NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Exelixis, Inc. (Exelixis, we, our or us) is an oncology-focused biotechnology company that strives to accelerate the discovery, development and commercialization of new medicines for difficult-to-treat cancers. We have invented and brought to market novel, effective and tolerable therapies using our drug discovery and development resources and capabilities and commercialization platform; we will continue to build on this foundation, working toward providing cancer patients with additional treatment options.
Since we were founded in 1994, four products resulting from our discovery efforts have progressed through clinical development, received regulatory approval and established a commercial presence in various geographies around the world. Our flagship molecule, cabozantinib, is an inhibitor of multiple tyrosine kinases including MET, AXL, VEGF receptors and RET and has been approved by the U.S. Food and Drug Administration (FDA) and foreign regulatory authorities as two products: CABOMETYX® (cabozantinib) tablets approved for advanced renal cell carcinoma (RCC), both alone and in combination with Bristol Myers Squibb Company’s OPDIVO® (nivolumab), and for previously treated hepatocellular carcinoma (HCC); and COMETRIQ® (cabozantinib) capsules approved for progressive, metastatic medullary thyroid cancer (MTC). For these types of cancer, cabozantinib has become or is becoming a standard of care.
The other two products resulting from our discovery efforts are: COTELLIC® (cobimetinib), an inhibitor of MEK, approved as part of multiple combination regimens to treat specific forms of advanced melanoma and marketed under a collaboration with Genentech, Inc. (a member of the Roche Group) (Genentech); and MINNEBRO® (esaxerenone), an oral, non-steroidal, selective blocker of the mineralocorticoid receptor, approved for the treatment of hypertension in Japan and licensed to Daiichi Sankyo Company, Limited (Daiichi Sankyo).
Leveraging the revenue stream derived from our cabozantinib franchise and other marketed products, we are expanding our oncology product pipeline through drug discovery efforts, which encompass both small molecule and biologics programs with multiple modalities and mechanisms of action.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include the accounts of Exelixis and those of our wholly-owned subsidiaries. These entities’ functional currency is the U.S. dollar. All intercompany balances and transactions have been eliminated.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial statements for the periods presented have been included. Operating results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for any future period. The accompanying Condensed Consolidated Financial Statements and Notes thereto should be read in conjunction with our Consolidated Financial Statements and Notes thereto for the year ended December 31, 2020, included in our Annual Report on Form 10-K submitted to the SEC on February 10, 2021.
We have adopted a 52- or 53-week fiscal year policy that generally ends on the Friday closest to December 31st. Fiscal year 2021, which is a 52-week fiscal year, will end on December 31, 2021 and fiscal year 2020, which was a 52-week fiscal year, ended on January 1, 2021. For convenience, references in this report as of and for the fiscal periods ended July 2, 2021 and July 3, 2020, and as of and for the fiscal year ended January 1, 2021, are indicated as being as of and for the fiscal periods ended June 30, 2021 and June 30, 2020, and the year ended December 31, 2020, respectively.
Segment Information
We operate in one business segment that focuses on the discovery, development and commercialization of new medicines for difficult-to-treat cancers. Our Chief Executive Officer, as the chief operating decision-maker, manages and
allocates resources to our operations on a total consolidated basis. Consistent with this decision-making process, our Chief Executive Officer uses consolidated, single-segment financial information for purposes of evaluating performance, forecasting future period financial results, allocating resources and setting incentive targets.
All of our long-lived assets are located in the U.S. See “Note 2. Revenues” for enterprise-wide disclosures about product sales, revenues from major customers and revenues by geographic region.
Use of Estimates
The preparation of the accompanying Condensed Consolidated Financial Statements conforms to accounting principles generally accepted in the U.S., which requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosures. On an ongoing basis, we evaluate our significant estimates. We base our estimates on historical experience and on various other market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.
Reclassifications
Certain prior period amounts in the accompanying Condensed Consolidated Financial Statements have been reclassified to conform to the current period presentation. Such reclassifications did not impact previously reported total revenues, income from operations, net income, total assets, total liabilities or total stockholders’ equity.
Significant Accounting Policies
Except for the foreign currency forward contracts for non-designated hedges, there have been no material changes to our significant accounting policies during the six months ended June 30, 2021, as compared to the significant accounting policies disclosed in Note 1 – Significant Accounting Policies included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Foreign Currency Forward Contracts for Non-Designated Hedges
We may use forward foreign currency exchange contracts (forward contracts) to hedge certain operational exposures resulting from potential changes in foreign currency exchange rates. Our strategy is to enter into forward contracts so that increases or decreases in our foreign currency exposures are offset by gains or losses on the foreign currency forward contracts thereby mitigating the risks and volatility associated with our foreign currency transactions. We do not apply hedge accounting treatment to these non-designated hedging instruments. We do not hold or issue derivative instruments for trading or speculative purposes.
Our forward contracts are generally short-term in duration. Given the short duration of the forward contracts, amounts recorded generally are not significant. We account for our derivative instruments as either assets or liabilities on our Condensed Consolidated Balance Sheets and measure them at fair value. Derivatives not designated as hedging instruments are adjusted to fair value through earnings in other income (expense), net in the Condensed Consolidated Statements of Income.
Recently Adopted Accounting Pronouncements
On January 1, 2021, we adopted the Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740)-Simplifying the Accounting for Income Taxes (ASU 2019-12). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification (ASC) Topic 740, Income Taxes and clarifying and amending existing guidance. Our adoption of ASU 2019-12 did not have a significant impact on the accompanying Condensed Consolidated Financial Statements.
Recent Accounting Pronouncements Not Yet Adopted
There were no new accounting pronouncements issued since our filing of the Annual Report on Form 10-K for the year ended December 31, 2020, which could have a significant effect on our condensed consolidated financial statements.
NOTE 2. REVENUES
Revenues consisted of the following (in thousands):
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
Product revenues:
|
|
|
|
|
|
|
|
|
|
Gross product revenues
|
$
|
380,204
|
|
|
$
|
229,898
|
|
|
$
|
694,409
|
|
|
$
|
482,464
|
|
|
|
Discounts and allowances
|
(95,956)
|
|
|
(51,168)
|
|
|
(182,949)
|
|
|
(109,854)
|
|
|
|
Net product revenues
|
284,248
|
|
|
178,730
|
|
|
511,460
|
|
|
372,610
|
|
|
|
Collaboration revenues:
|
|
|
|
|
|
|
|
|
|
License revenues
|
39,640
|
|
|
59,234
|
|
|
67,168
|
|
|
80,113
|
|
|
|
Collaboration services revenues
|
61,289
|
|
|
21,515
|
|
|
76,779
|
|
|
33,671
|
|
|
|
Total collaboration revenues
|
100,929
|
|
|
80,749
|
|
|
143,947
|
|
|
113,784
|
|
|
|
Total revenues
|
$
|
385,177
|
|
|
$
|
259,479
|
|
|
$
|
655,407
|
|
|
$
|
486,394
|
|
|
|
The percentage of total revenues by customer who individually accounted for 10% or more of our total revenues were as follows:
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|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
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|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
Ipsen Pharma SAS
|
24
|
%
|
|
20
|
%
|
|
19
|
%
|
|
17
|
%
|
|
|
Affiliates of McKesson Corporation
|
14
|
%
|
|
11
|
%
|
|
14
|
%
|
|
13
|
%
|
|
|
Affiliates of CVS Health Corporation
|
13
|
%
|
|
13
|
%
|
|
14
|
%
|
|
15
|
%
|
|
|
Affiliates of AmerisourceBergen Corporation
|
12
|
%
|
|
11
|
%
|
|
13
|
%
|
|
11
|
%
|
|
|
Affiliates of Optum Specialty Pharmacy
|
8
|
%
|
|
10
|
%
|
|
9
|
%
|
|
11
|
%
|
|
|
Accredo Health, Incorporated
|
8
|
%
|
|
10
|
%
|
|
8
|
%
|
|
9
|
%
|
|
|
Takeda Pharmaceutical Company Limited
|
2
|
%
|
|
10
|
%
|
|
2
|
%
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
The percentage of trade receivables by customer who individually accounted for 10% or more of our trade receivables were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
|
Ipsen Pharma SAS
|
24
|
%
|
|
23
|
%
|
|
|
|
|
Affiliates of McKesson Corporation
|
21
|
%
|
|
12
|
%
|
|
|
|
|
Affiliates of AmerisourceBergen Corporation
|
19
|
%
|
|
11
|
%
|
|
|
|
|
Affiliates of CVS Health Corporation
|
13
|
%
|
|
11
|
%
|
|
|
|
|
Takeda Pharmaceutical Company Limited
|
4
|
%
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by geographic region were as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
U.S.
|
$
|
287,190
|
|
|
$
|
181,231
|
|
|
$
|
517,147
|
|
|
$
|
377,827
|
|
|
|
Europe
|
90,921
|
|
|
52,917
|
|
|
124,727
|
|
|
81,953
|
|
|
|
Japan
|
7,066
|
|
|
25,331
|
|
|
13,533
|
|
|
26,614
|
|
|
|
Total revenues
|
$
|
385,177
|
|
|
$
|
259,479
|
|
|
$
|
655,407
|
|
|
$
|
486,394
|
|
|
|
Total revenues include net product revenues attributed to geographic regions based on the ship-to location and license and collaboration services revenues attributed to geographic regions based on the location of our collaboration partners’ headquarters.
Net product revenues and license revenues are recorded in accordance with ASC Topic 606, Revenue from Contracts with Customers (Topic 606). License revenues include the recognition of the portion of milestones payments allocated to the transfer of intellectual property licenses for which it had become probable in the current period that the milestone would be achieved and a significant reversal of revenues would not occur, as well as royalty revenues and our share of profits under our collaboration agreement with Genentech. Collaboration services revenues were recorded in accordance with ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 and by analogy to Topic 606. Collaboration services revenues include the recognition of deferred revenues for the portion of upfront and milestone payments allocated to our research and development services performance obligations, development cost reimbursements earned under our collaboration agreements, product supply revenues, net of product supply costs, and the royalties we paid on sales of products containing cabozantinib by our collaboration partners. We received notification that, effective January 1, 2021, Royalty Pharma plc (Royalty Pharma) acquired from GlaxoSmithKline (GSK) all rights, title and interest in royalties on net product sales containing cabozantinib for non-U.S. markets for the full term of the royalty and for the U.S. market through September 2026, after which time U.S. royalties will revert back to GSK.
Net product revenues by product were as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
CABOMETYX
|
$
|
275,614
|
|
|
$
|
173,610
|
|
|
$
|
499,209
|
|
|
$
|
362,826
|
|
|
|
COMETRIQ
|
8,634
|
|
|
5,120
|
|
|
12,251
|
|
|
9,784
|
|
|
|
Net product revenues
|
$
|
284,248
|
|
|
$
|
178,730
|
|
|
$
|
511,460
|
|
|
$
|
372,610
|
|
|
|
Product Sales Discounts and Allowances
The activities and ending reserve balances for each significant category of discounts and allowances, which constitute variable consideration, were as follows (in thousands):
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|
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|
|
|
|
|
|
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|
|
Chargebacks, Discounts for Prompt Payment and Other
|
|
Other Customer Credits/Fees and Co-pay Assistance
|
|
Rebates
|
|
|
|
Total
|
Balance at December 31, 2020
|
$
|
9,853
|
|
|
$
|
3,279
|
|
|
$
|
17,404
|
|
|
|
|
$
|
30,536
|
|
Provision related to sales made in:
|
|
|
|
|
|
|
|
|
|
Current period
|
114,489
|
|
|
15,392
|
|
|
51,355
|
|
|
|
|
181,236
|
|
Prior periods
|
(40)
|
|
|
(164)
|
|
|
1,917
|
|
|
|
|
1,713
|
|
Payments and customer credits issued
|
(108,487)
|
|
|
(11,637)
|
|
|
(46,349)
|
|
|
|
|
(166,473)
|
|
Balance at June 30, 2021
|
$
|
15,815
|
|
|
$
|
6,870
|
|
|
$
|
24,327
|
|
|
|
|
$
|
47,012
|
|
The allowance for chargebacks, discounts for prompt payment and other are recorded as a reduction of trade receivables, net and the remaining reserves are recorded as rebates and fees due to customers in the accompanying Condensed Consolidated Balance Sheets.
