Exelixis Inc (EXEL) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2010 Exelixis earnings conference call. My name is Charis, and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

And I would now like to turn the call over to your host for today, Mr. Charles Butler, Vice President of Investor Relations. Please proceed, sir.

Thank you. Thank you for joining us for the Exelixis third quarter 2010 earnings call. Joining me on today's call are Mike Morrissey our President and CEO, Frank Karbe our CFO, who will review our corporate, financial and development progress for the quarter ended October 1, 2010. They will also discuss upcoming objectives and provide an update on the 184, our lead clinical development program.

As a reminder we are reporting our financial results on a GAAP basis only, and as usual the complete press release with our results can be accessed through our website at exelixis.com.

Before we get started, I would 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 limitations, statements related to the future development of 184 and our plans related thereto; the clinical, therapeutic and commercial potential of 184; future presentations on data and development priorities; and our 2010 financial outlook. These statements are only predictions and are based upon our current assumptions and expectations. Our actual results and the 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 Q&A session, and the Risk Factors section in our 10-Q for the quarter ended October 1, 2010, and our other reports filed with the Securities & Exchange Commission. We're expressly disclaim any duty to make any updates or revisions to any forward-looking statements.

And with that, I will turn the call over to Mike Morrissey.

Thank you, Charles, and thanks to everyone joining us on the call today.

We have had a productive quarter and made progress across nearly all aspects of our business. Our call today is taking place ahead of the EORTC data release for XL184 in two weeks, so we'll focus our brief comments today on XL184, the Q4 event that will help us end the year, and our Q3 financial summary, including our recently announced transaction with BMS.

It goes without saying that 2010 has been a truly transformation year for Exelixis, and we continue to focus on two key objectives; developing new oncology drugs for cancer patients with significant unmet medical need, and building value for our shareholders.

So let's first start today with XL184. Our development activities with this compound remain the top priority for the Company. We are advancing the XL184 clinical program across multiple fronts and are evaluating 13 tumor types across eight clinical trials in the initial development effort.

To date objective responses have been seen in seven distinct tumor types, thus demonstrating the potential of XL184 as a broadly acting anti-cancer agent.

In addition to the activity observed in patients with advanced medullary thyroid cancer, or MTC, and refractory glioblastoma, objective responses were documented at ASCO in patients with five other tumor types from our ongoing randomized discontinuation trial, or RDT study, including advanced ovarian cancer with three PRs, hepatoma with two PRs in patients after progression on sorafenib, and non-small cell lung cancer, also with two PRs.

The pivotal Phase III trial of XL184 in MTC patients is projected to read out top-line data in the first half of 2011, and we plan to file our first NDA in the second half of 2011, assuming a positive outcome of that trial.

In addition, we are preparing to initiate a Phase III pivotal trial in refractory glioblastoma patients in the fourth quarter, based on the encouraging data that was presented at ASCO in June.

The RDT study is an important single search trial that is investigating the activity of XL184 in nine different tumor types. This study will be the focus of our six upcoming presentations at the EORTC meeting on November 18 in Berlin, and our R&D Day on December 2 in New York City.

We will have a poster presentation on the overall study results as well as individual posters with the new data from hepatoma, prostate, ovarian, melanoma, and non-small cell lung cancer.

We are planning to report data on approximately 40 to 60 evaluable patients for the latter four cohorts. Rapid enrollment into the RDT study continues and is now at 400 patients overall, which we believe reflects investigative enthusiasm for the trial and the emerging data obtained so far.

Of these five tumor types, metastatic castration-resistant prostate cancer is evolving into an opportunity of significant interest. We have enrolled 101 patients into the prostate cohort to date, including 59 patients since September 1.

Investigative interest was piqued by our initial data release during ASCO, which documented a single post-Taxotere patient who experienced a truly unique clinical response to XL184. A complete resolution of his bone scan at six and 12 weeks, a confirmed partial response of his measurable lung lesion, a 50% decrease in his PSA level, and a marked reduction in the systematic pain that is often associated with bone metastasis.

