Exelixis Inc (EXEL) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2007 Exelixis earnings conference call. My name is Melanie and I will be your coordinator for today. (OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Mr. Charles Butler, Senior Director of Investor Relations. Please proceed.

Thank you, everyone, for joining us for our year-end 2007 financial results call, and joining us on Valentine's Day, even. So thank you for that. Joining me on today's call is, as usual, George Scangos, our CEO; Frank Karbe, our CFO; and then Mike Morrissey, our President of R&D, will also join in for the Q&A portion of the call.

Before I turn the call over to George, just let me make our forward-looking disclosure. Please note that during today's call, we will be making certain statements that are forward looking, including without limitation statements relating to the future development, potential efficacy of, data presentations related to and the commercial potential of our compounds; future decisions by parties to our collaboration agreements and additional collaboration agreements; our estimated future revenues and expenses; and our estimated future cash balances.

These statements are only predictions and are based upon our current plans, assumptions, beliefs and expectations, and are subject to risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in our forward-looking statements because of risks discussed in today's earnings release and the slide presentation accompanying this conference call, in the comments made during this conference call and in the Risk Factors section of our Form 10-Q filed with the SEC for the quarter ended September 30, 2007, including risks related to the potential failure of our compounds to demonstrate safety and efficacy in clinical testing; our ability to enter into new collaborations, continue with existing collaborations and receive milestones and royalties under our collaboration agreements; and the therapeutic and commercial value of our compounds. We expressly disclaim any duty, obligation or undertaking to make any updates or revisions to any forward-looking statements.

Just as a reminder, today's slide presentation can be found at our website, exelixis.com, as well. With that, I will turn the call over to George.

Thanks, Charles, and thanks to all of you for joining us this afternoon. I just want to take a few minutes to quickly review some of our 2007 accomplishments and highlight the most significant upcoming events for 2008.

I think last year, we made substantial progress on our compounds. We met all of our R&D goals. We completed those trials that we had planned to complete. We initiated a number of others, and we managed to get aggressive recruitment on the majority of our clinical trials.

The majority of our compounds, including XL647, 880, 184, 147, 765, 518 and 281, generated very encouraging data during the year. We presented some data on these compounds at the EORTC meeting in November. Since that time, we have accumulated a substantial amount of additional data, and we submitted abstracts related to those compounds to ASCO. We certainly look forward to sharing all of that data.

Right now, I think we've built one of the premier cancer pipelines in the industry. The pipeline is composed of increasingly mature compounds, and I'm optimistic that the data that we'll be able to show at ASCO will help you to appreciate the potential medical and economic value of the pipeline.

So let's take a quick look at some of the compounds. First, with 647, as you know, XL647 demonstrated good signs of clinical activity in an initial Phase II trial in non-small-cell lung cancer. In an ongoing Phase II truck, 647 is being administered to patients who have relapsed after responding to erlotinib or gefitinib. We believe that tumors in many of these patients that have become resistant to erlotinib or gefitinib may be controlled by 647. There's a lot of enthusiasm for this trial among clinical investigators, and that has been reflected by the rapid enrollment in the trial.

We anticipate that the trial will be fully enrolled within the next couple of weeks. I believe this is an important trial for increasing confidence in the potential of 647, and we've submitted an abstract for this trial to ASCO. So, if it's accepted, we will be in a position to present data on a majority of patients enrolled in the trial.

We continue to hear from investigators that 647 is better tolerated than erlotinib with respect to EGFR-related side effects. Given its potential for both superior efficacy and tolerability, we believe that 647 could capture a substantial portion of the market for EGFR inhibitors, which is currently greater than $1 billion worldwide.

We also believe that the target inhibition profile of 647, which includes HER2 and VEGFR, as well as EGFR, could provide additional meaningful market opportunities in metastatic breast cancer, head and neck cancer, and glioblastoma. We're on track to initiate two pivotal trials for 647. One is a third-line and one is a second-line agent for the treatment of non-small-cell lung cancer. In 2009, we plan to initiate a trial designed to support an application for approval of 647 as a first-line drug.

