Exelixis Inc (EXEL) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q1 2010 Exelixis earnings conference call. I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to your host for today, Mr. Charles Butler. You may proceed.

Thank you. Thank you for joining us for the Exelixis' first quarter 2010 earnings call. Joining me on today's call are as usual, George Scangos, Frank Karbe and Mike Morrisey, who will collectively review our corporate, financial and development progress for the quarter ended March 31, 2010 and discuss upcoming milestones and our progress towards achieving the goals that we outlined during our last earnings call.

Before we get started, I'd like to note that during our presentation and question-and-answer session today we will be making certain statements that are forward-looking including without limitation statements related to data to be presented at ASCO; expectations regarding business development activities; expectations regarding our 2010 year end cash balance and future funding; our 2010 goals and financial outlook with respect to revenues operating expenses, and cost savings and charges related to the restructuring; and the continued development and therapeutic and commercial potential of XL184, 147 and 765.

These statements are only predictions and are based upon our current assumptions and expectations. Our actual results and timing of events could differ materially from those anticipated in such forward-looking statements because of risks and uncertainties discussed in the presentation materials, the comments made during this presentation and the risk factors section of our 10-Q for the quarter ended April 2, 2010, and our other reports filed with the Securities and Exchange Commission. We expressly disclaim any duty to make any updates or revisions to any forward-looking statements. With that I'll turn the call over to George who will start the formal remarks.

Okay. Thanks, Charles and thanks to all of you for joining us today. On today's call as usual, I'll give an overview of the business and the quarter, and then Frank and Mike will give you updates on the financials and R&D respectively. At this point, ASCO is less than a month away and we're really focused on getting ready.

There will be 12 presentations on Exelixis' compounds at ASCO. Four on XL184 alone. And the amount of data we're presenting is more substantive than we have previously, so we're looking at ASCO as important event for us. We believe the data will reflect the potential of 184 in thyroid cancer and glioblastoma and beyond those first indications in some of the major tumor types as well. The abstracts for ASCO will be released next week.

We'll have the 12 presentations at ASCO itself and in addition we'll hold two investor meetings at ASCO. Consequently, we won't spend a lot of time today discussing our clinical program but we will release a lot of data in the next month or so. So please stay tuned.

As we have described previously, we're focused on the development of our late stage compounds. However, it's important to remember that we have retained a world class drug discovery group with the ability to bring forward a select number of earlier stage compounds. Our discovery group has repeatedly demonstrated its ability to bring forward high quality compounds and currently there are 14 Exelixis compounds in clinical development by us and our partners. It should come as no surprise, then that we're engaged in multiple advanced business development discussion with potential partners who are interested in accessing our discovery capabilities.

We're confident that we'll successfully conclude some of these discussions during the course of the year. Additionally, we're in advanced discussions with multiple companies about several of our compounds and we're also confident that one or more of these discussions will result in partnerships this year.

So 2010 like 2009 and 2008 looks to be a year in which we will be able to bring in substantial cash through partnering to help support our operations. In addition to the partnering activities, there are other factors that give us confidence about our financial situation. First, our expense base going forward will be lower due to our recent down sizing. We had projected approximately $90 million in savings in 2010 and 2011, and we're on track to achieve that number.

Second, reimbursements from our partners are expected to increase for the remainder of the year. These factors, our ongoing business development activities, our lower expense base and the increase in reimbursement give us confidence in our ability to fund our operations into the future. The last and most important area I want to discuss is the significant progress we're making in the clinic.

Over the last year we've dramatically expanded the scope of our late stage clinical programs for XL184, XL147 and XL765. Each compound has demonstrated its ability to inhibit some of the most important targets in oncology. We believe that they have significant potential in a number of tumor types and we're working together with our partners to develop them in broad-based clinical programs, including focused indications that can lead to a rapid market introduction and large indications with significant unmet medical need.

The promise of these compounds I think is being increasingly recognized by clinical trial patients and investigators. The number of presentations at ASCO reflects the significant interest in these compounds and the data that they've generated to date. We look forward to sharing the data with all of you in the near future. So at this time, I'll turn the call over to Frank to go through the first quarter financials and then Mike will give you an R&D update before I come back for a few closing remarks. Frank?

Thanks, George. Before I review the Q1 results in detail, I'd like to provide an update where we stand vis-a-vis our financial objectives for the year.

