Let me give you some of the highlights. As compared to Q3 last year, we significantly increased our revenue, further expanded our clinical development activities, and decreased our non-GAAP net loss. Our cash balance at the end of the third quarter was about 154 million, but that is by now outdated since we successfully closed an equity offering resulting in over $90 million in net proceeds to the Company in early October. We launched this offering for a number of reasons. Most importantly, with currently nine compounds in clinical development in which four are in phase two, we wanted to ensure that we could aggressively advance all of these programs. We also wanted to ensure a strong and independent position as it relates to our various ongoing business development discussions.

Let me now turn to our financial results in detail. And as usual we are reporting results both on a GAAP and non-GAAP basis, and a reconciliation of GAAP to non-GAAP results is contained in our third quarter press release, which is posted on our website at Exelixis.com. Let me begin with net loss. Net loss on the GAAP for Q3 '06 was 25.2 million or $0.30 per share compared to 22.8 million or $0.29 per share for the comparable period in '05. Non-GAAP net loss for the third quarter was 20.9 million or $0.25 per share compared to 22.5 million or $0.28 per share for the comparable period in '05. Non-GAAP net loss for Q3 '06 excludes stock based compensation expense of 4.1 million and amortization of intangibles of 0.2 million. Revenues for the third quarter '06 were 23.5 million, up 63% compared to 14.4 million for the comparable period in '05. The increase in revenues from '05 to '06 was primarily due to revenue recognition associated with our new collaboration agreements with Sankyo, Bristol-Myers Squibb, and Wyeth. This increase was partially offset by a decrease related to the conclusion of our development activities and our license agreement with Helsinn in January of this year.

Research and development expenses for Q3 '06 were 46 million compared to 35.2 million for the comparable period in '05. The increase from '05 to '06 was primarily due to increased development expenses associated with the expansion of our clinical trial activity which now includes nine compounds in clinical development of which four are in phase II. Further increases in R&D expenses resulted from the advancement our compound through pre-clinical development and employee stock based compensation expense of 2.5 million following with the adoption of FAS123R at the beginning of the year.

General and administrative expenses for Q3 '06 were 8.8 million compared to 6.8 million for the comparable period in '05. The increase from '05 to '06 was primarily due to the inclusion of employee stock based compensation expense of 1.5 million as well as higher personnel related expenses, miscellaneous other charges to support our expanding operation. Cash, and cash equivalence, marketable securities, investment [Helsinn symphony evolution] and restricted cash and investments totalled 154.4 million at the end of the third quarter '06 compared to 192.2 million at the end of the second quarter and 210.5 million at the beginning of the year. Keep in mind that the cash balance at the end of Q3 does not include the proceeds from our recent equity offering.

Finally, I'd like to comment briefly on our financial outlook for the remainder of the year. As a result of the offering, we revised our year-end cash guidance and now expect to end the year with about 220 million. As it relates to our Q4 revenue, I would like to mention that we've reached a $4.5 million milestone in October as a result of our [FX dot compound] advancing into the development track and our new collaboration with Wyeth. This milestone will be fully recognized as revenue in Q4 '06.

So in summary, I will say that with about $250 million in cash as of today, the Company's in a solid financial position to continue the aggressive advancement of all of our clinical programs and with that I'll turn the call back to George.

Thanks, Frank. I'll spend a few minutes giving you an update on our progress on both the clinical and business fronts. Obviously I'll start with 999. As you know, we've been moving 999 through a phase II program that encompasses six trials. As we've reported we've seen a low incidence of cardiovascular events during the 999 development program. These events primarily take the form of reductions in [left ventricular rejection] fraction, ECG abnormalities, and elevation of [triponins] and are in general [trangean]. Been occuring at a frequently at about 10%. We monitor these events closely, our interpretation of the data was that the frequency seemed to be consistent with it seemed [sutan]. To be precise of 117 patients who had been dosed with 999 through the end of September, we saw 12 cardiovascular events. For a frequency of 10.3%. During the month of October we enrolled 14 patients and we saw a total of 4 events, 3 of which occurred in AML and 1 of which occurred in the ovarian trial. Although these numbers are small, the apparent increase in frequency concerned us. Additionally the most recent of these events were among the most severe that we've seen. We wanted to make this announcement as quickly as possible.