This clinical profile appeared potentially different from that observed previously with first and second generation antiandrogens, taxane-based chemotherapies, bone-targeting agents, as well as other VEGF-directed TKIs or biologics.

Bone metastasis are present in more than 90% of patients with metastatic prostate cancer and are a major driver of both morbidity and mortality in these late-stage patients. Our early, but nonetheless, unique clinical signal for XL184 presented during ASCO highlights a potential new approach to address a major unmet medical need in advanced prostate cancer.

So I'll wrap up here by reiterating that we look forward to sharing Exelixis' progress throughout the fourth quarter of 2010 and early into 2011.

In addition to the EORTC presentation on November 18, we will host a conference call with Dr. Matthew Smith, Program Director at GU Oncology at Mass General Hospital and associate professor of medicine at Harvard medical school. Dr. Smith is one of our key clinical investigators in the RDT study and will discuss the EORTC data for the prostate cancer cohort, and provide context for the role that XL184 could potentially play in regard to both currently approved agents or those in development.

We will also host our annual R&D Day on December 2 in New York. This event will be an important opportunity to discuss how we are incorporating the EORTC data into our strategy and priorities for advancing XL184.

In addition, we will present at the Lazard and Piper Jaffray healthcare conferences on November 16 and 30 respectively.

We have also recently submitted an abstract for the ASCO GU meeting in February 2011, which if accepted, would help us extend our news flow into the early part of next year.

So I'll stop there, and at this point turn the call over to Frank for a review of our financial results for the third quarter. Frank?

Thank you, Mike.

Continuing with the new format that we adopted last quarter, I will again focus just on the highlights of our financial performance in the quarter and refer you to our press release and quarterly SEC filing for additional details.

We continue to see the impact from our restructuring decisions earlier this year. They are out in a significant decrease of our quarterly net loss in spite of rapidly advancing and expanding the clinical development of XL184.

We also continue to maintain a solid cash position, with over $260 million in cash at the end of the third quarter, and we still expect to end the year with approximately $250 million in cash.

Revenues for the third quarter were flat year-over-year, but increased from both Q1 and Q2 of this year by approximately 29% and 14% respectively. Note that the third quarter revenue includes the full $17 million payment from BMS in connection with their opt out from the XL184 program.

With regards to our full-year forecast, we expect to end the year within our previously provided guidance of $190 million to $210 million, but we anticipate to come out at the lower end of this range, mainly due to the expected effective dates for the new Bristol-Myers Squibb transactions being later than originally anticipated.

R&D expenses are down by about 18% year-over-year, despite the progress in our development activities for XL184, including the significant increase in enrollment in the RDT study that Mike alluded to. This decrease is mainly due to our cost-containment efforts, which includes most notably our reduction in force in March of this year.

Net loss decreased by approximately 66% from the same quarter last year, and by about 80% and 62% as compared to Q1 and Q2 respectively of this year, including, however, a restructuring charge in Q1 and Q2 of approximately $16 million and $9 million respectively.

Despite restructuring charges, decreases again mainly reflect the impact from our cost reductions. And let me stress that managing our expenses will remain a high priority for us going forward.

Subsequent to the end of the third quarter, we announced our latest transactions with Bristol-Myers Squibb around our TGR5 and ROR [gamma] assets on October 11.

In addition, we have opted out of the co-development for XL139, our selective hedgehog inhibitor, which provides upfront cash and relieved us of our co-funding operations going forward. In total we will receive a $60 million upfront payment, pending HSR approval, and potentially up to $505 million in new development and regulatory milestones and up to $300 million in new commercial milestones, as well as attractive royalties across all three programs.

These agreements increase our financial flexibility and provide funding that we can apply towards our development efforts on XL184 while enabling other promising programs to move forward with one of the world's leading pharmaceutical companies. We are very pleased to continue our long and productive relationship with BMS in these exciting new areas.

Also subsequent to the quarter end, the second tranche of our GSK loan became due at the end of October, which we decided to repay in cash. The total payment, including principal as well as accrued interest, amounted to approximately $37 million.