In summary, we believe we are on track to meet our year end financial goals for revenue, operating expense and cash. We ended Q1 with almost $170 million in cash. We anticipate that we will bring in substantial additional funding through a variety of channels, including new business development activities as George has just pointed out, through increased reimbursements and our collaborations with VMS and Sanofi-Aventis, through potential milestones and possibly by refinancing the remaining tranches of the GSK loan.

We've made significant progress in reducing our expenses following the restructuring in Q1 and we're on track to meet our target of reducing cash expenditures by $90 million, net of restructuring costs, through 2011. This includes subletting one of our buildings for which we have entered into a letter of intent.

Revenues are expected to increase throughout the year and we expect revenues in the second half of the year to be substantially higher than in the first half. This increase in revenues is driven by two factors. One, our increasing reimbursements from VMS and Sanofi-Aventis as a result of the continued expansion of our clinical programs, XL184 as well as XL147 and 765. And two, the commencement of quarterly reimbursements specifically from VMS as a result of the exhaustion of certain prepayments made by VMS on the XL184 program.

As we have mentioned previously, when we signed the collaboration VMS they prepaid their portion of the first $100 million of development expenses on XL184. We exhausted these prepayments in the second quarter of this year and now expect to receive further payments from VMS to reimburse us for their 65% share of the cost incurred on XL184. This is in addition to the ongoing reimbursements for 100% of the expenses for XL281.

Let me now turn to the results for the first quarter in detail. As a reminder, we are reporting our financial results on a GAAP basis only and as usual complete press release with our results can be accessed through our website at Exelixis.com.

Let me begin with revenues. Revenues for the first quarter were $42.2 million, compared to $25.3 million for the comparable period in 2009. The approximately 67% increase in revenues was primarily due to revenue from our XL147, 765 and the discovery PI3K collaborations with Sanofi-Aventis as well as increased revenue from our collaboration with Genentech on XL518 following a $7 million milestone payment in Q1. These increases are partially offset by a reduction in revenues related to the VMS 2007 cancer collaboration and the completion of revenue recognition under the VMS LXR collaboration.

As I mentioned previously, from the second quarter onwards, we anticipate that we with will receive reimbursements from VMS on XL184 which we he expect to increase our cash in-flows as well as our revenues. R&D expenses for the quarter totaled $64.8 million, compared to $55.3 million for the comparable period in 2009. The increase in expenses in the quarter is primarily due to the significant expansion of clinical development activities for XL184 and XL147.

G&A expenses for the quarter amounted to $8.8 million, and were roughly in line with the comparable period in 2009. Restructuring expenses for the quarter amounted to $16.1 million, of which approximately $12.2 million is related to one-time termination benefits to employees and the remainder to various write-downs and facility related charges. We expect further restructuring expenses of approximately $9 million in the second quarter, associated primarily with the anticipated exit and sublease of one of our buildings, as I mentioned previously.

Under other income and expense, we recorded income of $4.2 million for the quarter, compared to an expense of $1.6 million for the comparable period in 2009. The difference is primarily related to a $4.5 million payment associated with our 2007 divestiture of our planned trade business to Agrigenetics as well as the termination of the Deerfield credit facility and decreased interest expense due to the lower GSK principle balance.

Net loss attributable to Exelixis for the quarter including the restructuring expense of $16.1 million totaled $43.2 million. Or $0.40 per share, compared to $36.2 million or $0.34 per share for the comparable period in 2009. Excluding the restructuring charge, our net loss in Q1 of this year would obviously have been substantially lower than in the same period last year.

To be clear, going forward we do in fact expect our quarterly net loss to be lower than in Q1 for the remaining quarters of the year, mainly due to higher revenues, lower operating expenses, and lower restructuring charges. The increase in revenues will be primarily driven by higher reimbursements and new business development. We will see the full impact of the March restructuring on our operating expenses and no material restructuring charges are anticipated after the second quarter.

Cash and cash equivalents, marketable securities and restricted cash and investments totaled $168.5 million at March 31, 2010. Compared to $221 million at the end of last year.

As I mentioned previously, we expect substantial additional cash in-flows for the remainder of the year through a variety of channels and we feel confident to reach our year-end guidance of ending the year with approximately $200 million in cash. So, in summary, we have made a lot of progress in the first quarter and as a result, going forward the unfunded portion of our operating expenses will be reduced and the portion of our operating expenses that is funded through collaborations will increase. All in all, we believe we are on track to meet our financial expectations for the year. And with that, I'll turn the call over to Mike.

