Exelixis(US:EXEL)2023-07-31 16:00PART I - FINANCIAL INFORMATION Financial Statements Exelixis, Inc.'s unaudited condensed consolidated financial statements for the periods ended June 30, 2023, are presented Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $464,480 | $501,195 | | Total current assets | $1,590,527 | $1,618,762 | | Total assets | $3,142,468 | $3,071,489 | | Total current liabilities | $339,617 | $324,359 | | Total liabilities | $614,530 | $583,062 | | Total stockholders' equity | $2,527,938 | $2,488,427 | Condensed Consolidated Statements of Income Highlights (Unaudited) | Income Statement Item | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $469,848 | $419,427 | $878,636 | $775,407 | | Income from operations | $77,850 | $83,706 | $106,680 | $166,949 | | Net income | $81,178 | $70,672 | $121,206 | $139,245 | | Diluted EPS | $0.25 | $0.22 | $0.37 | $0.43 | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Item | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $205,386 | $178,849 | | Net cash used in investing activities | ($123,377) | ($209,681) | | Net cash provided by (used in) financing activities | ($120,206) | $4,627 | | Net decrease in cash and cash equivalents | ($38,197) | ($26,205) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q2 2023 financial performance, revenue growth, expense trends, and pipeline progress Q2 2023 Financial Highlights vs. Q2 2022 | Metric | Q2 2023 (in millions) | Q2 2022 (in millions) | Change | | :--- | :--- | :--- | :--- | | Net product revenues | $409.6 | $347.0 | +18% | | Total revenues | $469.8 | $419.4 | +12% | | R&D expenses | $232.6 | $199.5 | +17% | | SG&A expenses | $141.7 | $122.8 | +15% | | Net income | $81.2 | $70.7 | +15% | | Diluted EPS | $0.25 | $0.22 | +13.6% | - The 18% increase in net product revenues for Q2 2023 was driven by a 10% increase in CABOMETYX units sold and a 9% increase in its average net selling price compared to the same period in 2022134 - R&D expenses rose 17% YoY in Q2 2023, primarily due to increased manufacturing costs for development candidates, higher personnel expenses, and increased clinical trial costs for zanzalintinib and XB002148149151 - The company is advancing its pipeline with key programs: zanzalintinib in Phase 3 trials for colorectal cancer (STELLAR-303) and renal cell carcinoma (STELLAR-304), and XB002, a tissue factor-targeting ADC, in a Phase 1 trial (JEWEL-101)106109110 - As of June 30, 2023, the company has repurchased $127.0 million of its common stock under a $550 million program authorized in March 202312573 Quantitative and Qualitative Disclosures About Market Risk The company states that its market risks as of June 30, 2023, have not changed significantly from those described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - There have been no significant changes to the company's market risks since the end of fiscal year 2022182 Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report183 - There were no changes in internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting185 PART II - OTHER INFORMATION Legal Proceedings This section details ongoing patent litigation related to generic versions of CABOMETYX, involving MSN, Teva, and Cipla - MSN I ANDA Litigation: A Delaware District Court ruled that MSN's proposed generic product does not infringe U.S. Patent No. 8,877,776 but upheld the validity of U.S. Patent No. 7,759,473. The judgment sets the effective date for any FDA approval of MSN's ANDA to be no earlier than August 14, 202682189 - MSN II ANDA Litigation: A separate lawsuit against MSN involves different patents (U.S. Patents No. 11,091,439, 11,091,440, 11,098,015, and 11,298,349). A bench trial for this case is scheduled for October 202386193 - Teva ANDA Litigation: On July 18, 2023, Exelixis entered into a settlement and license agreement with Teva, resolving patent litigation. Teva is granted a license to market its generic version of CABOMETYX in the U.S. beginning on January 1, 203187194 - Cipla ANDA Litigation: Exelixis filed a complaint against Cipla in March 2023 for patent infringement related to its ANDA for a generic version of CABOMETYX. The case has been administratively closed after the parties filed a stipulation to stay all proceedings90195 Risk Factors This section outlines key risks, including drug pricing scrutiny, regulatory uncertainties, manufacturing reliance, and legal compliance - Drug Pricing Scrutiny: The Inflation Reduction Act of 2022 introduces measures like the Medicare Drug Price Negotiation Program and inflation rebates, which could reduce revenues, present challenges for payor negotiations, and increase government discount liabilities198200 - Regulatory Process Risks: The FDA's Project Optimus initiative, aimed at reforming dose optimization in oncology drug development, may require additional studies, causing delays and increased costs for product candidates203 - Manufacturing and Supply Chain Risks: The company's reliance on third-party contract manufacturers for production and distribution exposes it to risks of delays, quality issues, and non-compliance with regulations like the Drug Supply Chain Security Act (DSCSA)208209 - Legal Compliance Risks: Patient assistance programs and donations to charitable foundations are under enhanced government scrutiny, posing risks of investigations, fines, and reputational harm if found non-compliant with regulations210211 Unregistered Sales of Equity Securities and Use of Proceeds The company details its stock repurchase activity for the quarter ended June 30, 2023, under its authorized $550 million program Stock Repurchase Activity (Q2 2023) | Period | Total Shares Purchased (in thousands) | Average Price Paid per Share | Approximate Dollar Value of Shares That May Yet Be Purchased (in thousands) | | :--- | :--- | :--- | :--- | | April 29 - May 26, 2023 | 2,382 | $19.32 | $503,980 | | May 27 - June 30, 2023 | 4,226 | $19.16 | $423,016 | | Total | 6,608 | | $423,016 | - In March 2023, the Board of Directors authorized a stock repurchase program of up to $550 million. As of June 30, 2023, approximately $423.0 million remained available for future repurchases213 Defaults Upon Senior Securities The company reports that this item is not applicable - Not applicable Mine Safety Disclosures The company reports that this item is not applicable - Not applicable Other Information The company discloses that an executive officer entered into a pre-arranged Rule 10b5-1 stock trading plan during the quarter - Dana T. Aftab, Executive Vice President, Discovery and Translational Research, and Chief Scientific Officer, entered into a pre-arranged Rule 10b5-1 stock trading plan on May 25, 2023, for the sale of up to 199,256 shares of common stock218 - No other directors or Section 16 officers adopted or terminated any Rule 10b5-1 trading arrangement during the three months ended June 30, 2023219 Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - The report includes several exhibits, such as the Restated Certificate of Incorporation, Amended and Restated Bylaws, officer certifications required by the Exchange Act, and Inline XBRL documents220