Turning to 880, as I'm sure you'll remember, 880 is a potent inhibitor of MET and VEGF, and although it was selected by GSK as one of their picks in our collaboration, Exelixis retains a significant economic interest in the compound. XL880 has moved through two Phase II trials, one in gastric cancer and one in renal cancer. Both of these trials have enrolled well, and we've submitted abstracts from these trials to ASCO.

As with 647, these trials are almost completely enrolled, so, should our abstracts be accepted, we will be in a position to present meaningful data on a substantial number of patients. I think that the data from these two trials, which were conducted by Exelixis, are reflective of the potential of the compound, and we look forward to the presentation of the data.

Now, 184 -- XL184 is our second MET inhibitor in clinical development. In addition to MET, 184 also inhibits RET and the VEGF receptor. We've enrolled a number of patients with medullary thyroid cancer in the ongoing Phase I trial of 184. You may remember that of the initial seven patients with medullary thyroid cancer treated in this trial, all received an apparent clinical benefit. As the number of patients has increased, we have continued to be very encouraged by the data.

Again, we submitted an abstract on this compound to ASCO, and if the abstract is accepted, we will be in a position to present data on a meaningful number of patients. We plan to initiate a pivotal trial of 184 in medullary thyroid cancer in the second half of this year. Remember that, although medullary thyroid cancer may provide a rapid route to approval, XL184 is an excellent inhibitor of MET, RET and VEGF, and consequently has potential in a number of major tumor types as well.

Accordingly, we have initiated a Phase I/II trial in non-small-cell lung cancer, comparing XL184 alone to XL184 with erlotinib. Given 184's activity against MET and VEGF, and the role of both of these in non-small-cell lung cancer, this trial could yield interesting results in a large patient population.

Now, XL-019 -- as you know, we presented initial clinical data for 019, our specific JAK2 inhibitor, at ASH last December. The data demonstrated that 019 was active at multiple dose levels. However, there were signs of neuropathy reported as well. As we have investigated the issue further, the neuropathy appears to be dose-related and may very well be mechanism-related.

Our initial dose for the Phase I trial was chosen based on the preclinical studies. However, even the starting dose in this trial showed good signs of biological activity. As we examine the exposure of patients to 019 in our trial, we believe that our starting dose results in drug exposure roughly 10- to 30-fold higher than that in trials of other JAK2 inhibitors, where biological activity also was seen.

Therefore, we believe it's reasonable to explore lower doses and/or alternative dosing schedules to find a dose that retains efficacy without neuropathy. We plan to explore these alternative doses in the first half of the year, with the goal of moving 019, data permitting, of course, into a pivotal trial in myelofibrosis towards the end of the year.

Now let's turn to some of our other interesting compounds. I think the two most frequently disregulated pathways in solid tumors are the PI3 kinase pathway and the MAP kinase pathway. These are complicated pathways, but it's clear that successful modulation is likely to have a substantial impact on the treatment of the major types of solid tumors, with a consequent economic potential.

For each of these pathways, we have two compounds moving forward. XL147, which inhibits PI3 kinase, and 765, which inhibits PI3 kinase as well as mTOR, have progressed well through Phase I, and we believe that these two compounds have generated the first data demonstrating inhibition of the PI3 kinase pathway in humans. We have submitted abstracts on these compounds to ASCO. Additionally, we're about to initiate combination trials with these agents, combined with a number of chemotherapy and targeted agents.

We also have two interesting compounds targeting the MAP kinase pathway. XL281 is a specific inhibitor of RAF, and XL518 is a specific inhibitor of MEK. These two compounds also have generated interesting Phase I data effects, which we have submitted to ASCO and look forward to presenting. Each of these compounds has substantial therapeutic and commercial potential as a single agent and in combination with a variety of other targeted agents. Of course, 518 is the subject of our codevelopment collaboration with Genentech.