The third and final tranche under this loan agreement is due in October next year. It will be of a similar amount and can again be repaid in cash or in stock at our discretion.

While we have more work ahead of us, the impact of our strategy announced in December last year is clearly reflected in the improvement of our financial performance in the third quarter.

And with that I will turn the call back to Mike.

Okay. Thanks, Frank. And before we move in to Q&A, I would like to take a moment to thank all of our employees for their great focus, energy and efforts over the last few months to help us move Exelixis forward.

The next two months should be a very exciting time for us, and between the data release and conference call from the EORTC meeting on November 18 and our R&D Day on December 2, we hope to be able to demonstrate the clinical promise and commercial potential of XL184.

And we certainly look forward to having you join us at both events, either in person or via the webcast.

So I will stop here and be happy, along with Frank, to answer questions. Operator?

(Operator Instructions). Your first question comes from the line of Ted Tenthoff with Piper Jaffray. Please proceed.

Great. Thank you very much. Thanks for the update. One just quick one for, Frank. What was -- a little bit of housekeeping -- what was other income in the quarter? I was looking through the Q and didn't see that yet.

Do you know what it was off of the top of your head? I think it was an other loss that took net income below -- to a negative.

Well, yes, if you look at total other income was negative $4.4 million, and the biggest contributor to that was our interest expense of about $4 million.

Okay. Okay. Great. That's helpful. So very much looking forward to seeing the data over in Berlin. As you kind of start to process that, what do you see for 184 plans going into 2011?

Yes, Ted, that's going to be the main focus of our R&D Day presentation, where we are able to use the data from EORTC to be able to lay the foundation for our priorities moving forward into 2011.

So we needed data to be able to really put that into some level of context, but I want to reiterate that we're going to move forward in a very thoughtful pragmatic fashion. We certainly have opportunity. We have some challenges as well that we to have to be able to balance, and we're going to move forward with a very, I would say, whole view of the information -- clinical data, regulatory issues, competition, et cetera -- to be able to put together and frame a plan that I think makes a lot of sense for where we are at right now?

Okay. I'll stay put for that. And then lastly, just with respect to the new collaboration, how will you be recognizing that upfront -- that $16 million upfront from Bristol?

And Frank, you said that because of the timing of that, or the effective date, revenues would be at the low end of the range, so what exactly does that mean? It just occurred later than you expected, or took longer to clear?

Yes, so the magnitude of the collaboration with BMS is exactly as we had anticipated, but as you may imagine it's difficult beforehand to estimate exactly when such a transaction will close.

And so the anticipated effective date for this transaction now is a little bit later than we had initially assumed in our budgeting and forecasting. And so we will recognize a little less revenue this year than we had originally anticipated, and more revenue in other periods.

Now to your first question, how are we going to recognize revenue? So there's an upfront payment of $60 million associated with these new agreements, and generally we will recognize this over a period of 42 months.

Now I would guide you also towards the 8-K that we have filed in connection with this transaction, where we have explained in quite some detail how the accounting works.

And to make it a little bit easier for the analyst community, we have actually spelled out what we anticipate the revenue recognition to be in 2010 and in 2011. And it's about $900,000 in 2010 and about $8.4 million in 2011.

Great. That's helpful. Thank you.

However, keep in mind this is an estimate. It is subject to the exact timing of HSR approval, which of course, we have not yet received.

Fair enough. Great, thanks.

And your next question comes from the line of Ziad Bakri with Cowen and Company. Please proceed.

Hi, guys. Thanks for taking the questions. So the first question was on XL184 and GBM. I guess my question is, what is the rate-limiting step here to starting the Phase III in GBM? And then also, I guess, is there any update in terms of how partnering discussions of that compound are going?

Thank you. On the GBM side of the equation for 184, what is rate limiting right now is just the normal process, the blocking and tackling, if you will, to get sites up, contracts done, IRBs approved, et cetera. So I would say there's little out of the ordinary there.

In terms of partnering, I think our view on 184 in that respect is I think pretty straightforward. Our goal here is to maximize value in the compound for the Company, for our shareholders. We would certainly like to maintain a large equity stake in the compound going forward.

