|GS: EXEL(IL/N): Q1 in line. Pipeline progressing|
well. Maintain 2005-07 estimates.
Annual Earnings Expectations
52-Week Range US$10-6
YTD Price Change -20.21%
Market Cap US$575.5mn
Fiscal Year (ending in Dec)
2004 2005E 2006E
US$-1.49 US$-1.14 US$-1.66
EXEL reported Q1 loss of $0.36, in line with our and consensus estimates. We are
maintaining our 2005-07 loss estimates of $1.14, $1.66 and $1.84, respectively. The
pipeline is progressing steadily, w/ PI trials started in 3/05 for XL880 and 2 INDs filed
since 4/05 (XL820 & 844). In ?05 we expect: (1) PIII enrollment of XL119 for bile duct
cancer. (2) PI data on XL647 & XL999 (both H2/05). (3) PI trials to start on 3 compounds
(XL184, 820 & 844). Despite the steady progress, the shares are under pressure due to the
lack of major catalysts in 2005 and the need to raise additional capital (1.5 years cash
reserve). We continue to rate EXEL In-Line based on a growing pipeline, broad
technology platform & strong partners. Risks are development failures, reliance on
partners, high share volatility & the need to raise add?l capital.
- Continue enrollment of Phase III trial on XL 119 for bile duct cancer
- Initiate Phase II
trials of XL 647 and XL 999 in cancer (H2/05)
- Initiate Phase I/II trial on XL 784 in renal
- Phase I data of XL 647 and XL 999 in cancer (H2/05)
- * Initiate Phase I
trial of XL 880 in cancer (Q1/05)
- Start Phase I trial on XL 820, XL 844, XL 184 in cancer (2005)
1. MAINTAIN 2005-07 LOSS ESTIMATES
For 2005, we maintain our loss estimate of $1.14 based on revenues of $88MM and operating
expenses of $173MM. We also maintain our 2006 loss estimate of $1.66 based on revenues of
$69MM and operating expenses of $197MM. Our 2007 loss estimate remains $1.84 based on
revenues of $74MM and operating expenses of $220MM. Exelixis had $139MM in cash and
marketable securities at the end of Q1/05. We expect the company to spend about $60MM for the
rest of 2005 and have about $120MM by the end of 2005 (assuming no financing transaction). A
summary of the revisions to our quarterly estimates is as follows:
2. XL119 IN BILE DUCT CANCER: ENROLLMENT ON TRACK; FIRST INTERIM
ANALYSIS IN 2006
Exelixis initiated a Phase III trial of XL119 in inoperable bile duct tumors in June 2004.
Management expects enrollment to take 2-2.5 years and the trial should take approximately 3-years
to complete. An interim analysis for safety and efficacy will be conducted approximately 1/3 and
1/2 way through the trial which should occur in 2006 and 2007, respectively. During the conference
call, the company reiterated that the first interim analysis is expected in 2006. We estimate the
potential of XL119 in bile duct cancer to be modest at $100MM. However, the project helps
Exelixis in establishing an internal drug development group which should accelerate the clinical
development of proprietary drug candidates.
The National Cancer Institute is conducting additional trials with XL119 in other solid tumors,
including non-small cell lung cancer (NSCLC) in combination with platinum based chemotherapy.
Background on the Phase III trial in bile duct cancer:
* The Phase III trial will include up to 600 patients in approximately 60 centers in the U.S., Canada
and Europe. The primary endpoint is survival. The survival benefit of XL119 will be compared to
that of 5-fluorouracil/leucovorin (5FU/LV), which has not been approved to treat bile duct cancer.
Management expects the survival of the patients in the control group to approximate 4.5-5.5
months. The study has over 90% power to detect a 2 month survival benefit.
3. MILESTONE FEES FROM GLAXOSMITHKLINE IN Q2/05 BOOSTED CASH RESERVE
WHICH SHOULD BE SUFFICIENT UNTIL H2/06
As expected, Exelixis received two milestone payments from GlaxoSmithKline (GSK) in Q2/05
amounting to $35MM: (1) $30MM for the submission of IND applications for XL880 in 12/04
(Phase I trials started 3/05), and XL820 and XL844 in 4/05. (2) $5MM for progress achieved in
earlier stage programs. Both of these payments fall under the amended collaboration with GSK
signed in 1/05 (see below for details) and help to support development of the company's expanding
roster of clinical-stage compounds. Pro forma for receipt of an $11MM fee related to termination of
the agriculture joint venture with Genoptera on 4/1/05 (see our 4/1/05 note for details) and the
$35MM in milestones above, balance sheet cash would be about $185MM as of the end of Q1/05
(based on 3/31/05 cash balance of $139MM, which includes $15.5MM of restricted cash). The cash
reserve should be sufficient to support operations until H2/06.