In addition to the meaningful clinical data on many of our compounds that we hope to present at ASCO and at other meetings throughout the course of the year, we will have other significant event this year. As you may remember, BMS opted into XL139, our hedgehog antagonist, in January. We anticipate a decision by Genentech on their option on our MEK inhibitor, XL518, in the first half of the year; a decision by GSK on XL184 in the second half; and potential additional opt-in decisions later in the year.

We are in discussions with a number of potential partners about new collaborations on a variety of our assets, and we're optimistic that we will sign one or more collaborations during the course of the year as well.

Finally, let me say that we understand the constrained financial conditions in which we find ourselves. Obviously, biotech stocks, including our own, have depreciated in recent weeks, and the general state of the economy is uncertain. Accordingly, we have been thoughtful and deliberate in formulating our 2008 budget and have focused our expenses on our most important priorities.

As you'll hear in a few minutes, we expect our year-to-year increase in operating expenses in 2008 versus 2007 is in the range of only $20 million to $50 million. Starting the year with potentially $300 million in the bank, coupled with a close watch our expenses, anticipated milestone payments and additional partnerships, puts us in a sound position to weather the current economic climate.

So I'll come back at the end for a few closing remarks, but now I'll turn the call over to Frank, who will discuss the finances.

Thank you, George. 2007 was another successful demonstration of how our financing strategy is playing out. While our year-over-year revenues were up and net loss down substantially, what really matters most for us is cash.

Once again, our cash balance increased year over year, and even excluding our equity offering in Q3 of last year, we received substantial amounts of cash from our various collaborations and other [BD] activities, allowing us to continue the rapid divestment of our pipeline and still end the year with nearly $300 million in the bank. Effectively managing burn and dilution while aggressively moving our pipeline forward is a key aspect of our financial approach.

Let me now turn to the full-year and Q4 financial results in detail. As a reminder, we're reporting our financial results on a GAAP basis only. As usual, the complete press release with our results can be accessed through our website at exelixis.com.

Let me begin with revenues. Revenues for the year were $113.5 million compared to $98.7 million in 2006. The increase in revenues for the full year was primarily due to revenue recognition associated with our collaboration agreements with Bristol-Myers Squibb for various oncology programs, as well as the XLR program, and with Genentech for our XL518 program. The increase was partially offset by the completion of revenue recognition associated with our collaborations with Wyeth for our FXR program, Daiichi Sankyo for our MR program, and health and healthcare.

Revenues for the fourth quarter '07 were $29.3 million compared to $29.8 million for the comparable period in '06. The decrease in revenues for the quarter was primarily due to the completion of revenue recognition associated with the collaboration agreements with Daiichi Sankyo for MR and Wyeth for FXR. The decrease was partially offset by revenue recognition associated with new collaboration agreements with Bristol-Myers Squibb for various oncology programs and with Genentech for our XL518 program.

Research and development expenses for the year were $225.4 million compared to $185.5 million in 2006. Research and development expenses for Q4 '07 were $60.2 million compared to $52.1 million for Q4 '06. The increase in expenses for the full year and the quarter reflects the increased development expenses associated with the continued expansion of our clinical trial activity and the advancement of our compounds through preclinical development.

General and administrative expenses for the year were $44.9 million compared to $39.1 million in 2006. General and administrative expenses for Q4 '07 were $11.8 million compared to $11.3 million for the comparable period in '06. The increase for both the full year and the quarter was primarily due to personnel expenses and stock-based compensation expense to support our expanding operations.

Net loss for the year ended December 31, '07, was $86.4 million or $0.87 per share compared to $101.5 million or $1.17 per share in 2006. Net loss for Q4 '07 was $19.9 million or $0.19 per share compared to $25.2 million or $0.27 per share for Q4 '06. The significant decrease in net loss for the full year was primarily due to the $18.8 million gain from the sale of a major portion of our plant traits business to a subsidiary of Dow Chemical in September '07 and an $18.1 million gain on the sale of 80.1% of Artemis Pharmaceuticals to Taconic Farms in November of last year. The decrease in net loss for the quarter is primarily due to the $18.1 million gain from the Artemis transaction.