Contract Assets and Liabilities
We receive payments from our collaboration partners based on billing schedules established in each contract. Amounts are recorded as accounts receivable when our right to consideration is unconditional. We may also recognize revenue in advance of the contractual billing schedule and such amounts are recorded as a contract asset when recognized. We may be required to defer recognition of revenue for upfront and milestone payments until we perform our obligations under these arrangements, and such amounts are recorded as deferred revenue upon receipt or when due. For those contracts that have multiple performance obligations, contract assets and liabilities are reported on a net basis at the contract level.
Contract assets and liabilities were as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
Contract assets
|
|
|
|
Current portion(1)
|
$
|
9,749
|
|
|
$
|
—
|
|
Long-term portion(1)
|
948
|
|
|
—
|
|
Total contract assets
|
$
|
10,697
|
|
|
$
|
—
|
|
|
|
|
|
Contract liabilities:
|
|
|
|
Current portion(2)
|
$
|
6,314
|
|
|
$
|
1,790
|
|
Long-term portion(2)
|
8,577
|
|
|
3,755
|
|
Total contract liabilities
|
$
|
14,891
|
|
|
$
|
5,545
|
|
____________________
(1) Presented in prepaid and other current assets and other long-term assets, respectively, on the accompanying Condensed Consolidated Balance Sheets.
(2) Presented in other current liabilities and long-term portion of deferred revenues, respectively, in the accompanying Condensed Consolidated Balance Sheets.
Contract assets as of June 30, 2021 are primarily related to a $12.5 million development milestone that we deemed probable of achievement and recognized $11.8 million of revenues during the three months ended June 30, 2021. Contract liabilities as of June 30, 2021 are primarily related to deferred revenues from Takeda Pharmaceutical Company Limited (Takeda).
During the six months ended June 30, 2021 and 2020, we recognized $4.8 million and $3.4 million, respectively, in revenues that were included in the beginning deferred revenues balance for those periods.
During the three and six months ended June 30, 2021, we recognized $40.6 million and $67.8 million, respectively, in revenues for performance obligations satisfied in previous periods, as compared to $62.0 million and $82.2 million for the corresponding periods in 2020. Such revenues were primarily related to royalty payments allocated to the license performance obligations for our collaborations with Ipsen Pharma SAS (Ipsen), Takeda, Daiichi Sankyo and Genentech.
As of June 30, 2021, $86.9 million of the combined transaction prices for our Ipsen and Takeda collaborations were allocated to performance obligations that had not yet been satisfied. See “Note 3. Collaboration Agreements— Cabozantinib Collaborations - Performance Obligations and Transaction Prices for our Ipsen and Takeda Collaborations” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 for information about the expected timing to satisfy these performance obligations.
NOTE 3. COLLABORATION AGREEMENTS, IN-LICENSING ARRANGEMENTS AND BUSINESS DEVELOPMENT ACTIVITIES
We have established multiple collaborations with leading pharmaceutical companies for the commercialization and further development of our cabozantinib franchise. Additionally, we have entered into several research collaborations and in-licensing arrangements to further enhance our early-stage pipeline and expand our ability to discover, develop and commercialize novel therapies with the goal of providing new treatment options for cancer patients and their physicians. We also entered into other collaborations with leading pharmaceutical companies for other compounds and programs in our portfolio.
See “Note 3. Collaboration Agreements” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, or as further described below, for additional information on each of our collaboration agreements and in-licensing arrangements.
Cabozantinib Collaborations
Ipsen Collaboration
In February 2016, we entered into a collaboration agreement with Ipsen for the commercialization and further development of cabozantinib. Under the terms of the collaboration agreement, as amended, Ipsen received exclusive commercialization rights for current and potential future cabozantinib indications outside of the U.S. and Japan. We have
also agreed to collaborate with Ipsen on the development of cabozantinib for current and potential future indications. The parties’ efforts are governed through a joint steering committee and appropriate subcommittees established to guide and oversee the collaboration’s operation and strategic direction; provided, however, that we retain final decision-making authority with respect to cabozantinib’s ongoing development.
During the second quarter of 2021, Ipsen opted into and is now co-funding the development costs for COSMIC-311, our phase 3 pivotal trial evaluating cabozantinib versus placebo in patients with radioactive iodine differentiated thyroid cancer who have progressed after up to two VEGF receptor-targeted therapies. Under the terms of the Agreement, Ipsen is now obligated to reimburse us for their share of the COSMIC-311 global development costs, as well as an additional payment calculated as a percentage of such costs, triggered by the timing of the exercise of its option. We determined that the decision to opt into and co-fund the development costs for COSMIC-311 represented a contract modification for additional distinct services at their standalone selling price and therefore was treated as a separate contract under Topic 606. Accordingly, collaboration services revenues for the three and six months ended June 30, 2021, includes a cumulative catch up for Ipsen’s share of global development costs incurred since the beginning of the study and through the end of the period.
Revenues under the collaboration agreement with Ipsen were as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
License revenues
|
$
|
33,656
|
|
|
$
|
33,597
|
|
|
$
|
56,107
|
|
|
$
|
51,546
|
|
|
|
Collaboration services revenues
|
57,265
|
|
|
19,320
|
|
|
68,620
|
|
|
30,407
|
|
|
|
Total
|
$
|
90,921
|
|
|
$
|
52,917
|
|
|
$
|
124,727
|
|
|
$
|
81,953
|
|
|
|
As of June 30, 2021, $46.2 million of the transaction price was allocated to our research and development services performance obligations that has not yet been satisfied.
Takeda Collaboration
In January 2017, we entered into a collaboration and license agreement with Takeda for the commercialization and further development of cabozantinib. Pursuant to this collaboration and license agreement, as amended, Takeda has exclusive commercialization rights for current and potential future cabozantinib indications in Japan, and the parties have agreed to collaborate on the clinical development of cabozantinib in Japan. The operation and strategic direction of the parties’ collaboration is governed through a joint executive committee and appropriate subcommittees.
Revenues under the collaboration agreement with Takeda were as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
License revenues
|
$
|
2,097
|
|
|
$
|
22,946
|
|
|
$
|
3,398
|
|
|
$
|
22,946
|
|
|
|
Collaboration services revenues
|
4,024
|
|
|
2,195
|
|
|
8,159
|
|
|
3,264
|
|
|
|
Total
|
$
|
6,121
|
|
|
$
|
25,141
|
|
|
$
|
11,557
|
|
|
$
|
26,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021, $40.7 million of the transaction price was allocated to our research and development services performance obligations that has not yet been satisfied.
GSK and Royalty Pharma
In October 2002, we established a product development and commercialization collaboration agreement with GSK, that required us to pay a 3% royalty to GSK on the worldwide net sales of any product incorporating cabozantinib by us and our collaboration partners. As disclosed in Note 2, we received notification that, effective January 1, 2021, Royalty Pharma acquired from GSK all rights, title and interest in royalties on net product sales containing cabozantinib for non-U.S. markets for the full term of the royalty and for U.S. market through September 2026, after which time U.S. royalties will revert back to GSK. Royalties earned by GSK and Royalty Pharma in connection with our sales of cabozantinib are included in cost of goods sold and as a reduction of collaboration services revenues for sales by our collaboration partners. Such royalties were $12.1 million and $22.2 million during the three and six months ended June 30, 2021, respectively, as compared to $7.6 million and $15.7 million in the corresponding periods in 2020.
Genentech Collaboration
In December 2006, we out-licensed the development and commercialization of cobimetinib to Genentech under a worldwide collaboration agreement. In November 2015, the FDA approved cobimetinib, under the brand name COTELLIC, in combination with Genentech’s ZELBORAF® (vemurafenib) for the treatment of patients with BRAF V600E or V600K mutation-positive advanced melanoma. COTELLIC in combination with ZELBORAF has also been approved in the European Union and multiple additional countries for use in the same indication. In July 2020, the FDA also approved COTELLIC for use in combination with ZELBORAF and TECENTRIQ® (atezolizumab) for the treatment of patients with BRAF V600 mutation-positive advanced melanoma in previously untreated patients. License revenues under the collaboration agreement with Genentech were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
Profits on U.S. commercialization
|
$
|
2,160
|
|
|
$
|
1,376
|
|
|
$
|
3,954
|
|
|
$
|
2,783
|
|
|
|
Royalty revenues on ex-U.S. sales
|
$
|
782
|
|
|
$
|
1,125
|
|
|
$
|
1,733
|
|
|
$
|
2,434
|
|
|
|
Research Collaborations, In-Licensing Arrangements and Other Business Development Activities
During the six months ended June 30, 2021, in support of our development pipeline, we entered into additional collaboration and in-licensing arrangements with Adagene, Inc. (Adagene) and WuXi Biologics Ireland Limited (WuXi Bio), and amended our existing collaboration agreement with StemSynergy Therapeutics, Inc. (StemSynergy). In conjunction with each of these arrangements we have made aggregate upfront payments totaling $17.0 million and will make payments for potential future development milestones of up to $58.5 million, regulatory milestones of up to $139.0 million and commercial milestones of up to $377.5 million, each in the aggregate per product, as well as royalties on future net product sales. Additionally, we entered into an asset purchase agreement with GamaMabs Pharma SA (GamaMabs), pursuant to which we made an upfront payment of $5.0 million for the initial technology transfer, and subject to certain conditions, will make a $9.0 million payment upon closing of the transaction. We will also make payments for potential future development milestones of up to $42.0 million and regulatory milestones of up to $22.5 million, per product.
NOTE 4. CASH AND INVESTMENTS
Cash, Cash Equivalents and Restricted Cash Equivalents
A reconciliation of cash, cash equivalents, and restricted cash equivalents reported in the accompanying Condensed Consolidated Balance Sheets to the amount reported within the accompanying Condensed Consolidated Statements of Cash Flows was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
Cash and cash equivalents
|
$
|
492,462
|
|
|
$
|
319,217
|
|
|
|
|
|
Restricted cash equivalents included in other long-term assets
|
46,839
|
|
|
1,555
|
|
Cash, cash equivalents, and restricted cash equivalents as reported in the accompanying Condensed Consolidated Statements of Cash Flows
|
$
|
539,301
|
|
|
$
|
320,772
|
|
Restricted cash equivalents are used to collateralize letters of credit and consist of money-market funds and certificates of deposit with original maturities of 90 days or less. The restricted cash equivalents are classified as other long-term assets based upon the remaining term of the underlying restriction. As of June 30, 2021, restricted cash equivalents included $45.3 million of short-term investments, which is collateral under our January 2021 standby letter of credit to guarantee our obligation to fund a portion of the total tenant improvements related to our build-to-suit lease at our corporate campus. As we fund these tenant improvements, our restricted cash becomes available for operations.
Cash, Cash Equivalents, Restricted Cash Equivalents and Investments
Cash, cash equivalents, restricted cash equivalents and investments consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
Commercial paper
|
$
|
716,916
|
|
|
$
|
141
|
|
|
$
|
—
|
|
|
$
|
717,057
|
|
Corporate bonds
|
489,678
|
|
|
2,630
|
|
|
(166)
|
|
|
492,142
|
|
U.S. Treasury and government-sponsored enterprises
|
132,036
|
|
|
43
|
|
|
(13)
|
|
|
132,066
|
|
Municipal bonds
|
14,261
|
|
|
41
|
|
|
(4)
|
|
|
14,298
|
|
Total debt securities available-for-sale
|
1,352,891
|
|
|
2,855
|
|
|
(183)
|
|
|
1,355,563
|
|
Cash
|
88,511
|
|
|
—
|
|
|
—
|
|
|
88,511
|
|
Money market funds
|
179,306
|
|
|
—
|
|
|
—
|
|
|
179,306
|
|
Certificates of deposit
|
115,706
|
|
|
—
|
|
|
—
|
|
|
115,706
|
|
Total cash, cash equivalents, restricted cash equivalents and investments
|
$
|
1,736,414
|
|
|
$
|
2,855
|
|
|
$
|
(183)
|
|
|
$
|
1,739,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Debt securities available-for-sale:
|
|
|
|
|
|
|
|
Commercial paper
|
$
|
569,456
|
|
|
$
|
372
|
|
|
$
|
—
|
|
|
$
|
569,828
|
|
Corporate bonds
|
543,520
|
|
|
5,244
|
|
|
(7)
|
|
|
548,757
|
|
U.S. Treasury and government-sponsored enterprises
|
208,326
|
|
|
232
|
|
|
(4)
|
|
|
208,554
|
|
Municipal bonds
|
28,680
|
|
|
83
|
|
|
(1)
|
|
|
28,762
|
|
Total debt securities available-for-sale
|
1,349,982
|
|
|
5,931
|
|
|
(12)
|
|
|
1,355,901
|
|
Cash
|
82,176
|
|
|
—
|
|
|
—
|
|
|
82,176
|
|
Money market funds
|
40,761
|
|
|
—
|
|
|
—
|
|
|
40,761
|
|
Certificates of deposit
|
60,004
|
|
|
—
|
|
|
—
|
|
|
60,004
|
|
Total cash, cash equivalents, restricted cash equivalents and investments
|
$
|
1,532,923
|
|
|
$
|
5,931
|
|
|
$
|
(12)
|
|
|
$
|
1,538,842
|
|
Interest receivable was $3.3 million and $4.5 million as of June 30, 2021 and December 31, 2020, respectively, and is included in prepaid expenses and other current assets in the accompanying Condensed Consolidated Balance Sheets.