So we're still in the process of collecting and analyzing the data and consequently aren't in a position to provide too much more insight at this time. I do want to point out that 115 of the 131 patients treated received between 2 and 53 doses of XL999 with no reported cardiac toxicity. Also want to point out that we've not had any XL999 related deaths among the patients in the phase II trials. As you may now AML and ovarian cancer patients are commonly treated with anthracyclines which are known to induce cumulative cardiac damage and potentially may make patients more susceptible to subsequent CV events. We don't yet know for a fact, however, whether the patients with the CV events were previously treated with anthracyclines, and we'll take the next couple of weeks to sort through the data and define the appropriate way forward with XL999. During this time patients on-study will continue to be treated but we'll not enroll any new patients.

The AML study----excuse, the AML study is of special interest to us since we've seen signs of significant activity in this patient population either judged by reduction of [blasts] and increased in circulating leukocytes or stabilization of blood counts. This is a population that may especially benefit from 999, but before we move forward we want to make sure that we're maximizing the balance between efficacy and toxicity.

We want to emphasize that we're not now discontinuing the trial. And we expect to move forward with the compound, which has shown real signs of efficacy. At the same time we're committed to doing the right thing for patients and want to move forward responsibly. At this time we anticipate a delay in the clinical program of between two weeks and three months. We'll know more in the near future and we'll certainly keep you posted. As far as disclosure of data on other compounds, we'll have 11 posters at the [AACREORTC] meeting in Prague next week. In addition to additional phase I data for 999, we'll present data on XL647, 880, 184 and 820. In particular we'll have a substantial amount of new data for XL880. You may remember that at [ASKA] we presented phase I data on only 19 [evaluable] patients and we now have a much larger body of data. And for 184 and 820, of course, this is first presentation of clinical data.

Additionally, we recently filed [INDs] for XL228 an inhibitor of IGF receptors [sark and abel] and XL281 a specific inhibitor of [rafkinates]. We anticipate a third IND in 2006 for XL518, which is a potent and specific inhibitor of [MEK] to be filed before the end of the year, and we have several earlier compounds that we moved into preclinical development in preparation for IND filing early next year. Among them, are a specific inhibitor of [PI 3 kinaes] a dual [PI 3 kinaes emptor] inhibitor as well as an inhibitor of [jaw 2] and a dual AKT[SSK] inhibitor. These targets are extremely interesting and we're enthusiastically moving these compounds forward as rapidly as possible. Most of these compounds are outside of our collaboration with GSK and are the subject of discussions with potential farmer partners, confident of being able to enter into one or more partnerships around these compounds.

On December 4th, in New York, we'll have our second annual R&D day and we'll go into many of our programs in more detail at that time and we'll certainly update you on 999 at that time, if not before. Some of the investors with whom we've been working notably Charles Sawyers, who is Chairman of the Human Oncology and Pathogenesis program at Sloan Kettering, Paul [Later] who's Clinical Director of Translation Pharmacology at Dana Farber, and Tony [Toacher], who is Director of Clinical Research At the Institute For Drug Development in San Diego---San Antonio, I'm sorry, have agreed to make presentations at that meeting, and I hope that many of you will be able to attend. So, notwithstanding the issue with 999, we had another quarter in which we made great progress and I just want to take the opportunity to express my appreciation to all of our employees for their talent and their dedication that made the progress possible. And with that, we'll stop and we'll open up the call for questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from the line of May-Kin Ho with Goldman Sachs. Please go ahead with your question.

Hi, George. I have two questions on 999. One is on the projection of two weeks to three months. Can you tell us a little bit about the steps involved to get there and how you derive kind of the three months as the upper end? And secondly for the 117 patients, or actually totals 137 subjects, approximately how they are divided in terms of tumor types. I don't need to know exactly, but how many are actually AML for example?

Yes. Two questions there, May-Kin. Look the two weeks to three months is our best guess right now of how long it'll take to gather the data from the sites, go through the data, try and get some better understanding of what we need to do to go forward. And based on what we find, that's our best guess of how long it's going to take us. The -- I don't think we're prepared right now to give a break down of all of the various trials and enrollment of various trials. I think we're kind of in the middle of analyzing all the data. When we have a complete picture, we'll let everybody know.