Thanks, Frank. The Exelixis R&D team has continued to focus on advancing XL184, XL147 and XL765 as our most advanced clinical compounds. I'll provide a short R&D update on the call today as we'll have a full data download in a couple of weeks at ASCO. We will have 12 presentations covering our dual MET/VEGFR inhibitor, XL184. Our leading PI3K inhibitors, XL147 and XL765. Our IGF1R/SRC inhibitor, XL228 and our hedgehog antagonist XL139.

Let's start first with XL184. The clinical and commercial opportunity for dual MET/VEGFR inhibition is significant and we with VMS have built our XL184 clinical development program to maximize success from both a medical and commercial perspective. The growing body of clinical data for XL184 clearly validates dual MET/VEGFR inhibition as a promising mechanism approach for cancer therapy. MET plays a key role in nearly all aspects of tumor biology including cellular proliferation, invasiveness, migration and angiogenesis.

In addition, a growing body of preclinical evidence demonstrates that MET may be the key component that drives the acquired resistance to antiangiogenic therapies. Which highlights the potential advantage of simultaneously inhibiting both MET and VEGF receptors.

As the most clinically advanced MET inhibitor, we believe XL184 has a potential to be a first in class and best-in-class therapy that could provide treatment options for large number of cancer patients. We will have four substantial data presentations for XL184 at ASCO. First, we'll have an oral presentation of the data from the XL184-201 trial which is currently evaluating a 125-milligram daily dose of XL184 in patients with recurrent glioblastoma. Second, we'll have a poster presentation with the first data from our randomized discontinuation trial evaluating XL184 in melanoma, small cell and not small cell lung, gastric/GE junctional, breast, ovarian, pancreatic, prostate and hepatocellular cancers. Third, a poster presentation with a discussion covering the preliminary data of XL184 in combination with erlotinib in non-small cell lung cancer. Finally, we'll have an oral presentation of the long-term follow-up for our initial Phase I trial of XL184 in patients with medullary thyroid cancer.

We are pleased to update the oncology and investment community with the latest clinical data from the program. And hope to demonstrate that XL184 has emerging clinical activity in multiple tumor types that validates the role of dual MET/VEGFR inhibition in a variety of different cancers.

We also made substantial progress in the clinic with XL147 and XL765, our leading PI3K inhibitors. In recognition of our progress XL147 and XL765 will be the subject of six separate presentations at ASCO which will highlight the early experience of these compounds [in] similar agents and in various combination studies that we have discussed previously.

Again, we are optimistic that the data presented at ASCO will provide a strong foundation on which to continue building the leading PI3K inhibitor franchise. In conjunction with our partner, Sanofi-Aventis.

I think it's worthwhile to take a step back and look at the breadth and depth of the clinical programs supporting XL184, XL147, XL765. Currently these three compounds are the focus of 15 individual trials. Investigating 15 unique tumor types with significant commercial potential as both single agent and combination treatment modalities.

These development programs are designed to provide potential clinical benefit to the broadest number of patients while maximizing the commercial potential of these compounds. So I'll close here and reiterate that we are genuinely excited about the upcoming ASCO meeting in June and eagerly look forward to providing an in-depth update on up to the minute data sets for XL184, XL147 and XL765 at their individual ASCO presentations.

Due to the depth and breadth of the data we'll be presenting at ASCO this year we're planning to hold two separate investor briefings in Chicago. The first will be on Saturday, June 5th to highlight our XL184 second line GBM data and a second on Monday, June 7th. To review the key data and results from the other 11 posters. We hope you'll be able to join us either live in Chicago or over the Internet. With that I'll turn the call back to George for closing remarks.

Okay. Thanks, Mike. There really are two factors that are important for Exelixis right now. First is the clinical data on our compounds and moving them through the clinic and onto the market as quickly as possible and second is a strong financial position that will enable the continued aggressive development of those compounds. I'm not going to say more about the data. We'll save that for ASCO.

Financially we believe that the factors we outlined, our reduced expense base, and expected increase in reimbursement and our projected (inaudible) activities give us a solid base on which to move forward. The goals that we laid out in our last call were to ensure that the organization is focused on our late stage compounds, to extend our cash runway into the second half of 2011, to reduce our unfunded expense base, and end 2010 with approximately $200 million in cash. We made significant progress towards all four of these goals and we're on track to meet them all.