Realized gains and losses on the sales of investments were insignificant during the three and six months ended June 30, 2021 and 2020.
We manage credit risk associated with our investment portfolio through our investment policy, which limits purchases to high-quality issuers and limits the amount of our portfolio that can be invested in a single issuer. The fair value and gross unrealized losses on debt securities available-for-sale in an unrealized loss position were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Gross Unrealized Losses
|
Commercial paper
|
|
|
|
|
|
|
|
|
$
|
1,002
|
|
|
$
|
—
|
|
Corporate bonds
|
|
|
|
|
|
|
|
|
154,767
|
|
|
(166)
|
|
U.S. Treasury and government-sponsored enterprises
|
|
|
|
|
|
|
|
|
38,088
|
|
|
(13)
|
|
Municipal bonds
|
|
|
|
|
|
|
|
|
5,897
|
|
|
(4)
|
|
Total
|
|
|
|
|
|
|
|
|
$
|
199,754
|
|
|
$
|
(183)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Gross Unrealized Losses
|
Corporate bonds
|
|
|
|
|
|
|
|
|
$
|
28,445
|
|
|
$
|
(7)
|
|
U.S. Treasury and government-sponsored enterprises
|
|
|
|
|
|
|
|
|
21,989
|
|
|
(4)
|
|
Municipal bonds
|
|
|
|
|
|
|
|
|
5,865
|
|
|
(1)
|
|
Total
|
|
|
|
|
|
|
|
|
$
|
56,299
|
|
|
$
|
(12)
|
|
All securities presented have been in an unrealized loss position for less than 12 months. There were 53 and 14 investments in an unrealized loss position as of June 30, 2021 and December 31, 2020, respectively. During the six months ended June 30, 2021 and 2020, we did not record an allowance for credit losses or other impairment charges on our investment securities. Based upon our quarterly impairment review, we determined that the unrealized losses were not attributed to credit risk but were primarily associated with changes in interest rates and market liquidity. Based on the scheduled maturities of our investments, we determined that it was more likely than not that we will hold these investments for a period of time sufficient for a recovery of our cost basis.
The fair value of debt securities available-for-sale by contractual maturity was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
Maturing in one year or less
|
$
|
1,015,650
|
|
|
$
|
1,034,150
|
|
Maturing after one year through five years
|
339,913
|
|
|
321,751
|
|
Total debt securities available-for-sale
|
$
|
1,355,563
|
|
|
$
|
1,355,901
|
|
|
|
|
|
NOTE 5. FAIR VALUE MEASUREMENTS
Fair value reflects the amounts that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy has the following three levels:
•Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities;
•Level 2 - inputs other than level 1 that are observable either directly or indirectly, such as quoted prices in active markets for similar instruments or on industry models using data inputs, such as interest rates and prices that can be directly observed or corroborated in active markets;
•Level 3 - unobservable inputs that are supported by little or no market activity that are significant to the fair value measurement
The classifications within the fair value hierarchy of our financial assets that were measured and recorded at fair value on a recurring basis were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
Level 1
|
|
Level 2
|
|
Total
|
Commercial paper
|
$
|
—
|
|
|
$
|
717,057
|
|
|
$
|
717,057
|
|
Corporate bonds
|
—
|
|
|
492,142
|
|
|
492,142
|
|
U.S. Treasury and government-sponsored enterprises
|
—
|
|
|
132,066
|
|
|
132,066
|
|
Municipal bonds
|
—
|
|
|
14,298
|
|
|
14,298
|
|
Total debt securities available-for-sale
|
—
|
|
|
1,355,563
|
|
|
1,355,563
|
|
Money market funds
|
179,306
|
|
|
—
|
|
|
179,306
|
|
Certificates of deposit
|
—
|
|
|
115,706
|
|
|
115,706
|
|
Total financial assets carried at fair value
|
$
|
179,306
|
|
|
$
|
1,471,269
|
|
|
$
|
1,650,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Level 1
|
|
Level 2
|
|
Total
|
Commercial paper
|
$
|
—
|
|
|
$
|
569,828
|
|
|
$
|
569,828
|
|
Corporate bonds
|
—
|
|
|
548,757
|
|
|
548,757
|
|
U.S. Treasury and government-sponsored enterprises
|
—
|
|
|
208,554
|
|
|
208,554
|
|
Municipal bonds
|
—
|
|
|
28,762
|
|
|
28,762
|
|
Total debt securities available-for-sale
|
—
|
|
|
1,355,901
|
|
|
1,355,901
|
|
Money market funds
|
40,761
|
|
|
—
|
|
|
40,761
|
|
Certificates of deposit
|
—
|
|
|
60,004
|
|
|
60,004
|
|
Total financial assets carried at fair value
|
$
|
40,761
|
|
|
$
|
1,415,905
|
|
|
$
|
1,456,666
|
|
|
|
|
|
|
|
When available, we value investments based on quoted prices for those financial instruments, which is a Level 1 input. Our remaining investments are valued using third-party pricing sources, which use observable market prices, interest rates and yield curves observable at commonly quoted intervals for similar assets as observable inputs for pricing, which is a Level 2 input.
The carrying amount of our remaining financial assets and liabilities, which include cash, receivables and payables, approximate their fair values due to their short-term nature.
Forward Foreign Currency Contracts
In January 2021, we initiated an operational hedging program and entered into forward contracts to hedge certain operational exposures for the changes in foreign currency exchanges rates associated with assets or liabilities denominated in foreign currencies, primarily the Euro.
As of June 30, 2021, we had one forward contract outstanding to sell €9.3 million. The forward contract has a maturity of three months, is recorded at fair value and is included in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. The unrealized gain/loss on the settlement of the forward contract is not material as of June 30, 2021. The forward contract is considered a Level 2 in the fair value hierarchy of our fair value measurements. For the six months ended June 30, 2021, we recognized $0.3 million net gains on the maturity of our forward contracts, which is included in other income (expense), net on our Condensed Consolidated Statements of Income.
NOTE 6. INVENTORY
Inventory consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
Raw materials
|
$
|
6,905
|
|
|
$
|
7,773
|
|
Work in process
|
25,951
|
|
|
20,610
|
|
Finished goods
|
8,587
|
|
|
7,291
|
|
Total
|
$
|
41,443
|
|
|
$
|
35,674
|
|
|
|
|
|
Balance Sheet classification:
|
|
|
|
Current portion included in inventory
|
$
|
24,982
|
|
|
$
|
20,973
|
|
Long-term portion included in other long-term assets
|
16,461
|
|
|
14,701
|
|
Total
|
$
|
41,443
|
|
|
$
|
35,674
|
|
Write-downs related to excess and expiring inventory were $2.3 million and $1.3 million for the six months ended June 30, 2021 and 2020, respectively.
NOTE 7. STOCK-BASED COMPENSATION
We allocated the stock-based compensation expense for our equity incentive plans and our Employee Stock Purchase Plan (ESPP) as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
Research and development
|
$
|
13,667
|
|
|
$
|
6,112
|
|
|
$
|
26,063
|
|
|
$
|
11,198
|
|
|
|
Selling, general and administrative
|
14,368
|
|
|
10,042
|
|
|
36,625
|
|
|
18,938
|
|
|
|
Total stock-based compensation expense
|
$
|
28,035
|
|
|
$
|
16,154
|
|
|
$
|
62,688
|
|
|
$
|
30,136
|
|
|
|
Stock-based compensation for each type of award under our equity incentive plans and ESPP were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Stock options
|
$
|
5,902
|
|
|
$
|
5,301
|
|
|
$
|
10,596
|
|
|
$
|
10,295
|
|
Restricted stock units
|
15,412
|
|
|
8,599
|
|
|
27,081
|
|
|
16,396
|
|
Performance stock units
|
4,698
|
|
|
1,429
|
|
|
22,645
|
|
|
1,925
|
|
ESPP
|
2,023
|
|
|
825
|
|
|
2,366
|
|
|
1,520
|
|
Total stock-based compensation expense
|
$
|
28,035
|
|
|
$
|
16,154
|
|
|
$
|
62,688
|
|
|
$
|
30,136
|
|
As of June 30, 2021, 8,254,455 shares were available for grant under the Exelixis, Inc. 2017 Equity Incentive Plan (as amended and restated, the 2017 Plan). The share reserve is reduced by 1 share for each share issued pursuant to a stock option and 1.5 shares for full value awards granted in the form of restricted stock units (RSUs).
During the six months ended June 30, 2021, we granted 1,733,554 stock options with a weighted average exercise price of $22.50 per share and a weighted average grant date fair value of $9.70 per share. As of June 30, 2021, there were 15,443,578 stock options outstanding and $32.2 million of related unrecognized compensation expense.
During the six months ended June 30, 2021, we granted 3,575,190 service-based RSUs with a weighted average grant date fair value of $21.76 per share. As of June 30, 2021, there were 8,314,774 RSUs outstanding and $149.0 million of related unrecognized compensation expense.
Stock options and RSUs granted to employees during the six months ended June 30, 2021 have vesting conditions and contractual lives of a similar nature to those described in “Note 8. Employee Benefit Plans” of the Notes to
Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
In March 2021, we awarded 1,027,650 (the target amount) performance-based (PSUs), subject to a performance and a market condition (the 2021 PSUs). Pursuant to the terms of 2021 PSUs, the holders of the awards may earn up to 200% of the target amount of shares, depending on the level of achievement of the performance condition related to certain net product revenues and a total shareholder return (TSR) market condition. The TSR market condition is based on our relative TSR percentile rank compared to companies in the NASDAQ Biotechnology Index during the performance period, which is January 2, 2021 through December 29, 2023. Fifty percent of the shares earned subject to the performance and market conditions will vest at the end of the performance period and the remainder will vest approximately one year later subject to employee’s continuous service. The 2021 PSUs will be forfeited if the performance condition at or above a threshold level is not achieved by December 29, 2023.
A Monte Carlo simulation model was used to determine the grant date fair value of $24.54 for the 2021 PSUs based on the following assumptions:
|
|
|
|
|
|
Fair value of the Company’s common stock on grant date
|
$
|
21.31
|
|
Expected volatility
|
49
|
%
|
Risk-free interest rate
|
0.29
|
%
|
Dividend yield
|
—
|
%
|
The Monte Carlo simulation model also assumed correlations of returns of the stock prices of the Company’s common stock and the common stock of a peer group of companies and historical stock price volatility of the peer group of companies. The valuation model also used terms based on the length of the performance period and compound annual growth rate goals for total stockholder return based on the provisions of the award.
As of June 30, 2021, there were 8,709,765 PSUs outstanding and $155.7 million of related unrecognized compensation expense. Expense recognition for PSUs commences when it is determined that achievement of the performance target is probable. For more information about our PSUs, see “Note 8. Employee Benefit Plans” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
NOTE 8. PROVISION FOR INCOME TAXES
The effective tax rate for the three and six months ended June 30, 2021 was 23.1% and 20.5%, respectively, as compared to 17.2% and 18.0% for the corresponding periods in 2020. The effective tax rate for the three and six months ended June 30, 2021 and 2020 differed from the U.S. federal statutory tax rate of 21% primarily due to excess tax benefits related to the exercise of certain stock options during the periods and the generation of federal tax credits, partially offset by state taxes.