Loss from operations, which excludes other income and expense, as well as losses attributable to Symphony Evolution, was $157 million for '07 compared to $126.8 million in 2006. Loss from operations for Q4 '07 was $42.8 million compared to $33.7 million for the comparable period in 2006. Cash and cash equivalents, marketable securities, investments held by Symphony Evolution, and restricted cash and investments totaled $299.5 million December 31, 2007, compared to $263.2 million at the end of 2006.

As I mentioned in my introductory remarks, we received substantial amounts of cash, of which about $134 million stemmed from our various collaborations, approximately $38 million from divestitures and $72 million from an equity offering. So, as in past years, the majority of our cash came from nondilutive sources. We anticipate to continue this trend in 2008.

Let me now turn to the financial implications of the sale of our German subsidiary, Artemis Pharmaceuticals. In November 2007, we sold an 80.1% stake of Artemis Pharmaceuticals to Taconic Farms. As a result of the sale, we recognized a net gain of $18.1 million in other income on the P&L and $19.8 million in cash on our balance sheet in our fourth-quarter financial statement.

Going forward, Artemis will no longer be fully consolidated in our financial statements. We will, instead, account for our remaining 19.9% equity interest under the equity method of accounting and report a pro rata share of Artemis financial results within other income. For the full year '07, however, our P&L still includes 11 months of Artemis' operations.

Over the past two years, Artemis and Taconic have worked extremely well together, and by retaining an ownership stake, we will retain preferred access to Artemis' capabilities for our own research. We have an option to sell our remaining equity stake to Taconic, and Taconic has an option to purchase our remaining interest during certain times and under certain circumstances through 2015.

Finally, I would like to comment on our financial outlook for 2008. For the full year 2008, we expect revenues in the range of $100 million to $130 million and operating expenses in the range of $290 million to $320 million, including stock-based compensation and other noncash charges of approximately $20 million to $25 million. The moderate increase in expenses year over year is primarily related to the ongoing advancement and expansion of our development activities and corresponding increases in our general and administrative infrastructure. The Company's cash, cash equivalents, marketable securities, investments held by Symphony Evolution and restricted cash balance at the end of 2008 is expected to exceed $200 million.

As in the past, we anticipate a significant portion of our cash inflows in 2008 to be generated from new business development activities, as well as existing partnerships. Apart from contractually committed R&D funding, we expect several opt-in decisions among our partnerships with GSK, BMS and Genentech. These opt-ins typically trigger milestone payments to us and allow us to offload substantial future development costs, while at the same time retaining a significant share of any downstream economics.

Since our presentation at our R&D day in early December, in fact, three of those opt-in decisions have already occurred, and two Exelixis compounds have been chosen by pharma partners for further development and commercialization, one by GSK and one by BMS.

When BMS exercised its option to develop and commercialize our compound XL139 in January of this year, it triggered a $20 million milestone payment to Exelixis. At the same time, we exercised our option to codevelop and cocommercialize the compound in the United States, giving us 50% P&L ownership for the U.S. market and attractive royalties on product sales outside the U.S.

As it relates to new business development opportunities, we have many high-quality assets that are, as of yet, unpartnered, covering both oncology and metabolic diseases and ranging from preclinical compounds to compounds moving into Phase III later this year. We continuously evaluate how many of these assets we can take forward ourselves and which ones we may want to develop in partnership with others.

As our pipeline matures, the value of these assets continues to appreciate, and we're confident about our ability to structure collaborations around some of these assets that will maximize their future potential and retain significant commercial upside for our shareholders while bringing in significant near-term cash.

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

So 2008 could be, I think, a big step forward for Exelixis. The pipeline is maturing. We hope to present meaningful clinical data on a number of compounds at ASCO and other meetings during the year. And certainly, this year we will be able to present more meaningful data based on larger number of patients than ever before. I believe that these compounds comprise one of the best oncology pipelines in the industry.