But can you at least roughly say how many were AMLs?

No, I don't want to break out and break out AML among the others.

Okay.

May, what we're trying to do is not disclose partial clinical information here. We'd like to do the analysis, give everybody a complete picture so we're not dribbling out the information little by little and people can get an accurate picture of the situation.

Our next question comes from the line of Jeff Zekauskas with JP Morgan.

Hi. Following up on the last question, how would you and the FDA decide if it is safe to proceed. Do you have an idea of what the criteria will be? And do you think this may involve identifying an at-risk population and screening out this population?

Yes, I think Karen, all of that involves some speculation on our part. And our issue right now is we have not had a chance to really collect and analyze the data. And obviously we -- when we came to the decision that we should stop enrolling new patients, we wanted to make that public as fast as possible. That's what we're doing. That means we haven't had a chance to really go through the data. The data -- to stop the trial was our decision, was not a decision from the FDA. We of course informed the FDA of our decision.

And as we go through the data, we'll have a much better picture to -- I mean a much more concrete answer to your question. So I know everybody wants to know the answer to these questions. We want to know the answers to these questions. We'll get the answers as quickly as we can. But as we sit here today, we just don't know much.

Do you have any idea of what the frequency of serious adverse cardiovascular events would be in this population minus the XL999?

No, we don't.

Okay. That's it for the moment. Thank you.

Thanks, Karen.

[OPERATOR INSTRUCTIONS] We have a question from the line of David Witzke with Banc of America Securities.

Thanks. Good afternoon. George, can you remind us the differences in dose schedule for 999 in phase I and the phase II studies? And kind of where are you looking -- regarding further optimizing the schedule?

Well, of course, the phase I study was of course a dose escalating study. And the phase I study started out as a biweekly study. The phase I study started out at 0.2 mgs. per kg. dosing and went up as high as 6.4 mgs. per kg. dosing. The phase II study is being done at 2.4 milligrams per kilogram weekly dosing.

Okay. And -- Is there any dose reduction in the protocol on any of these adverse events, or----?

The protocol has, of course, the ability for the investigators to reduce the dose based on adverse events or other safety considerations at their discretion.

Okay. And finally a couple follow-ups. The one patient who received 53 doses, can you identify the tumor type? And then, I guess, this was probably in the lead for a GSK option decision. How does this delay that and can, for example, 647 leapfrog this and be the first option for GSK to decide?

Again, I think that's a little bit of speculation right now. And we just don't know. We'll have more to say on that in a couple weeks. And so just give us a couple weeks to go through the data and we'll be better able to answer your question.

Our next question comes from the line of Jeff Zekauskas with JP Morgan.

Hi, it's Karen again. Why are the operating expenses and [symphony] reimbursements a little bit lower this quarter than last quarter? Whenever new phase I and phase II trials have started since June? I would have expected them to be climbing.

Karen, it's Frank. That has to do with the shift in activities. It was actually a lot of activity in Q2. And that has actually continued in Q3, but if you look at the individual activities that occurred on a program by program basis, there was just a slight shift. But generally the three compounds that are in phase II have progressed as we have planned.

Okay. And what's the main source of revenue in the license fees? You have collaborations and licensing fees, I believe? A break down of revenues.

Yes. That's the amortization up front payment.

Okay. How are the other three phase II programs progressing? Should we still expect results in the first half of '07?

I think the other three phase -- sorry the phase II programs for 647, 880, and 784, those are the other three phase II compounds; they're all on track and proceeding.

Okay. Frank can you give us an idea of your committed funding? Committed, but not recognized funding?

Yes, if you -- if you look at our previous presentations, we've said it's about $100 million going forward.

Okay. Thank you.

[OPERATOR INSTRUCTIONS]

Okay. It doesn't sound like there are anymore questions. Let me thank everybody for your attention and participation in the call. I know everybody wants to know more about 999. Obviously so do we and we are getting the data and analyzing it as quickly as possible and as soon as we have been able to understand it, we will let everybody know. And we'll have our R&D day in New York on December 4th and we'll certainly have more to say say by then and hopefully before then. So, if there are no more questions, thanks, everybody.

Ladies and gentlemen, this concludes today's teleconference, thank you for your participation.