NOTE 9. NET INCOME PER SHARE
Net income per share - basic and diluted, were computed as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
96,092
|
|
|
$
|
66,821
|
|
|
$
|
97,693
|
|
|
$
|
115,433
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding — basic
|
314,117
|
|
|
307,807
|
|
|
313,295
|
|
|
306,598
|
|
|
|
Dilutive securities
|
8,824
|
|
|
10,337
|
|
|
8,819
|
|
|
10,394
|
|
|
|
Weighted-average common shares outstanding — diluted
|
322,941
|
|
|
318,144
|
|
|
322,114
|
|
|
316,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share — basic
|
$
|
0.31
|
|
|
$
|
0.22
|
|
|
$
|
0.31
|
|
|
$
|
0.38
|
|
|
|
Net income per share — diluted
|
$
|
0.30
|
|
|
$
|
0.21
|
|
|
$
|
0.30
|
|
|
$
|
0.36
|
|
|
|
Dilutive securities included outstanding stock options and Performance Stock Options, unvested RSUs and PSUs and ESPP contributions.
Certain potential common shares were excluded from our calculation of weighted-average common shares outstanding - diluted because either they would have had an anti-dilutive effect on net income per share or they were related to shares from PSUs that were contingently issuable and the contingency had not been satisfied at the end of the reporting period. The weighted-average potential common shares excluded from our calculation were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
Anti-dilutive securities and contingently issuable shares excluded
|
12,285
|
|
|
8,812
|
|
|
11,146
|
|
|
10,413
|
|
|
|
NOTE 10. COMMITMENTS AND CONTINGENCIES
In September 2019, we received a notice letter regarding an Abbreviated New Drug Application (ANDA) submitted to the FDA by MSN Pharmaceuticals, Inc. (MSN), requesting approval to market a generic version of CABOMETYX tablets. MSN’s initial notice letter included a Paragraph IV certification with respect to our U.S. Patent Nos. 8,877,776, 9,724,342, 10,034,873 and 10,039,757, which are listed in the Approved Drug Products with Therapeutic Equivalence Evaluations, also referred to as the Orange Book. MSN’s initial notice letter did not provide a Paragraph IV certification against U.S. Patent No. 7,579,473, the composition of matter patent, or U.S. Patent No. 8,497,284, a method of use patent. On October 29, 2019, we filed a complaint in the United States District Court for the District of Delaware (the Delaware District Court) for patent infringement against MSN asserting U.S. Patent No. 8,877,776 arising from MSN’s ANDA filing with the FDA. On November 20, 2019, MSN filed its response to the complaint, alleging that U.S. Patent No. 8,877,776 is invalid and not infringed. On May 5, 2020, we received notice from MSN that it had amended its ANDA to assert additional Paragraph IV certifications. The ANDA now requests approval to market a generic version of CABOMETYX tablets prior to expiration of the two previously unasserted CABOMETYX patents: U.S. Patent No. 7,579,473 and U.S. Patent No. 8,497,284. On May 11, 2020, we filed a complaint in the Delaware District Court for patent infringement against MSN asserting U.S. Patent No. 7,579,473 and U.S. Patent No. 8,497,284 arising from MSN’s amended ANDA filing with the FDA. Neither of our complaints alleges infringement of U.S. Patent Nos. 9,724,342, 10,034,873 and 10,039,757. On May 22, 2020, MSN filed its response to the complaint, alleging that each of U.S. Patent No. 7,579,473 and U.S. Patent No. 8,497,284 is invalid and not infringed. On March 23, 2021, MSN filed its First Amended Answer and Counterclaims (amending its prior filing from May 22, 2020), seeking, among other things, a declaratory judgment that U.S. Patent No. 9,809,549 is invalid and would not be infringed by MSN if its generic version of CABOMETYX tablets were approved by the FDA. On April 7, 2021, we filed our response to MSN’s First Amended Answer and Counterclaims, denying, among other things, that U.S. Patent No. 9,809,549 is invalid or would not be infringed. In our complaints, we are seeking, among other relief, an order that the effective date of any FDA approval of MSN’s ANDA would be a date no earlier than the expiration of all of U.S. Patent No. 7,579,473, U.S. Patent No.
8,497,284 and U.S. Patent No. 8,877,776, the latest of which expires on October 8, 2030, and equitable relief enjoining MSN from infringing these patents. These lawsuits against MSN have been consolidated, and a bench trial has been scheduled for May 2022.
In May 2021, we received notice letters from Teva Pharmaceuticals Development, Inc. and Teva Pharmaceuticals USA, Inc. (individually and collectively referred to as Teva) regarding an ANDA Teva submitted to the FDA, requesting approval to market a generic version of CABOMETYX tablets. Teva’s notice letters included a Paragraph IV certification with respect to our U.S. Patent Nos. 9,724,342 (formulations), 10,034,873 (methods of treatment) and 10,039,757 (methods of treatment), which are listed in the Orange Book and expire in 2033, 2031 and 2031, respectively. Teva’s notice letters did not provide a Paragraph IV certification against any additional CABOMETYX patents. On June 17, 2021, we filed a complaint in the Delaware District Court for patent infringement against Teva, along with Teva Pharmaceutical Industries Limited, asserting U.S. Patent Nos. 9,724,324 (formulations), 10,034,873 (methods of treatment) and 10,039,757 (methods of treatment) arising from Teva’s ANDA filing with the FDA. We are seeking, among other relief, an order that the effective date of any FDA approval of Teva’s ANDA would be a date no earlier than the expiration of all of U.S. Patent Nos. 9,724,342, 10,034,873 and 10,039,757, the latest of which expires on July 9, 2033, and equitable relief enjoining Teva and Teva Pharmaceutical Industries Limited from infringing these patents.
The sale of any generic version of CABOMETYX earlier than its patent expiration could significantly decrease our revenues derived from the U.S. sales of CABOMETYX and thereby materially harm our business, financial condition and results of operations. It is not possible at this time to determine the likelihood of an unfavorable outcome or estimate of the amount or range of any potential loss.
We may also from time to time become a party or subject to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. Some of these proceedings have involved, and may involve in the future, claims that are subject to substantial uncertainties and unascertainable damages.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements. These statements are based on Exelixis, Inc.’s (Exelixis, we, our or us) current expectations, assumptions, estimates and projections about our business and our industry and involve known and unknown risks, uncertainties and other factors that may cause our company’s or our industry’s results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in, or contemplated by, the forward-looking statements. Our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as those discussed elsewhere in this report. These and many other factors could affect our future financial and operating results. We undertake no obligation to update any forward-looking statement to reflect events after the date of this report.
This discussion and analysis should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this report and the consolidated financial statements and accompanying notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 submitted to the Securities and Exchange Commission (SEC) on February 10, 2021.
Overview
We are an oncology-focused biotechnology company that strives to accelerate the discovery, development and commercialization of new medicines for difficult-to-treat cancers. We have invented and brought to market novel, effective and tolerable therapies using our drug discovery and development resources and capabilities and commercialization platform; we will continue to build on this foundation, working toward providing cancer patients with additional treatment options.
Since we were founded in 1994, four products resulting from our discovery efforts have progressed through clinical development, received regulatory approval and established a commercial presence in various geographies around the world. Our flagship molecule, cabozantinib, is an inhibitor of multiple tyrosine kinases including MET, AXL, VEGF receptors and RET and has been approved by the U.S. Food and Drug Administration (FDA) and foreign regulatory authorities as two products: CABOMETYX® (cabozantinib) tablets approved for advanced renal cell carcinoma (RCC), both alone and in combination with Bristol-Myers Squibb Company’s (BMS) OPDIVO® (nivolumab), and for previously treated hepatocellular
carcinoma (HCC); and COMETRIQ® (cabozantinib) capsules approved for progressive, metastatic medullary thyroid cancer (MTC). For these types of cancer, cabozantinib has become or is becoming a standard of care.
The other two products resulting from our discovery efforts are: COTELLIC® (cobimetinib), an inhibitor of MEK, approved as part of multiple combination regimens to treat specific forms of advanced melanoma and marketed under a collaboration with Genentech, Inc. (a member of the Roche Group) (Genentech); and MINNEBRO® (esaxerenone), an oral, non-steroidal, selective blocker of the mineralocorticoid receptor, approved for the treatment of hypertension in Japan and licensed to Daiichi Sankyo Company, Limited (Daiichi Sankyo).
Leveraging the revenue stream derived from our cabozantinib franchise and other marketed products, we are expanding our oncology product pipeline through drug discovery efforts, which encompass both small molecule and biologics programs with multiple modalities and mechanisms of action.
Cabozantinib Franchise
On January 22, 2021, the FDA approved CABOMETYX in combination with OPDIVO as a first-line treatment of patients with advanced RCC. This regulatory milestone expands upon the FDA’s prior approvals of CABOMETYX as a monotherapy for previously treated patients with advanced RCC in April 2016 and for previously untreated patients with advanced RCC in December 2017. Additionally, in January 2019, the FDA approved CABOMETYX for the treatment of patients with HCC who have been previously treated with sorafenib.
To develop and commercialize CABOMETYX and COMETRIQ outside the U.S., we have entered into license agreements with Ipsen Pharma SAS (Ipsen) and Takeda Pharmaceutical Company Limited (Takeda). We granted to Ipsen the rights to develop and commercialize cabozantinib outside of the U.S. and Japan, and to Takeda the rights to develop and commercialize cabozantinib in Japan. Both Ipsen and Takeda also contribute financially and operationally to the further global development and commercialization of the cabozantinib franchise in other potential indications, and we continue to work closely with them on these activities. Utilizing its regulatory expertise and established international oncology marketing network, Ipsen has continued to execute on its commercialization plans for CABOMETYX, having received regulatory approvals and launched in multiple territories outside of the U.S., including in the European Union (EU) and Canada, as a treatment for advanced RCC and for HCC in adults who have previously been treated with sorafenib. In addition, in March 2021, Ipsen and BMS received regulatory approval from the European Commission (EC) for CABOMETYX in combination with OPDIVO as a first-line treatment for patients with advanced RCC, and both Ipsen and BMS plan to submit applications to approve the combination in other territories beyond the EU. With respect to the Japanese market, Takeda received Manufacturing and Marketing Approvals in 2020 from the Japanese Ministry of Health, Labour and Welfare (MHLW) of CABOMETYX as a treatment of patients with curatively unresectable or metastatic RCC and as a treatment of patients with unresectable HCC who progressed after cancer chemotherapy. In October 2020, Takeda and Ono Pharmaceutical Co., Ltd., BMS’ development and commercialization partner in Japan, submitted a supplemental application to the Japanese MHLW for Manufacturing and Marketing Approval of CABOMETYX in combination with OPDIVO for the treatment of patients with unresectable, advanced or metastatic RCC.