We're looking forward to ASCO and believe that the data presented at the meeting will help to position Exelixis as a leading innovator in oncology. Before we conclude, I'd like to say that as the clinical (inaudible) trials progress and the data from the various trials mature we're preparing for the potential approval and market introduction of our compounds.

With that in mind we hired a new VP of strategic marketing who was previously at Genentech where he was a key member of the Avastin marketing team and lead the Avastin marketing effort in glioblastoma. His first day at Exelixis was yesterday and we're very happy to have him on board. He obviously will play a key role as we move XL184 and our other compounds through the clinic and on to the market.

The first quarter this year has been a very challenging and busy time for all of our employees and I'd like to thank them all for their dedication, for their hard work to advance the pipeline and to help improve treatment of patients with cancer. So I believe Exelixis is well positioned to meet our near and our long term objectives and I look forward to updating you all on our progress as we continue to execute on our strategic plan. So with that, I think we'll close our remarks and be happy to open up the call for questions.

(Operator Instructions) Our first question comes from the line of Cory Kasimov of JPMorgan. You may proceed.

Hi. This is actually Karen Jay for Corey. Thanks for taking my questions. My first is on you commented in the past you expect one or two business developments per year. Could you give us an update on your outlook for the year, maybe on timing, scope and whether or not you are expecting similar type of deals to the ones you've done in the past?

Sure. We can talk a little bit about our business development expectations. Look, we're having a lot of discussions.

As I said during the prepared remarks, we are having discussions with multiple companies around our discovery capabilities. And I think our discovery capabilities have been recognized as being world class by many of the pharma companies. We continue to talk to them about doing drug discovery on their behalf as part of a strategic collaboration and so we do expect to sign one or more collaborations around our discovery capabilities as the year goes on.

Additionally, and I guess we said on our last call, we have a number of compounds that are unpartnered. Which have very interesting data as far as (technical difficulty). And we're in numerous discussions I would say with pharma companies as well, some of those discussions involve single assets, some of them involve multiple compounds. And we're moving a number of discussions forward in parallel but there are enough discussions going on and they're serious enough and they're late stage enough, so we're very confident about bringing a couple of those to conclusion during the course of the year. I'm not going to speculate on what month that will be, certainly. But I think we're confident we'll get the deals done this year.

Okay. Great. Thanks. And my second question is on the randomized discontinuation trial for 184. I know you're waiting until ASCO to give us the majority of the detail but any update or a sense of how enrollment is going along and how extensive a look we might get at ASCO?

Yeah, this is Mike. I would say enrollment in the RDT trial has gone extremely well. I'll save all the quantitative details for ASCO. We've been very pleased by the interest of the PI's, the broad enrollment across all nine histologies included in that trial and the initial signs of clinical activity. So I'll hold the further kind of comments for the ASCO presentation and update but we're very excited about how well that's going and I would say the broad signal that we're seeing across multiple histologies in that trial.

Great. Okay. One more quick one. The original Phase I trial in MTC, are there patients that are still on drug in that trial?

Yes, there are. And we're very happy to provide the long-term follow-up at the oral session as well at ASCO.

Okay. Great. Thanks for the update.

Our next question comes from the line of Joel Sendek of Lazard Capital Markets. You may proceed.

Hi, thanks a lot. I just wondered if you could talk a little qualitatively about the data we'll get at ASCO. I mean, you seem very bullish in tone and in the press release about the potential for us to get new data that will -- you say in the release, you know, clarify the potential of different tumor types. Are you going to show objective responses in many different tumor types or is it just going to be the extent of the -- I mean, the efficacy of the drug or is there anything new with regard to different evidence of efficacy of this pathway? Can you help us with that, just to frame it going into the meeting?

Sure, look, Joel, this is George. I understand the basis for the question and we certainly would like to provide you with more details. We're trying to be respectful of the ASCO embargo, of course.

Right.

I can tell you there will be both new data and a quantitatively more data on some of the indications that we talked about previously for the MPC trial where we published very high response rate, very high disease control rate in the Phase I study. We'll now have data on the long-term follow-up in those patients, so we'll know about how long the response is, how durable the response is. There will be data there.