Taken as a group of individual compounds, the medical and economic potential of the pipeline is enormous. However, the pipeline has been developed thoughtfully so that the compounds not only have potential as single agents, but are likely to have utility in combination with each other and thus enhance both their medical and economic value.

By the end of the year, we expect to have multiple compounds moving through pivotal trials and a large number moving through Phase II. Importantly, we've prioritized the compounds so that we can be very aggressive on some of them, meet all of our key objectives while we keep our spend to reasonable levels to reflect the current economic climate. With the wealth of data coming out, three compounds potentially moving into pivotal trials, several opt-in decisions from current partners, and opportunities for new, significant collaborations, I hope that 2008 will be a year of significant value creation for all of us.

So let me just conclude, once again, by thanking all of our employees for their hard work and dedication, without which we would not have made all the progress that we did. And we really do appreciate the effort of everyone here at Exelixis. Thank you all for your attention this afternoon, and we will open up the call for questions.

(OPERATOR INSTRUCTIONS). George Farmer, Wachovia.

A question on 647 and plans for developing that going forward. I'm sure you are aware of the Phase III trial AstraZeneca has underway comparing Zactima versus erlotinib in second- and third-line non-small-cell lung. Does it not behoove you to wait and see the outcome of that trial before thinking about moving forward in Phase III?

I think we're certainly tracking that compound, that trial, the range of trials that are going on with Zactima, as well as other compounds in the space. We've profiled, certainly, 647 versus Zactima very closely preclinically, and the Phase II data sets, in our mind, are available to us to review. Very clear, we see a differentiation in terms of the initial Phase II that we've seen so far with 647 versus Zactima. So I think we're confident that going forward with 647 under the plan we have in both second- and third-line trial are warranted at this time.

How about with 184? Would it be best to wait for the outcome of that study before thinking about evaluating that in combination with erlotinib?

I don't think it ever behooves one to wait to start pivotal trials. There's always trials going on. There's always new data that would be generated. If you waited for potentially new data to be clarified, you would be waiting forever.

Yes, but this data is around the corner.

There's very good data, for example, on 184 to support the fact that both MET inhibition, which seems to be a major route by which tumors can escape inhibition with an EGF inhibitor, and, as you know, MET is not inhibited by erlotinib or by Zactima, that 184 is a potentially valuable compound for the treatment of lung cancer, and that's why we're starting that trial.

Can you just remind us, is 019 part of the GSK collaboration?

No, it's not. That's not partnered.

So you own 100% of the rights to that?

That's correct.

May-Kin Ho, Goldman. May-Kin, your line is open.

Eric Schmidt, Cowen & Co.

Just hoping you could give us a little bit more detail on the type of neuropathy you saw with 019, whether it was reversible, what sort of grade, why you think that this is possibly dose and mechanistic related.

As a practice, we don't comment, normally, on interim data as it's coming out in between national meetings. Just to give you a relatively high-level summary, it has been mostly grade 1-2. It's reversible. There's a wealth of data that has emerged around the JAK/STAT pathway being involved in this area. So we're, I think, based upon the total data, it, I think, warrants us to look at trying to optimize the dose and the schedule to be able to expand the therapeutic index for XL019.

And then just if I could, a couple updates on other programs. XL820 -- that wasn't mentioned. Were you still going to go forward with Phase II there?

Yes, we are. We are trying to -- we mentioned a lot of compounds today and a lot of programs. It's by no means all of the compounds that we have going forward. So we're trying to focus attention on those compounds where we think they have a real substantial potential, where we're going to come into ASCO with significant amounts of new data. So yes, 820 is moving forward. Everything looks good. But we don't anticipate coming into ASCO with a big body of new data on 820; it will be a while longer for that. So we're trying to focus attention and our efforts on those compounds that are likely to provide meaningful drivers for us in the near term.