In addition to our regulatory and commercialization efforts in the U.S. and the support provided to our collaboration partners for rest-of-world regulatory and commercialization activities, we are also pursuing other indications for cabozantinib that have the potential to increase the number of cancer patients who could benefit from this medicine. We are evaluating cabozantinib, both as a single agent and in combination with other therapies, in a broad development program comprising over 100 ongoing or planned clinical trials across multiple indications. We, along with our collaboration partners, sponsor some of the trials, and independent investigators conduct the remaining trials through our Cooperative Research and Development Agreement (CRADA) with the National Cancer Institute’s Cancer Therapy Evaluation Program (NCI-CTEP) or our investigator-sponsored trial (IST) program. Informed by the available data from these clinical trials, we advanced the development program for the cabozantinib franchise with potentially label-enabling trials. One pivotal trial that has resulted from this effort is COSMIC-311, our phase 3 pivotal trial evaluating cabozantinib versus placebo in patients with radioactive iodine (RAI)-refractory differentiated thyroid cancer (DTC) who have progressed after up to two VEGF receptor-targeted therapies. In December 2020, we announced that COSMIC-311 had met the primary endpoint of demonstrating significant improvement in progression-free survival (PFS), and in February 2021, we announced the FDA had granted Breakthrough Therapy Designation to cabozantinib as a potential treatment for patients with RAI-refractory DTC who have progressed following prior therapy. Study results from COSMIC-311 were presented at the 2021 American Society of Clinical Oncology (ASCO) Annual Meeting and published in The Lancet Oncology. They further served as the basis for the supplemental New Drug Application (sNDA) we submitted to the FDA in June 2021 seeking approval for CABOMETYX to treat patients 12 and older with DTC who have progressed following prior therapy and who are RAI-refractory (if RAI is
appropriate), and in August 2021, we announced that the FDA had accepted our sNDA, granted Priority Review and assigned a Prescription Drug User Fee Act (PDUFA) goal date, or target action date, of December 4, 2021. Building on preclinical and clinical observations that cabozantinib in combination with immune checkpoint inhibitors (ICIs) may promote a more immune-permissive tumor environment, we initiated numerous pivotal studies to further explore these combination regimens. The first of these studies to deliver results was CheckMate -9ER, a phase 3 pivotal trial evaluating the combination of cabozantinib and nivolumab compared to sunitinib in previously untreated advanced or metastatic RCC. We, along with our collaboration partner, BMS, announced in April 2020 that the trial met its primary endpoint of PFS at final analysis, as well as the secondary endpoints of overall survival (OS) at a pre-specified interim analysis and objective response rate (ORR), and showed that the combination of cabozantinib with nivolumab significantly improved the three key efficacy outcomes as compared with sunitinib, doubling PFS and ORR and reducing the risk of disease progression or death by 40% compared with sunitinib. Data from CheckMate -9ER served as the basis for the FDA’s and EC’s approval of CABOMETYX in combination with OPDIVO as a first-line treatment of patients with advanced RCC in January 2021 and March 2021, respectively. We are also collaborating with BMS on COSMIC-313, a phase 3 pivotal trial evaluating the triplet combination of cabozantinib, nivolumab and ipilimumab versus the combination of nivolumab and ipilimumab in patients with previously untreated advanced intermediate- or poor-risk RCC. Enrollment for COSMIC-313 was completed in March 2021, and we expect to report top-line results of the event-driven analyses from the trial in the late 2021 or early 2022 timeframe.
In an effort to expand our exploration of combinations with ICIs, we also initiated multiple trials evaluating cabozantinib in combination with F. Hoffmann-La Roche Ltd.’s (Roche) ICI, atezolizumab. COSMIC-021 is a broad phase 1b study evaluating the safety and tolerability of cabozantinib in combination with atezolizumab in patients with a wide variety of locally advanced or metastatic solid tumors. Based on encouraging efficacy and safety data that has emerged from the trial, certain cohorts have been or may be further expanded, including the cohorts of patients with non-small cell lung cancer (NSCLC) who have been previously treated with an ICI and metastatic castration-resistant prostate cancer (mCRPC) who have been previously treated with enzalutamide and/or abiraterone acetate and experienced radiographic disease progression in soft tissue (Cohort 6). Data from Cohort 6, announced in May 2021, resulted in an investigator assessed ORR of 27% and a blinded independent radiology committee assessed ORR of 18%. We intend to discuss these data with the FDA to determine next steps toward a potential regulatory submission for the combination regimen for patients with high-risk mCRPC and plan to present detailed results of the COSMIC-021 trial at a medical meeting in the second half of 2021. Since the initiation of the trial, data from COSMIC-021 have been instrumental in guiding our clinical development strategy for cabozantinib in combination with ICIs, including supporting the initiation of COSMIC-312, a phase 3 pivotal trial evaluating cabozantinib in combination with atezolizumab versus sorafenib in previously untreated advanced HCC, and three phase 3 pivotal trials in collaboration with Roche, CONTACT-01, CONTACT-02 and CONTACT-03, evaluating the combination of cabozantinib with atezolizumab in patients with metastatic NSCLC, mCRPC and advanced RCC, respectively. CONTACT-01 and CONTACT-03 are sponsored by Roche and co-funded by us; CONTACT-02 is sponsored by us and co-funded by Roche. In June 2021, we announced results from COSMIC-312. The trial met one of the primary endpoints, demonstrating significant improvement in PFS at the planned primary analysis, reducing the risk of disease progression or death by 37% compared with sorafenib (hazard ratio: 0.63; 99% confidence internal: 0.44-0.91; P=0.0012). A prespecified interim analysis for the second primary endpoint of OS, conducted at the same time as the primary analysis for PFS, showed a trend favoring the combination of cabozantinib and atezolizumab but did not reach statistical significance. Safety for the combination appeared to be consistent with the known safety profiles of the individual medicines, and no new safety signals were identified. Based on the preliminary OS data, we anticipate that the probability of reaching statistical significance at the time of the final analysis is low, but the trial will continue as planned to the final analysis of OS, with results anticipated in early 2022. We plan to present the trial results at a future medical meeting and intend to discuss the results with the FDA to determine next steps toward a potential regulatory submission for the combination regimen for patients with previously untreated advanced HCC.
Pipeline Activities
Our small molecule discovery programs are supported by a robust and expanding infrastructure, including a library of 4.6 million compounds. We have extensive experience in the identification and optimization of drug candidates against multiple target classes for oncology, inflammation and metabolic diseases. The first compound to advance from our recent drug discovery efforts is XL092, a next-generation oral tyrosine kinase inhibitor that targets VEGF receptors, MET, AXL, MER and other kinases implicated in cancer’s growth and spread. In designing XL092, we sought to build upon our experience with cabozantinib, retaining the target profile of cabozantinib while improving key characteristics, including the pharmacokinetic half-life. To date, we have announced two large phase 1b clinical trials studying XL092, STELLAR-001 and STELLAR-002. STELLAR-001 is a phase 1b clinical trial evaluating XL092, both as a monotherapy and in combination with
either atezolizumab or avelumab, an ICI developed by Merck KGaA, Darmstadt, Germany and Pfizer Inc., which is currently enrolling patients with advanced solid tumors. We expect that once recommended doses of single-agent XL092 and XL092 in combination with atezolizumab or avelumab are established, the trial will begin to enroll expansion cohorts for patients with clear cell and non-clear cell RCC, colorectal cancer (CRC), hormone-receptor positive breast cancer, mCRPC and urothelial carcinoma (UC). STELLAR-002 is a phase 1b clinical trial that will evaluate XL092 in combination with either nivolumab, nivolumab and ipilimumab, or nivolumab and bempegaldesleukin, an investigational CD122-preferential IL-2–pathway agonist developed by Nektar Therapeutics (Nektar). We expect to begin enrolling patients with advanced solid tumors in dose-escalation cohorts for STELLAR-002 during the second half of 2021. Depending on the dose-escalation results, STELLAR-002 may enroll expansion cohorts for patients with clear cell and non-clear cell RCC, mCRPC and UC, and to better understand the individual contribution of the therapies, treatment arms in the expansion cohorts may include XL092 as a single-agent, XL092 in combination with nivolumab, XL092 in combination with nivolumab and ipilimumab, and XL092 in combination with nivolumab and bempegaldesleukin.
We augment our small molecule discovery activities through research collaborations and in-licensing arrangements with other companies. The most advanced compound to emerge from these arrangements is XL102 (formerly AUR102), the lead program targeting cyclin-dependent kinase 7 under our collaboration with Aurigene Discovery Technologies Limited (Aurigene). In December 2020, based on encouraging preclinical data, we exercised our exclusive option to license XL102 from Aurigene. Following the FDA’s acceptance of our Investigational New Drug (IND) application in December 2020, we initiated a phase 1 clinical trial of the compound in January 2021.
Beyond small molecules, we have also launched rigorous efforts to discover and advance biologic drug candidates, such as bispecific antibodies, antibody drug conjugates (ADCs) and other innovative biologics that have the potential to become anti-cancer therapies. ADCs in particular present a unique opportunity for new cancer treatments, given their capabilities to deliver anti-cancer payload drugs to targets with increased precision while minimizing impact on healthy tissues, and have been validated by the multiple regulatory approvals for the commercial sale of ADCs since the beginning of 2020. To facilitate the growth of these biologics programs, we have established multiple research collaborations and in-licensing arrangements, expanding our access to antibodies or other binders, which are the starting point for use with additional technology platforms that we employ to generate next-generation ADCs or bispecific antibodies. We have already made significant progress under these arrangements and believe we will continue to do so. For example, based on promising preclinical data for XB002 (formerly known as ICON-2), the lead Tissue Factor ADC program under our research collaboration with Iconic Therapeutics, Inc. (Iconic), we exercised our exclusive option to license XB002 in December 2020. Following the FDA’s acceptance of our IND for XB002 in April 2021, we initiated a phase 1 clinical trial in June 2021. We have expanded our access to antibodies through arrangements with WuXi Biologics Ireland Limited (WuXi Bio), focused on leveraging WuXi Bio’s panel of monoclonal antibodies against an undisclosed target for the development of ADC, bispecific and certain other novel tumor-targeting biologics, and through the execution of an asset purchase agreement with GamaMabs Pharma SA (GamaMabs), under which we will, upon the closing of the asset purchase and subject to certain conditions, acquire all rights, title and interest in GamaMabs’ antibody program directed at anti-Müllerian hormone receptor 2 (AMHR2), a novel oncology target with relevance in multiple forms of cancer. These antibodies, as well as those originating from collaboration with Invenra, Inc., provide starting points for the construction of ADCs through our collaborations with NBE-Therapeutics AG and/or Catalent, Inc.’s wholly owned subsidiaries Redwood Bioscience, Inc., R.P. Scherer Technologies, LLC and Catalent Pharma Solutions, Inc., utilizing their site-specific conjugation technologies and payloads. In addition, our collaboration with Adagene Inc. (Adagene), focused on using Adagene’s SAFEbodyTM technology to develop novel masked ADCs or other innovative biologics, provides potential for developing ADCs or other biologics with improved therapeutic index.
We will continue to engage in business development initiatives aimed at acquiring and in-licensing promising oncology platforms and assets and then further characterize and develop them utilizing our established preclinical and clinical development infrastructure. In total, we are advancing drug candidates across approximately 20 ongoing discovery programs toward and through preclinical development, and subject to preclinical data, we have the potential to submit multiple INDs later in 2021.
COVID-19 Update
As of the date of this Quarterly Report on Form 10-Q, the COVID-19 pandemic continues to have a modest impact on our business operations, in particular with respect to our clinical trial and commercial activities. We have and continue to undertake considerable efforts to mitigate the various problems presented by this crisis, including as described below:
Clinical Trials. To varying degrees and at different rates across our global clinical trials, we experienced declines in screening and enrollment activity during the early days of the COVID-19 pandemic, as well as delays in new site activations and restrictions on the access to treatment sites that is necessary to monitor clinical study progress and administration. Beginning during the second quarter of 2020 and since that time, however, that trend reversed, and screening and enrollment activity began to increase. As a result, we and our collaboration partners, including principal investigators and personnel at clinical trial sites, have been successful overall in preventing material delays to our ongoing and planned clinical trials due to the COVID-19 pandemic. We have done this through ongoing assessment of the COVID-19 pandemic’s impact and, wherever possible, taking proactive steps in compliance with guidance issued by the FDA, EMA and other regulatory agencies to support the safety of our patients and their access to treatment, as well as to maintain the high quality of our clinical trials. We recognize, however, that we may have to make further operational adjustments to our ongoing and planned clinical trials and that patient enrollment, and new clinical trial site initiations may again be slowed due to recurring COVID-19 outbreaks and potential reintroduction of certain restrictions intended to mitigate the spread of COVID-19.
Drug Discovery and Preclinical Development. We have fully resumed drug discovery in our laboratories following a temporary suspension of these activities while we observed the shelter in place orders issued by the State of California and Alameda County. While this temporary suspension combined with interruptions in the portion of drug discovery work outsourced to third-party contractors in regions first impacted by COVID-19 caused us to experience modest delays in the advancement of certain of our early-stage programs, we continued to substantially progress our product pipeline despite the COVID-19 pandemic, including the submission of INDs for XL102 and XB002.
Commercial Activities. Despite the challenges posed by the COVID-19 pandemic, including requiring us to temporarily shift to telephonic and virtual interactions with healthcare professionals, we believe our commercial business was only modestly impacted. Our field employees have now partially resumed their in-person promotional activities while supplementing these activities with telephonic and virtual interactions and we believe they are well-positioned to execute on our commercial objectives.
