It’s possible that the climb back north may have started for Exelixis, Inc. (NASDAQ: EXEL) as the biotechnology company is now in recovery mode following yesterday’s poor performance. On Wednesday shares of EXEL sank as low as 4.27 as investors reacted negatively to the company’s announcement that they would be raising capital through a stock offering and taking on additional debt but today those shares have hit a high of 4.57 and are currently moving around the 4.39 level.
The bounce in Thursday’s share price came after EXEL announced the offering of 30 million shares of common stock at 4.25 per share and $250 million aggregate principal amount of its 4.25% convertible senior subordinated notes due 2019.
In that announcement issued on Thursday EXEL said they anticipate aggregate net proceeds from the concurrent offerings to be $361.9 million with which they will use for general purposes including for clinical trials, research and development, capital expenditures, working capital, funding the interest escrow account, and the payment of a consent fee to entities affiliated with Deerfield Management Company L.P. with respect to secured convertible notes Exelixis previously issued to such entities.
Figures from today’s announcement differ from what EXEL stated in their Monday press release in which they said they anticipate offering 20 million shares of common stock and $225 million aggregate principal amount of convertible senior subordinated notes. With more shares issued there will obviously be greater dilution but EXEL is certainly at a point where they need the capital to continue the advancement of their cancer drug, cabozantinib.
EXEL took a sharp hit in revenue during the second quarter 2012 compared to the same period one year earlier, $7.8 million compared to $32.2 million, with the company blaming the decrease on “the transfer of substantially all development activities pertaining to XL147 and XL765 to Sanofi in April 2011, the termination of the company’s PI3K discovery collaboration with Sanofi in December 2011, and the termination of the company’s agreement with Bristol Myers-Squibb for XL281 in October 2011.”
While the revenues were down that shouldn’t have come as a surprise to any shareholder as those factors noted by EXEL took place some time ago. The big concern with EXEL is the fact they essentially have all their eggs in the cabozantinib basket.
The drug, used to reduce tumor growth in cancers of the liver, kidney, and ovaries, has the potential to be used in multiple indications and EXEL has recently initiated a Phase III pivotal trial of cabozantinib in men with mCRPC who have failed docetaxel and abiraterone and/or enzalutamide dubbed COMET-1. Data from this study isn’t expected until the first half of 2014.
Something to look for in the more immediate future, the company completed the rolling submission of its New Drug Application (NDA) for cabozantinib as a treatment for progressive, unresectable, locally advanced, or metastatic medullary thyroid cancer (MTC) to the U.S. Food and Drug Administration (FDA). This was granted Priority Review designation with a stated action date of November 29, 2012.
Additionally, EXEL has initiated two new trials through the company’s investigator-sponsored trial program: a phase 2 clinical trial in non-small cell lung cancer patients who have tested positive for gene fusions that activate RET, and a phase 1 trial in multiple myeloma.
EXEL has also investigator-sponsored trial (IST) program as well as its development program under the Cooperative Research and Development Agreement (CRADA) with the National Cancer Institute’s Cancer Therapy Evaluation Program (NCI-CTEP) to evaluate the potential of cabozantinib in renal cell carcinoma, hepatocellular carcinoma, non-small cell lung cancer, and other indications. Thirteen initial clinical trials have been approved to date.
To say that EXEL has a lot riding on cabozantinib would be a massive understatement and that always serves as a significant risk to investors. That being said, the drug has been well received to date and shown to be a promising treatment for the indications tested thus far. For their part EXEL has tried to control their costs with restructuring efforts but they still recorded a net loss of $36.5 million for the quarter ended June 30, 2012. Again, that was due in large part to the loss of revenue from the Sanofi transfer, but it is clear they can’t simply rely on offerings and more debt to attract investors.
The positive steps taken on Thursday are definitely a start but even if they climb higher over the next few months everything could come crashing down if they don’t get a positive response from the FDA in late November. For some investors that’s a risk they’re willing to take as just about any drug that reaches commercialization for the treatment of cancer proves to be financially beneficial to the company and its shareholders.