Did you actually start the Phase II on 820, or is that an early '08 event? I kind of lost track.

No, that's open right now, and we are enrolling patients.

And last question is on the $5 million from BMY for the initiation of a Phase I or an equivalent or -- sorry -- acceptance of an IND or equivalent. Does that mean that XL652 is going into the clinic?

Are you speaking to the LXR collaboration?

Yes.

Yes, that's -- well, the milestone was paid for the filing of an IND or a foreign equivalent. So that's all we can speak to right now relative to that compound.

Is the molecule still 652?

That's correct, yes.

(OPERATOR INSTRUCTIONS). William Sargent, Banc of America.

I wanted to get some comments -- obviously, in the last few months there's been a MEK compound that was not successful in a Phase II trial. I'm just wondering if I could get some thoughts about just differentiation between 518 and this other MEK compound and then what you think this may mean as a class. Any insights from those results?

Just to clarify, you're talking about the MEK inhibitor, not MET inhibitor?

Yes, MEK.

Yes. So the MEK space is, I think, a very interesting one that we and others have been very involved in over last few years to be able to design potent inhibitors. We think XL518 is a wonderful compound. It was designed to, I think, have the positive attributes in terms of high, high potency in a variety of in vitro and in vivo assays, extremely strong and long-lasting pharmacodynamic inhibition of the MAP kinase pathway in a variety of tumor types, extremely strong anti-tumor activity. And maybe as important is trying to keep the compound out of the CNS, which was a clear issue with the Pfizer compound, 325901, and have a long pharmacokinetic and pharmacodynamic half-life and duration of action, which we believe is a very important optimization parameter that we focus on, certainly this compound, but a variety of others.

I certainly won't speak to the data from someone else's compound and trial, especially when it hasn't been, I think, I would say broadly discussed at the national meetings. We have extensively characterized XL518 relative to both the Pfizer compound and the compound from Array/AZ. In terms of preclinical models, 518 in our hands is about 100 times more potent than the 6244 from Array/AZ with very strong and sustained pharmacodynamic activity in vivo in a variety of different models.

So while that compound didn't appear to work as a single agent in two or three different tumor settings, we think we understand why that might be, and we've certainly optimized XL518 to address some of the issues that were present at least preclinically with that compound. And now we have a chance to actually test those hypotheses with 518 in the clinic, both in Phase I and potentially forward in Phase II.

Could we get an update, perhaps, on how discussions are going for 647 and potential ex-North American partnerships?

Yes, sure. We're having a lot of discussions. Obviously, we're not going to go into the details of any of those discussions. But I can tell you that there is substantial interest in 647 from a variety of companies. We're having a number of discussions. Those discussions have morphed; not every partner has exactly the same interest. So we're having a variety of different discussions on 647. 647 in parallel continues to generate data, and we continue to see data, and we continue to be encouraged by the data that we're seeing from various trials of 647.

So we feel that time is on our side. That compound is not getting less valuable as time goes on and as the data accumulates. So we're continuing those discussions. We fully expect to have a partnership for 647, but as the year goes on, we will have more data, and we believe we will be able to get very interesting terms.

So could we think about ASCO as a potential high leverage point for negotiations around 647?

Well, remember that ASCO is a public disclosure of data. We're getting data real-time, and so we have insight into a lot of data so that -- and when we have discussions with potential partners, we have them under confidentiality, then we can disclose some of those data. So some of the partnerships or some of the partners can see data under confidentiality before they are presented at ASCO. So there's a distinction between when the data are public and when we have them.

Ladies and gentlemen, I show no further questions at this time. I'll turn the call back over to management for any closing remarks. Please proceed.

I think if there are no more questions, let me thank everybody for your attention. We really are looking forward to a very interesting year here, a lot of data coming up and a lot of events with our current partners, potential new partners. We think we're in good financial shape, and we're looking forward to a great year.

So thank you all for your attention, and we'll be keeping you up to date. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the presentation. You may disconnect. Have a wonderful day.