Supply Chain. We have not experienced production delays or seen any significant impairment to our supply chain as a result of the COVID-19 pandemic. In addition, we continue to maintain substantial safety stock inventories for our commercial drug substance and drug products, which should be sufficient to maintain robust long-term supply. We continue to work closely with our third-party contract manufacturers, distributors, suppliers, comparator drug sourcing vendors and collaboration partners to safeguard both the timely production and delivery of our products.
General Business Operations. We have taken numerous precautions, some temporary and others still in place, to help mitigate the risk of transmission of the virus, including: initially reducing the number of our employees working on-site at our Alameda headquarters; maintaining enhanced safety and social distancing protocols for those employees who have returned to working on-site and initiating an on-site COVID-19 testing program; and restricting non-essential business. Most of our employees worked remotely during much of 2020 and early 2021, and many employees continue to do so on a part-time or full-time basis, which has required that we devise new ways of working and collaborating. However as of the date of this Quarterly Report on Form 10-Q, the COVID-19 pandemic has only had a modest impact on our productivity and has not caused significant interruptions in our general business operations.
The circumstances surrounding the COVID-19 pandemic continue to be subject to rapid change, and we will continue to monitor new developments that could pose additional risks for us, including the spread of the Delta variant in the U.S. and other countries and the potential emergence of other SARS-CoV-2 variants that may prove especially contagious or virulent. Despite our mitigation efforts, we may experience delays or an inability to execute on our clinical and preclinical development plans, reduced revenues or other adverse impacts to our business, which are described in more detail in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. We recognize that this pandemic will continue to present unique challenges for us throughout 2021, and potentially into 2022.
Second Quarter 2021 Business Updates and Financial Highlights
During the second quarter of 2021, we continued to execute on our business objectives, generating significant revenues from operations and enabling us to continue to seek to maximize the clinical and commercial potential of our products and expand our product pipeline. Significant business updates and financial highlights for the quarter and subsequent to quarter-end include:
Business Updates
•In April 2021, we announced the FDA’s acceptance of the IND for XB002 and initiated a phase 1 trial in June 2021.
•In May 2021, we announced an asset purchase agreement with GamaMabs to acquire GamaMabs’ antibody program directed at AMHR2.
•In May 2021, we announced additional phase 1b results from the mCRPC Cohort 6 of COSMIC-021, in which ORR for cabozantinib in combination with atezolizumab in high-risk patients was 27% and 18% per investigator assessment and Blinded Independent Radiology Committee (BIRC) assessment, respectively, and the disease control rate was 88% and 84% per investigator assessment and BIRC assessment, respectively. In continuation of prior regulatory interaction and feedback from the FDA, we intend to discuss the phase 1b data with the FDA to determine next steps toward a potential regulatory submission for the combination regimen for patients with high-risk mCRPC and plan to present detailed results of the trial at a medical meeting in the second half of 2021.
•In June 2021, cabozantinib was the subject of multiple data presentations at the 2021 ASCO Annual Meeting, which included: (i) a post-hoc exploratory analysis of CheckMate -9ER demonstrating that efficacy benefits of the combination compared with sunitinib were observed across analyzed subgroups, including those based on International Metastatic Renal Cell Carcinoma Database Consortium risk status, site of metastases and extent of tumor burden at baseline; (ii) another post-hoc analysis of CheckMate -9ER demonstrating that CABOMETYX in combination with OPDIVO resulted in a statistically significant and clinically meaningful increase in quality-adjusted survival compared with sunitinib for patients with previously untreated advanced RCC; (iii) positive results from a phase 2 IST showing promising efficacy and an acceptable safety profile of CABOMETYX in combination with OPDIVO in patients with advanced or metastatic non-clear cell RCC with papillary, unclassified or translocation-associated histologies; and (iv) detailed results from COSMIC-311 evaluating cabozantinib in patients with RAI-refractory DTC, which served as the basis for an sNDA we submitted to the FDA in June 2021.
•In June 2021, we announced a clinical trial collaboration and supply agreement with BMS to evaluate XL092 in combination with either nivolumab, nivolumab and ipilimumab, or nivolumab and bempegaldesleukin in patients with advanced solid tumors as part of the new STELLAR-002 phase 1b dose escalation study.
•In June 2021, we filed a patent lawsuit against Teva Pharmaceuticals Development, Inc. and Teva Pharmaceuticals USA, Inc. (individually and collectively referred to as Teva), along with Teva Pharmaceutical Industries Limited, following receipt of two Paragraph IV certification notice letters from Teva informing us that it had filed an Abbreviated New Drug Application (ANDA) with the FDA requesting approval to market a generic version of CABOMETYX tablets. Teva’s notice letters included a Paragraph IV certification with respect to our U.S. Patent Nos. 9,724,342 (formulations), 10,034,873 (methods of treatment) and 10,039,757 (methods of treatment), which are listed in the Approved Drug Products with Therapeutic Equivalence Evaluations, also referred to as the Orange Book, and expire in 2033, 2031 and 2031, respectively. Teva’s notice letters did not provide a Paragraph IV certification against any additional CABOMETYX patents. We are seeking, among other relief, an order that the effective date of any FDA approval of the ANDA would be a date no earlier than the expiration of all of U.S. Patent Nos. 9,724,342, 10,034,873 and 10,039,757, the latest of which expires on July 9, 2033, and equitable relief enjoining Teva and Teva Pharmaceutical Industries Limited from infringing these patents. For a more detailed discussion of this litigation matter, see “Legal Proceedings” in Part II, Item 1 of this Quarterly Report on Form 10-Q.
•In June 2021, we announced phase 3 results from COSMIC-312, in which the combination of cabozantinib and atezolizumab met one of the primary endpoints, demonstrating significant improvement in PFS versus sorafenib at the planned primary analysis. A prespecified interim analysis for the second primary endpoint of OS, conducted at the same time as the primary analysis for PFS, showed a trend favoring the combination but did not reach statistical significance. The trial will continue as planned to the final analysis of OS; results are anticipated in early 2022. We plan to present the trial results at a future medical meeting and intend to discuss the results with the FDA to determine next steps toward a potential regulatory submission for the combination regimen for patients with previously untreated advanced HCC.
•In August 2021, we announced that the FDA had accepted our sNDA for CABOMETYX as a treatment for patients 12 and older with DTC who have progressed following prior therapy and who are RAI-refractory (if RAI is appropriate), granted Priority Review and assigned a PDUFA goal date of December 4, 2021.
Financial Highlights
•Net product revenues for the second quarter of 2021 were $284.2 million, compared to $178.7 million for the second quarter of 2020.
•Total revenues for the second quarter of 2021 were $385.2 million, compared to $259.5 million for the second quarter of 2020.
•Research and development expenses for the second quarter of 2021 were $148.8 million, compared to $114.9 million for the second quarter of 2020.
•Selling, general and administrative expenses for the second quarter of 2021 were $98.5 million, compared to $59.8 million for the second quarter of 2020.
•Provision for income taxes for the second quarter of 2021 was $28.8 million, compared to $13.9 million for the second quarter of 2020.
•Net income for the second quarter of 2021 was $96.1 million, or $0.31 per share, basic and $0.30 per share, diluted, compared to net income of $66.8 million, or $0.22 per share, basic and $0.21 per share diluted, for the second quarter of 2020.
•Cash, cash equivalents, restricted cash equivalents and investments were $1.7 billion as of June 30, 2021, compared to $1.5 billion as of December 31, 2020.
See “Results of Operations” below for a discussion of the detailed components and analysis of the amounts above.
Challenges and Risks
In addition to the challenges and risks imposed by the COVID-19 pandemic and described under “—COVID-19 Update” above, we will also continue to face challenges and risks that may impact our ability to execute on our 2021 business objectives, and some of these risks to our business have been or may be exacerbated by the COVID-19 pandemic. In particular, for the foreseeable future, we expect our ability to generate sufficient cash flow to fund our business operations and growth will depend upon the continued commercial success of CABOMETYX, both alone or in combination with other therapies, as a treatment for the highly competitive indications for which it is approved, and possibly for other indications for which cabozantinib has been or is currently being evaluated in potentially label-enabling clinical trials, if warranted by the data generated from these trials. However, we cannot be certain that the clinical trials we and our collaboration partners are currently conducting, or may conduct in the future, will demonstrate adequate safety and efficacy in these additional indications to receive regulatory approval in the major commercial markets where CABOMETYX is approved. Even if we and our collaboration partners receive the required regulatory approvals to market cabozantinib for additional indications, we and our collaboration partners may not be able to commercialize CABOMETYX effectively and successfully in these additional indications. In addition, CABOMETYX will only continue to be commercially successful if private third-party and government payers continue to provide coverage and reimbursement. However, as is the case for all innovative pharmaceutical therapies, obtaining and maintaining coverage and reimbursement for CABOMETYX is becoming increasingly difficult, both within the U.S. and in foreign markets, because of growing concerns over healthcare cost containment and corresponding policy initiatives and activities aimed at limiting access to, and restricting the prices of, pharmaceuticals.
Achievement of our 2021 business objectives will also depend on our ability to maintain a competitive position with respect to the shifting landscape of therapeutic strategy for the treatment of cancer, which we may not be able to do. While we have had success in adapting our development strategy for the cabozantinib franchise and other product candidates to address the expanding role of therapies that combine targeted agents with ICIs and/or with other mechanisms of action, it is uncertain whether current and future clinical trials will lead to regulatory approvals, or whether physicians will prescribe regimens containing our products instead of competing product combinations. Moreover, the complexities of such a development strategy have required and are likely to continue to require collaboration with some of our competitors. In the longer term, we may eventually face competition from potential manufacturers of generic versions of our marketed products, including the proposed generic versions of CABOMETYX tablets that are the subject of ANDAs submitted to the FDA by MSN Pharmaceuticals, Inc. (MSN) and Teva, and the approval of either MSN’s or Teva’s ANDA could significantly decrease our revenues derived from the U.S. sales of CABOMETYX and thereby materially harm our business, financial condition and results of operations. Separately, our research and development objectives may be impeded by the challenges of scaling our organization to meet the demands of expanded drug development, unanticipated delays in clinical testing and the inherent risks and uncertainties associated with drug discovery operations, all of which may be increased as a result of the COVID-19 pandemic. In connection with efforts to expand our product pipeline, we may be unsuccessful in discovering new drug candidates or identifying appropriate candidates for in-licensing or acquisition.
Some of these challenges and risks are specific to our business, and others are common to companies in the biotechnology, biopharmaceutical and pharmaceutical industries with development and commercial operations. As described under “—COVID-19 Update” above, these risks have been or may be exacerbated by the COVID-19 pandemic. For
a more detailed discussion of challenges and risks we face, including those relating to the COVID-19 pandemic, see “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Fiscal Year Convention
We have adopted a 52- or 53-week fiscal year policy that ends on the Friday closest to December 31st. Fiscal year 2021, which is a 52-week fiscal year, will end on December 31, 2021 and fiscal year 2020, which was a 52-week fiscal year, ended on January 1, 2021. For convenience, references in this report as of and for the fiscal periods ended July 2, 2021 and July 3, 2020, and as of and for the fiscal year ended January 1, 2021 are indicated as being as of and for the fiscal periods ended June 30, 2021 and June 30, 2020, and the year ended December 31, 2020, respectively.
