Exelixis faces enormous cash flow gap

Exelixis (NASDAQ: EXEL) shares fell to an all-time low. While two products in multiple indications have been advanced into late-stage development, the company is gradually sinking into significant debt and enormous R&D expenses.

Exelixis’ only marketed drug is cabozantinib for MTC. The drug was approved in the U.S. in November 2012 and in Europe in March 2014. MTC is a rare disease that only accounts for 4% of thyroid cancers. In consideration of the competition from vandetanib, annual sales of cabozantinib are expected to peak at $50 million.

Sales of cabozantinib by quarter

2014Q3 2014Q2 2014Q1 2013Q4 2013Q3 2013Q2 2013Q1
$6.3M $6.6M $4.9M $4.3M $4.8M $4.0M $1.9M

In December 2014, Exelixis/Genentech filed NDA for the combination of cobimetinib and vemurafenib for the treatment of patients with BRAF V600 mutation-positive advanced melanoma. Given the competition from trametinib/dabrafenib, Leerink Partners analysts expect $150 million in peak annual sales. Exelixis is entitled to an equal share of U.S. profits and low double-digit royalties on overseas sales.

Exelixis is developing cabozantinib for RCC (METEOR trial) and HCC (CELESTIAL trial) in Phase III trials. However, two failed Phase III studies (COMET-1 and COMET-2 trial) in mCRPC have raised concerns over the ongoing trials in RCC and HCC. Top-line results from METEOR trial is expected in 2015Q2. Principal competition in such indications includes sunitinib, axitinib, pazopanib, and sorafenib.

In November 2014, Exelixis announced that cabozantinib significantly improved PFS in patients with EGFR wild-type NSCLC in Phase II study (E1512 trial). At time of analysis, the median follow-up was 5.9 months and overall survival data were immature. It is too early to expect sales in this indication anyhow.

Drug R&D is a money-burning game, especially for Exelixis that simultaneously conducted several large-scale late-stage trials. The company currently has $293.5 million in cash/equivalents/ investments, which may barely fund its operations through the end of 2015. However, debt cost has become burdensome to the company. Revenues from cabozantinib and cobimetinib are not significant enough to fund future R&D and debt.

Expenses by quarter

  2014Q3 2014Q2 2014Q1 2013Q4 2013Q3 2013Q2 2013Q1
R&D expenses $43.6M $51.0M $54.8M $49.6M $47.4M $49.1M $32.7M
SG&A expenses $9.9M $16.5M $14.7M $13.6M $13.6M $13.2M $10.5M
Interest expenses $11.0M $11.7M $9.6M $11.3M $11.2M $10.9M $10.7M

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