For the GBM study we'll have a meaningful number of patients treated at 125 milligrams and we'll be able to get more insight into the potential of the compound in glioblastoma. I think in both patients who have been treated with prior antiangiogenic therapy and patients who are naive for prior antiangiogenic therapy. There's a long trial going on in combination with erlotinib. We'll have data from that where I think we'll give you some insight into the potential for 184 there and we'll have the first data coming from the random discontinuation trial and a number of those indications.

So I think we are looking at a much broader data set and a larger number of indications than we've shown previously as well as more in-depth data in those indications where we've already shown some data. That's why we're enthusiastic about the data. I think people will get a much better view of the potential of 184.

Maybe I could add a few comments as well. Just from a standpoint of we have been very aggressive in terms of our enrollment activities in a very proactive manner across certainly the 184 trial has been very successful at really ramping up enrollments. I think you're going to see a very deep data set with several hundred patients across these different presentations. So it's as George said, I think it's both qualitatively and quantitatively a very deep data set that we're real excited about and look forward to getting it out there and to get some feedback.

Excellent. I'll look forward to seeing the data. Thanks.

Our next question comes from the line of Ted Tenthoff of Piper Jaffray. You may proceed.

Thank you very much. Looking forward to ASCO, too. Chicago in June. So digging into, Frank, your comments a little bit more about reimbursements, revenue recognition, can you give us a sense in the current quarter what was R&D reimbursement from Bristol and Sanofi specifically.

I think I can give you a high level sense. If you look in our Q1, in the 10-Q, you will see that we had about 33% of our revenues in the first quarter from BMS and about 47% of our revenues from Sanofi-Aventis. And the majority of those revenues are really linked to reimbursements. I can't give you the exact split here but I think it's fair to say that a big portion of that is linked to direct cost reimbursements related to the studies under these two collaborations.

But those percentages do include amortization; correct?

They do include amortization as well.

Excellent. And just to be sure of this, but we will start to recognize the cost savings from the restructuring really more in the second quarter; correct?

Well, the impact from the restructuring will really be seen in Q2 and beyond because the restructuring was implemented in March of this year so the real savings impact will not really be visible until Q2 and beyond. With regards to the charges, however, the majority of the charge was taken in Q1 with about $16 million, and there is essentially one other significant charge in Q2 of about $9 million, which is related to us subletting and vacating one of our buildings.

Excellent. Thanks for the extra color there.

Our next question comes from the line of Eric Schmidt of Cowen & Company. You may proceed.

Good afternoon. Mike, you mentioned the rapid enrollment you're seeing in many of your trials. I was just wondering if you could give us an update on 184 in MTC and whether there's a more defined target for closing out enrollment in that trial?

Sure. I think we are on track to, again, complete enrollment there in the second half of the year. As we've guided previously. And looking forward to getting that done and moving that forward.

Okay. And then still on 184, over in GBM, is there a sense of when you might be able to provide us with a regulatory strategy forward?

Absolutely. So, again, we look at the GBM space as a broad area of both medical and commercial opportunity for XL184 in both first and second line setting. We're excited to have, again, a very deep data set in second line to have both presented and then have a chance to discuss at the ASCO meeting on Saturday. We're certainly planning to advance XL184 in the future pivotal trials in GBM and I think we'll outline timing and the details of that in Chicago and we can put that in the context of the data we'll present as well. So stay tuned, a couple weeks and I think we'll be able to make that fairly clear in terms of what our intent and what our plans are going forward.

Great. And then last question, maybe either for Frank or for George, in terms of the targeted moneys that you hope to bring-in in order to reach your year-end cash guidance, will most of the influx of cash be coming from new collaborations or are there any milestones under the existing deals that are pretty significant that we should know about?

It's really a mixture of a variety of things and a portion of it we expect to come from new [BD] deals. A portion of it from milestones, maybe characterizes it, we expect some milestones, not huge milestones, but we do expect some cash in-flows from that and I think the reimbursement factor is an important one too. We have significant ongoing cash in-flows from the cost reimbursements under the BMS and Sanofi-Aventis collaborations so it's a mixture of all of those.

Are there any specific milestones we should be aware of, Frank?

No.

Okay. Thank you. We'll see you in a couple weeks.

With no further questions, ladies and gentlemen, that concludes today's conference. I want to thank you for your participation. You may now disconnect and have a great day.

Thanks everybody.