Results of Operations
Revenues
Revenues by category were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Percent Change
|
|
Six Months Ended June 30,
|
|
|
|
Percent Change
|
|
2021
|
|
2020
|
|
|
2021
|
|
2020
|
|
|
|
Net product revenues
|
$
|
284,248
|
|
|
$
|
178,730
|
|
|
59
|
%
|
|
$
|
511,460
|
|
|
$
|
372,610
|
|
|
|
|
37
|
%
|
License revenues
|
39,640
|
|
|
59,234
|
|
|
-33
|
%
|
|
67,168
|
|
|
80,113
|
|
|
|
|
-16
|
%
|
Collaboration services revenues
|
61,289
|
|
|
21,515
|
|
|
185
|
%
|
|
76,779
|
|
|
33,671
|
|
|
|
|
128
|
%
|
Total revenues
|
$
|
385,177
|
|
|
$
|
259,479
|
|
|
48
|
%
|
|
$
|
655,407
|
|
|
$
|
486,394
|
|
|
|
|
35
|
%
|
Net Product Revenues
Gross product revenues, discounts and allowances, and net product revenues were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Percent Change
|
|
Six Months Ended June 30,
|
|
|
|
Percent Change
|
|
2021
|
|
2020
|
|
|
2021
|
|
2020
|
|
|
|
Gross product revenues
|
$
|
380,204
|
|
|
$
|
229,898
|
|
|
65
|
%
|
|
$
|
694,409
|
|
|
$
|
482,464
|
|
|
|
|
44
|
%
|
Discounts and allowances
|
(95,956)
|
|
|
(51,168)
|
|
|
88
|
%
|
|
(182,949)
|
|
|
(109,854)
|
|
|
|
|
67
|
%
|
Net product revenues
|
$
|
284,248
|
|
|
$
|
178,730
|
|
|
59
|
%
|
|
$
|
511,460
|
|
|
$
|
372,610
|
|
|
|
|
37
|
%
|
Net product revenues by product were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Percent Change
|
|
Six Months Ended June 30,
|
|
|
|
Percent Change
|
|
2021
|
|
2020
|
|
|
2021
|
|
2020
|
|
|
|
CABOMETYX
|
$
|
275,614
|
|
|
$
|
173,610
|
|
|
59
|
%
|
|
$
|
499,209
|
|
|
$
|
362,826
|
|
|
|
|
38
|
%
|
COMETRIQ
|
8,634
|
|
|
5,120
|
|
|
69
|
%
|
|
12,251
|
|
|
9,784
|
|
|
|
|
25
|
%
|
Net product revenues
|
$
|
284,248
|
|
|
$
|
178,730
|
|
|
59
|
%
|
|
$
|
511,460
|
|
|
$
|
372,610
|
|
|
|
|
37
|
%
|
The increases in net product revenues for CABOMETYX for the three and six months ended June 30, 2021, relative to the corresponding prior year periods, were primarily related to increases in the number of units sold that was driven by the strong uptake for the combination therapy of CABOMETYX and OPDIVO following approval by the FDA in January 2021. The increases in net product revenues for COMETRIQ for the three and six months ended June 30, 2021, relative to the corresponding prior year periods, were due to increases in the number of COMETRIQ units sold, due to a comparator purchase of the product for use in a clinical trial.
We project our net product revenues for the remainder of 2021 may increase relative to the corresponding prior year period, primarily as a result of the increase in demand for CABOMETYX following the FDA’s approval of CABOMETYX in combination with OPDIVO as a first-line treatment of patients with advanced RCC, as well as an increase in selling price for CABOMETYX.
We recognize product revenues net of discounts and allowances that are described in “Note 1. Organization and Summary of Significant Accounting Policies” to our “Notes to Consolidated Financial Statements” included in our Annual Report on Form 10-K for the year ended December 31, 2020. The increases in discounts and allowances for the three and six months ended June 30, 2021, relative to the corresponding prior year periods, were primarily the result of increases in Public Health Service hospital utilization and the dollar amount of the related chargebacks and, to a lesser extent, an increase in Medicaid utilization and the dollar amount of related Medicaid rebates.
We project our discounts and allowances as a percentage of gross revenues may increase during the remainder of 2021 relative to the corresponding prior year period as the number of patients participating in government programs continues to increase and as the discounts given and rebates paid to government payers also increase.
License Revenues
License revenues include the recognition of the portion of milestone payments allocated to the transfer of intellectual property licenses for which it had become probable in the related period that the milestone would be achieved and a significant reversal of revenues would not occur, as well as royalty revenues and the profit on the U.S. commercialization of COTELLIC from Genentech.
Milestone revenues, which are allocated between license revenues and collaboration services revenues, were $12.9 million and $13.5 million for the three and six months ended June 30, 2021, respectively, as compared to $43.5 million and $43.6 million for the corresponding prior year periods. Milestone revenues by period included the following:
•Milestone revenues for the three and six months ended June 30, 2021 included $11.8 million in revenues recognized in connection with a $12.5 million regulatory milestone we determined was probable of achievement.
•Milestone revenues for the three and six months ended June 30, 2020 included $23.7 million in revenues recognized in connection with $31.0 million in milestones we achieved upon Takeda’s first commercial sale of CABOMETYX as a treatment for patients with curatively unresectable or metastatic RCC in Japan and $18.8 million in revenues recognized in connection with a $20.0 million development milestone from Ipsen we determined was probable of achievement.
Royalties increased primarily as a result of increases in Ipsen’s net sales of cabozantinib outside of the U.S. and Japan. Ipsen royalties were $22.8 million and $45.3 million for the three and six months ended June 30, 2021, compared to $16.3 million and $34.2 million for the corresponding prior year periods. Ipsen’s net sales of cabozantinib have continued to grow since their first commercial sale of the product in the fourth quarter of 2016, primarily due to increased demand of CABOMETYX, which, as of June 30, 2021, is approved in 61 countries outside of the U.S. Royalties also increased due to the commercial launch of CABOMETYX for the treatment of patients with curatively unresectable or metastatic RCC in Japan by Takeda during the second quarter of 2020.
Our share of profits on the U.S. commercialization of COTELLIC under our collaboration agreement with Genentech was $2.2 million and $4.0 million for the three and six months ended June 30, 2021, compared to $1.4 million and $2.8 million for the corresponding prior year periods. We also earned royalties on ex-U.S. net sales of COTELLIC by Genentech of $0.8 million and $1.7 million for the three and six months ended June 30, 2021, compared to $1.1 million and $2.4 million for the corresponding prior year periods.
Due to uncertainties surrounding the timing and achievement of regulatory and development milestones, it is difficult to predict future milestone revenues and milestones can vary significantly from period to period. We project our license revenues for the remainder of 2021 to decrease, relative to fiscal 2020, as a result of the anticipated achievement of fewer milestones in 2021, partially offset by an increase in royalty revenues related to an increase in sales of CABOMETYX by Ipsen and Takeda.
Collaboration Services Revenues
Collaboration services revenues include the recognition of deferred revenues for the portion of upfront and milestone payments that have been allocated to research and development services performance obligations, development cost reimbursements earned under our collaboration agreements, product supply revenues, net of product supply costs and the royalties we pay on sales by Ipsen and Takeda of products containing cabozantinib. We received notification that, effective January 1, 2021, Royalty Pharma plc acquired from GlaxoSmithKline (GSK) all rights, title and interest in royalties on net product sales containing cabozantinib for non-U.S. markets for the full term of the royalty and for the U.S. market through September 2026, after which time U.S. royalties will revert back to GSK.
Development cost reimbursements were $62.5 million and $80.9 million for the three and six months ended June 30, 2021, relative to $19.6 million and $34.0 million for the corresponding prior year periods. The increases in development cost reimbursements were primarily a result of the reimbursements from Ipsen associated with their decision to opt in and co-fund COSMIC-311 development costs. Ipsen is now responsible for 35% of the global development costs of COSMIC-311 and is obligated to reimburse Exelixis for these costs, as well as an additional payment calculated as a percentage of COSMIC-311 development costs, triggered by the timing of the exercise of its option. Accordingly, collaboration services revenues for the three and six months ended June 30, 2021, includes a cumulative catch up for Ipsen’s share of global development costs incurred since the beginning of the study and through the end of the period. Development costs reimbursements also increased as a result of the reimbursements from Takeda associated with their decision to opt in and co-fund CONTACT-02 and additional cohorts of COSMIC-021 studies in the third quarter of 2020 and their respective share of the increase in spending on the CONTACT-02 study. The increases in development cost reimbursements were partially offset by a decrease in total spending on COSMIC-021 and COSMIC-312 studies.
Collaboration services revenues were reduced by $3.5 million and $6.9 million for the 3% royalty we are required to pay on the net sales by Ipsen and Takeda of any product incorporating cabozantinib for the three and six months ended June 30, 2021, respectively, compared to $2.3 million and $4.7 million for the corresponding prior year periods. As royalty generating sales of cabozantinib by Ipsen and Takeda have increased as described above, our royalty payments have also increased.
We project our collaboration services revenues may increase for the remainder of 2021, relative to fiscal 2020, primarily as a result of increased development cost reimbursements related to Ipsen’s opt-in and co-funding of COSMIC-311 as well as projections related to our other collaboration arrangements.
Cost of Goods Sold
The cost of goods sold and our gross margin were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Percent Change
|
|
Six Months Ended June 30,
|
|
|
|
Percent Change
|
|
2021
|
|
2020
|
|
|
2021
|
|
2020
|
|
|
|
Cost of goods sold
|
$
|
14,884
|
|
|
$
|
9,221
|
|
|
61
|
%
|
|
$
|
28,082
|
|
|
$
|
18,510
|
|
|
|
|
52
|
%
|
Gross margin
|
95
|
%
|
|
95
|
%
|
|
|
|
95
|
%
|
|
95
|
%
|
|
|
|
|
Cost of goods sold is related to our product revenues and consists primarily of a 3% royalty payable on U.S. net sales of any product incorporating cabozantinib, as well as the cost of inventory sold, indirect labor costs, write-downs related to expiring and excess inventory, and other third-party logistics costs. The increases in cost of goods sold for the three and six months ended June 30, 2021, relative to the corresponding prior year periods, were primarily the result of increases in royalties as a result of increased U.S. CABOMETYX sales and certain other period costs. We do not project our gross margin to change significantly during the remainder of 2021.
Research and Development Expenses
We do not track fully burdened research and development expenses on a project-by-project basis. We group our research and development expenses into three categories: (1) development; (2) drug discovery; and (3) other. Our development group leads the development and implementation of our clinical and regulatory strategies and prioritizes disease indications in which our compounds are being or may be studied in clinical trials. Our drug discovery group utilizes a variety of technologies, including in-licensed technologies, to enable the rapid discovery, optimization and extensive characterization of lead compounds such that we are able to select development candidates with the best potential for further evaluation and advancement into clinical development.
Research and development expenses by category were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Percent
|
|
Six Months Ended June 30,
|
|
Percent
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
Research and development expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Development:
|
|
|
|
|
|
|
|
|
|
|
|
Clinical trial costs
|
$
|
49,568
|
|
|
$
|
62,606
|
|
|
-21
|
%
|
|
$
|
110,259
|
|
|
$
|
115,950
|
|
|
-5
|
%
|
Personnel expenses
|
29,175
|
|
|
20,610
|
|
|
42
|
%
|
|
58,059
|
|
|
40,898
|
|
|
42
|
%
|
Consulting and outside services
|
6,646
|
|
|
3,811
|
|
|
74
|
%
|
|
11,935
|
|
|
7,055
|
|
|
69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other development costs
|
7,534
|
|
|
5,194
|
|
|
45
|
%
|
|
14,818
|
|
|
9,935
|
|
|
49
|
%
|
Total development
|
$
|
92,923
|
|
|
$
|
92,221
|
|
|
1
|
%
|
|
195,071
|
|
|
173,838
|
|
|
12
|
%
|
Drug discovery:
|
|
|
|
|
|
|
|
|
|
|
|
License and other collaboration costs
|
23,466
|
|
|
7,239
|
|
|
224
|
%
|
|
51,904
|
|
|
12,252
|
|
|
324
|
%
|
Other drug discovery (1)
|
11,724
|
|
|
6,407
|
|
|
83
|
%
|
|
23,011
|
|
|
13,141
|
|
|
75
|
%
|
Total drug discovery
|
35,190
|
|
|
13,646
|
|
|
158
|
%
|
|
74,915
|
|
|
25,393
|
|
|
195
|
%
|
Other (2)
|
20,677
|
|
|
9,066
|
|
|
128
|
%
|
|
38,092
|
|
|
17,579
|
|
|
117
|
%
|
Total research and development expenses
|
$
|
148,790
|
|
|
$
|
114,933
|
|
|
29
|
%
|
|
$
|
308,078
|
|
|
$
|
216,810
|
|
|
42
|
%
|
|
|
|
|
|
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____________________
(1) Primarily includes personnel expenses, consulting and outside services and laboratory supplies.
(2) Includes stock-based compensation, the allocation of general corporate costs to research and development, and development cost reimbursements in connection with our collaboration arrangement with Roche executed in December 2019.