The revised agreement with GSK allows Exelixis to develop the three most advanced candidates
(XL784, XL647 and XL999) with funding obtained from third-party financing sources.
Management reported that discussions are ongoing with potential financial investors. Additional
financial resources should allow Exelixis to advance the drug candidates aggressively. GSK has the
right to "opt in" on these compounds once proof-of-concept has been established in return for
milestone payments that will carry a premium. *Background on the amended agreement with GSK
(replaces the original drug development collaboration started in October 2002): The amended
agreement with GSK, signed in January, 2005, involves 12 compounds mainly in cancer (XL784,
XL647, XL999, XL880, XL184, XL820, XL844 and 5 earlier stage programs) and 32 drug targets.
GSK is entitled to select 2 of these compounds for further development based on Phase IIa trial data
(i.e., after proof of concept) and a third compound if the agreement is extended. Exelixis may
receive future milestone fees up to $240MM ($275MM under amended agreement less $35MM
referenced above) from GSK for rights to the three compounds. GSK will provide $47.5MM of
research support per year, received annually in October and recognized on a pro rata basis over the
year. Further, Exelixis is entitled to additional development and commercialization milestone fees,
royalties and co-promotion rights in North America. Exelixis retains rights to compounds not
chosen by GSK.
4. PIPELINE UPDATE
* XL647 - XL647 is an oral, broad spectrum receptor tyrosine kinase (RTK) inhibitor of epidermal
growth factor receptor (EGFr), human epidermal growth factor receptor 2 (HER2), vascular
endothelial growth factor receptor (VEGFr) and EphB4. XL647 has shown activity in several
different preclinical models, including, breast, lung, colon and prostate cancers. The company
initiated a 1 year Phase I trial in Q2/04 for multiple solid tumors. Patients are being enrolled to
increasing doses of XL647 until a maximum tolerated dose is established. Phase I data is expected
* XL999 - XL999 is another multi-RTK inhibitor that Exelixis is developing for cancer. Exelixis is
developing both oral and intravenous formulations. XL999 inhibits the fibroblast growth factor
receptor (FGFr), VEGFr, platelet derived growth factor receptor (PDGFr) and the Flt3 ligand. The
company initiated a Phase I trial in October 2004. Potential therapeutic targets include solid tumors
and leukemias. Phase I data is expected H2/05.
* XL880 - XL880 is an oral inhibitor of the MET receptor tyrosine kinase with potential activity in
cancers of the breast, lung and glial. Preclinical development was initiated in Q2/04. Tumor
shrinkage for 21 days was observed after one oral dose of XL880 in animals. Phase I trials began in
March, 2005. Management has indicated that the preclinical development of XL880 has taken high
priority given the potential unique mechanism of action.
* XL784 - XL784 is an oral metalloprotease (MMP) enzyme inhibitor, has completed Phase I trials
in healthy volunteers. The specificity of XL784 may result in a better safety profile than other
MMPs that have entered clinical development. In animal models, XL784 monotherapy
demonstrated superior efficacy to captopril and the two drugs were synergistic for renal and heart
failure. The company expects to begin a Phase I/II trial in H2/05 in patients with diabetes-related
* XL844 - XL844 is an oral inhibitor of the Chk 1 and 2 protein kinases (checkpoint kinase
pathway) involved in cell death. Checkpoint kinases induce cell cycle arrest in response to DNA
damaging agents. XL844 also inhibits VEGFR2 and VEGFR3. An IND for solid tumors was filed
* XL820 - During Q
2/04, Exelixis advanced to development XL820, an oral inhibitor of multiple RTKs for cancer. An
IND was filed on 4/25/05.
* XL184 - XL184 is an oral inhibitor of the VEGFR, PDGFR, Tie 2, MET and Flt3 receptors. It has
shown preclinical activity on tumor shrinkage for breast, colon, small cell lung cancers and
glioblastoma. XL184 has a similar biochemical and pharmacological profile to XL880. Management
expects to file an IND in the first half of 2005.
I, Maykin Ho, PhD, hereby certify that all of the views expressed in this report accurately reflect my
personal views about the