That being said, I think it's not too surprising that in order to maximize the value of the compound on a global scale, we're going to need more help from the standpoint of bandwidth, in terms of development, in terms of commercial certainly, ex-US financially as well.

So we're certainly looking at those issues very carefully. I think the whole discussion around partnering will come into focus more clearly once we have new data at EORTC and beyond to be able to again put the compound in the context of new data as opposed to maybe old perceptions based upon what happened earlier in the summer.

So that's issues that are very important us to, and we're, I think, again, going to be very pragmatic and very focused in terms of how we operate here to again build value for the Company and do the right thing in a very thoughtful manner.

Okay, and then in terms of the data that we'll see at EORTC, on CRPC specifically, I guess you said that about -- we would see data on 40 to 60 patients in each of the those four tumor types. For CRPC, what kind of -- a couple of questions.

First of all, are these patients who are post -- they are obviously metastatic castrate resistant, but are they chemotherapy experienced or chemotherapy naive? Or maybe they're a mix? And then what kind of duration of XL184 therapy will these patients have received?

So, the patients in that cohort are a mix of either chemo pre- or post-Taxotere in their treatment regimen. We will, I think be focused primarily on the lead-in phase across all cohorts for the updates at EORTC and be able to certainly speak to some duration of response, again, across all of the different cohorts under discussion.

But, again, relative to kind of where we were at ASCO and kind of marching forward by a number of months, it won't be the -- again -- the final be all and say all in terms of duration and response and those kinds of things.

So again, I would recommend you stay tuned, and if you can join us in Berlin that would be great, or we will certainly have (inaudible) on the website, and certainly the call with Dr. Smith would be very, I think, helpful to provide some color commentary on the data, and put -- again, put the data in the context relative to other compounds in that area.

Got it. Okay. Thanks, guys.

(Operator Instructions). And your next question comes from the line of Joel Sendek with Lazard Capital Markets.

Hi, thanks a lot. So I guess the data is eminent here, and obviously you guys know what it is. But I guess I would like to know, once we have the data, are you going to be able to put a plan in place, or at least articulate what the next step is, because obviously it is a bunch of different indications. And will we need to see more data after that, or do you either at EORTC or at the R&D Day, are we even going to be able to get a good feel for what the next step is in the strategy?

Yes, I think in that two-week period between the data release at EORTC and the R&D Day presentation on December 2, our goal is to, again, lay the foundation for the next set of priorities for XL184 with the data from EORTC, and then use the R&D Day presentation to really talk about the priorities, the commercial opportunities, some of the regulatory challenges, et cetera, to be able to give, I think, everybody a very clear sense of the priorities, and the high-level plans going forward.

This obviously won't be the last data update from the RDT study. Again, we've got an abstract in for ASCO GU in February, and I would expect we'll have another update at ASCO in the summer, but I think it's going to be a pretty healthy data set from the standpoint of what we had back at ASCO in June, where we had about 80 evaluable patients.

Now we're vectoring close to 300 across the study, so I think it will be a meaningful data set to be able to help us really frame the opportunity and talk about priorities in some detail.

Okay. So that's helpful, because I guess there's one -- I just want to rule out the notion that we come out of that meeting and then they are still looking for more data to resolve what the strategy is, so if I'm hearing you correctly, we're going to know pretty clearly what the next steps are?

I think you'll see a very clear delineation of our strategy and priorities that will be based on some very thoughtful and pragmatic analysis for the data, the commercial opportunity, the competition, the various regulatory issues, as well as the obvious financial considerations, right?

So I think it will be a good update to what we have got, data-wise, and where we're going moving in to 2011.

All right. Thanks a lot.

And at this time there are no further questions in queue, and I would now like to turn the call back over to Mr. Mike Morrissey for closing remarks.

Okay. I just want to thank everybody for joining us on the call today, and we'll look forward to seeing you or certainly talking to you from Berlin and then from New York.

So thanks again for your interest, and we'll see you soon.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.