The increases in research and development expenses for the three and six months ended June 30, 2021, relative to the corresponding prior year periods, were primarily related to increases in license and other collaboration costs, personnel expenses and stock-based compensation expense, partially offset by decreases in clinical trial costs. License and other collaboration costs increased primarily due to the acquisition of GamaMabs assets, and increases in upfront license fees, program initiation fees and research funding commitments related to business development activities. Personnel expenses increased primarily due to increases in headcount to support our expanding discovery and development organization. Stock-based compensation expense increased primarily due to the performance-based restricted stock units (PSUs) granted in 2019 that became probable of achievement in the second half of 2020 and the first half of 2021. Clinical trial costs, which include services performed by third-party contract research organizations and other vendors who support our clinical trials, decreased primarily due to lower costs associated with COSMIC-312.
In addition to reviewing the three categories of research and development expenses described above, we principally consider qualitative factors in making decisions regarding our research and development programs. These factors include enrollment in clinical trials for our drug candidates, preliminary data and final results from clinical trials, the potential indications for our drug candidates, the clinical and commercial potential for our drug candidates, and competitive dynamics. We also make our research and development decisions in the context of our overall business strategy.
We are focusing a significant amount of our development efforts on cabozantinib to maximize the therapeutic and commercial potential of this compound and, as a result, we project that a substantial portion of our research and development expenses will relate to the continuing clinical development program of cabozantinib, which includes over 100 ongoing or planned clinical trials across multiple indications. Notable ongoing company-sponsored studies resulting from this program include: COSMIC-313, for which BMS is providing nivolumab and ipilimumab free of charge and CONTACT-02 for which Roche is sharing the development costs and providing atezolizumab free of charge.
We are expanding our oncology product pipeline through drug discovery efforts, which encompass both small molecule and biologics programs with multiple modalities and mechanisms of action. In this regard, we conduct drug discovery activities with the goal of identifying new product candidates to advance into clinical trials. In addition, we will continue to engage in business development initiatives aimed at acquiring and in-licensing promising oncology platforms and assets and then further characterize and develop them utilizing our established preclinical and clinical development infrastructure.
We project our research and development expenses may continue to increase for the remainder of 2021 compared to 2020, primarily driven by our ongoing clinical evaluation of cabozantinib, the initiation of new clinical trials and expansion of ongoing clinical trials evaluating other product candidates in our pipeline, including XL092, XL102, XB002 and anticipated business development activities.
The length of time required for clinical development of a particular product candidate and our development costs for that product candidate may be impacted by the scope and timing of enrollment in clinical trials for the product candidate, our decisions to develop a product candidate for additional indications and whether we pursue development of the product candidate or a particular indication with a collaborator or independently. For example, cabozantinib is being developed in multiple indications, and we do not yet know for how many of those indications we will ultimately pursue regulatory approval. In this regard, our decisions to pursue regulatory approval of cabozantinib for additional indications depend on several variables outside of our control, including the strength of the data generated in our prior, ongoing and potential future clinical trials. Furthermore, the scope and number of clinical trials required to obtain regulatory approval for each pursued indication is subject to the input of the applicable regulatory authorities, and we have not yet sought such input for all potential indications that we may elect to pursue. Even after having given such input, applicable regulatory authorities may subsequently require additional clinical studies prior to granting regulatory approval based on new data generated by us or other companies, or for other reasons outside of our control. As a condition to any regulatory approval, we may also be subject to post-marketing development commitments, including additional clinical trial requirements. As a result of the uncertainties discussed above, we are unable to determine the duration of, or total costs associated with the development of cabozantinib or any of our other research and development projects.
Our potential therapeutic products are subject to a lengthy and uncertain regulatory process that may not result in our receipt of the necessary regulatory approvals. Failure to receive the necessary regulatory approvals would prevent us from commercializing the product candidates affected, including cabozantinib in any additional indications. In addition, clinical trials of our potential product candidates may fail to demonstrate safety and efficacy, which could prevent or significantly delay regulatory approval. A discussion of the risks and uncertainties with respect to our research and development activities and the consequences to our business, financial position and growth prospects can be found in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were as follows (dollars in thousands):
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Three Months Ended June 30,
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Percent Change
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Six Months Ended June 30,
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Percent Change
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2021
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2020
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2021
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2020
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Selling, general and administrative expenses
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$
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98,495
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$
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59,791
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|
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65
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%
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|
$
|
200,846
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$
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122,731
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|
64
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%
|
Selling, general and administrative expenses consist primarily of personnel expenses, stock-based compensation, marketing costs and certain other administrative costs.
The increases in selling, general and administrative expenses for the three and six months ended June 30, 2021, relative to the corresponding prior year periods, were primarily related to increases in personnel expenses, marketing costs, corporate giving and stock-based compensation expense. Personnel expenses increased primarily due to increases in administrative headcount to support our commercial and research and development organizations. Marketing costs increased primarily due to increased marketing activities in support of the launch of the combination therapy of CABOMETYX and OPDIVO for the treatment of advanced RCC following approval by the FDA in January 2021. The increase in stock-based compensation expense was primarily due to the PSUs granted in 2019 that became probable of achievement in the second half of 2020 and the first half of 2021.
We project our selling, general and administrative expenses may continue to increase for the remainder of 2021 relative to 2020 in support of our continued commercial investment in CABOMETYX and the growth in the broader organization.
Non-operating Income
Non-operating income was as follows (dollars in thousands):
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Three Months Ended June 30,
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Percent Change
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Six Months Ended June 30,
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Percent Change
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2021
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2020
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2021
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2020
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Interest income
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$
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1,891
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$
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5,162
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-63
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%
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$
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4,573
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|
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$
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12,382
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-63
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%
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Other income (expense), net
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(11)
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—
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n/a
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(101)
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6
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n/a
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Non-operating income
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$
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1,880
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$
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5,162
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-64
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%
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$
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4,472
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|
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$
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12,388
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-64
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%
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The decreases in non-operating income for the three and six months ended June 30, 2021, relative to the corresponding prior year periods, were primarily the result of the decreases in interest income due to lower interest rates.
Provision for Income Taxes
The provision for income taxes and effective income tax rates were as follows (dollars in thousands):
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Three Months Ended June 30,
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Percent Change
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Six Months Ended June 30,
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Percent Change
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2021
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2020
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2021
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2020
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Provision for income taxes
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$
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28,796
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|
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$
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13,875
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|
|
108
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%
|
|
$
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25,180
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|
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$
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25,298
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0
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%
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Effective tax rate
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23.1
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%
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17.2
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%
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|
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20.5
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%
|
|
18.0
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%
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The increase in the provision for income taxes for the three months ended June 30, 2021, relative to the corresponding prior year period, was primarily due to an increase in pre-tax income. The provision for income taxes for the six months ended June 30, 2021 was flat, relative to the corresponding prior year period. The effective tax rate for the three and six months ended June 30, 2021 and 2020 differed from the U.S. federal statutory rate of 21% primarily due to excess tax benefits related to the exercise of certain stock options during the periods and the generation of federal tax credits, partially offset by state taxes.
Liquidity and Capital Resources
As of June 30, 2021, we had $1.7 billion in cash, cash equivalents, restricted cash equivalents and investments, compared to $1.5 billion as of December 31, 2020. We anticipate that the aggregate of our current cash and cash equivalents, short-term investments available for operations, net product revenues and collaboration revenues will enable us to maintain our operations for a period of at least 12 months following the filing date of this report.
We project we may continue to spend significant amounts of cash to fund the continued development and commercialization of cabozantinib. In addition, we intend to continue to expand our oncology product pipeline through our drug discovery efforts, including additional research collaborations, in-licensing arrangements and other business development activities that align with our oncology drug development, regulatory and commercial expertise. Financing these activities could materially impact our liquidity and capital resources and may require us to incur debt or raise additional funds through the issuance of equity. Furthermore, even though we believe we have sufficient funds for our current and future operating plans, we may choose to incur debt or raise additional funds through the issuance of equity due to market conditions or strategic considerations.
Letters of Credit
We have obtained standby letters of credit related to our lease obligations and certain other obligations with combined credit limits of $46.8 million and $1.6 million as of June 30, 2021 and December 31, 2020, respectively.
In January 2021, we entered into a standby letter of credit as guarantee of our obligation to fund our portion of the tenant improvements related to our build-to-suit lease at our corporate campus. The letter of credit is secured by our short-term investments, which are recorded as restricted cash equivalents and presented in other long-term assets in our Condensed Consolidated Balance Sheets and will be reduced as we fund our portion of the tenant improvements. As of June 30, 2021, restricted cash equivalents included $45.3 million of short-term investments as collateral under our standby letter of credit for our portion of the tenant improvements.
Sources and Uses of Cash
Cash flow activities were as follows (in thousands):
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Six Months Ended June 30,
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2021
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2020
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|
|
Net cash provided by operating activities
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$
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221,045
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|
|
$
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157,751
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Net cash (used in) provided by investing activities
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$
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(8,590)
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|
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$
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105,894
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Net cash provided by (used in) financing activities
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$
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6,074
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$
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(3,003)
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Operating Activities
Cash flows provided by operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities. Cash provided by operating activities is derived by adjusting our net income for: non-cash operating items such as deferred taxes, stock-based compensation, depreciation, non-cash lease expense and changes in operating assets and liabilities which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our Condensed Consolidated Statements of Income.
Cash provided by operating activities for the six months ended June 30, 2021 increased relative to the corresponding prior year period, primarily due to an increase in cash received on sales of our products, an increase in cash received from our commercial collaboration arrangements, and net favorable changes in operating assets and liabilities, partially offset by an increase in cash paid for operating expenses.
Investing Activities
Cash used in investing activities for the six months ended June 30, 2021 consisted of cash used in investment purchases of $688.9 million and purchases of property, equipment and other of $33.8 million, partially offset by maturities and sales of investments of $714.1 million.
Cash provided by investing activities for the six months ended June 30, 2020 consisted of cash provided by the maturities and sales of investments of $549.0 million, partially offset by cash used in investment purchases of $433.2 million and purchases of property and equipment and other of $9.9 million.
Financing Activities
Cash provided by financing activities for the six months ended June 30, 2021 consisted of $15.5 million in proceeds from the issuance of common stock under our equity incentive and stock purchase plans, partially offset by $9.4 million of withholding taxes paid related to net share settlements of equity awards.
Cash used in financing activities for the six months ended June 30, 2020 included $20.9 million of withholding taxes paid related to net share settlements of equity awards, partially offset by $17.9 million in proceeds from the issuance of common stock under our equity incentive and stock purchase plans.
Contractual Obligations
There were no material changes outside of the ordinary course of business in our contractual obligations as of June 30, 2021 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
Off-Balance Sheet Arrangements
As of June 30, 2021, we did not have any material off-balance-sheet arrangements, as defined by applicable SEC regulations.
Critical Accounting Policies and Estimates
The preparation of our Condensed Consolidated Financial Statements conforms to accounting principles generally accepted in the U.S. which requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosures. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the
accounting estimates that are reasonably likely to occur periodically, could materially impact our Condensed Consolidated Financial Statements. On an ongoing basis, management evaluates its estimates including, but not limited to: those related to revenue recognition, including determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price of performance obligations, and variable consideration such as rebates, chargebacks, sales returns and sales allowances as well as milestones included in collaboration arrangements; the amounts of revenues and expenses under our profit and loss sharing agreement; recoverability of inventory; the accrual for certain liabilities including accrued clinical trial liabilities; and valuations of equity awards used to determine stock-based compensation, including certain awards with vesting subject to market or performance conditions; and the amounts of deferred tax assets and liabilities including the related valuation allowance. We base our estimates on historical experience and on various other market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results could differ materially from those estimates.
We believe our critical accounting policies relating to revenue recognition, inventory, clinical trial accruals, stock-based compensation and income taxes reflect the most significant estimates and assumptions used in the preparation of our Condensed Consolidated Financial Statements.
There have been no significant changes in our critical accounting policies and estimates during the six months ended June 30, 2021, as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2020 submitted to the SEC on February 10, 2021.
Recent Accounting Pronouncements
For a description of the expected impact of recent accounting pronouncements, see “Note 1. Organization and Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our market risks as of June 30, 2021 have not changed significantly from those described in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act) required by Rules 13a-15(b) or 15d-15(b) of the Exchange Act, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.
Limitations on the effectiveness of controls. A control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our principal executive officer and principal financial officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.