Needing capital to advance several products, but wary of the current market, Exelixis Inc. opted for alternative routes.
The San Francisco-based company signed two agreements to raise funds for ongoing development of its four products aimed at cancer and renal disease - a third-party financing vehicle to provide up to $80 million for work on three Phase I products, and a $25 million partnership deal with Lugano, Switzerland-based Helsinn HealthCare SA for late-stage development and commercialization of XL119, a small molecule in a Phase III trial in inoperable bile duct tumors.
Those deals - along with a three-year, $16 million agreement signed earlier this month with South San Francisco-based Genentech Inc., and a $35 million milestone payment last month based on a 2002 partnership with London-based GlaxoSmithKline plc - have "essentially secured us $181 million in funding in a single quarter without having to access the capital market," said Frank Karbe, senior vice president and chief financial officer of Exelixis. (See BioWorld Today, May 10, 2005, and June 6, 2005.)
Symphony Capital Partners LP, of New York, is behind the special purpose funding vehicle. It will form Symphony Evolution Inc., which then will funnel $40 million to Exelixis products. Exelixis will have an option for an additional $20 million to $40 million within one year of closing. Symphony Evolution will hold rights to intellectual property relating to three Exelixis products: XL647 and XL999 are set to begin Phase II trials later this year in cancer, and XL784, initially aimed at cancer, is being redeveloped for renal disease and is expected to enter a Phase I/II before the end of the year.
"Exelixis will continue to run the trials as we have to this point, but the expenses will now be reimbursed through this special purpose vehicle," Karbe told BioWorld Today.
Over the next four years, Exelixis will have the option to reacquire the compounds by purchasing the equity of Symphony Evolution, depending on whether the Phase II trials yield positive results.
"If the trial fails, we will not exercise those rights and will simply walk away from it," saving $80 million, he said. "The beauty is that we're financing on the back end rather than on the front end," off-loading much of the financial risk.
If the trials are successful, the company could rely on milestone payments from its GSK collaboration to make the equity purchase.
Exelixis and GSK originally signed their agreement in October 2002 to develop an undisclosed number of therapeutics using Exelixis compounds. Once those compounds complete Phase IIa trials, GSK will have the right to select as many as three to develop and commercialize and Exelixis could receive up to $240 million in milestone payments, as well as potential royalties.
Partnering With Helsinn For XL119
In the collaboration with Helsinn, Exelixis will receive an up-front payment of $4 million and up to an additional $21 million in milestone fees. Helsinn also will take over the cost for the remainder of the Phase III trial of XL119.
In exchange, Helsinn receives a worldwide, royalty-bearing license to the product, though Exelixis retains the option to reacquire North American commercialization rights.
"We've off-loaded the future [trial] expense of about $25 million, while we've retained the commercial upside and gained $25 million in up-front and milestone" fees, Karbe said. "So this [deal] has a total financial impact of $50 million."
The Phase III trial began last year and is enrolling 600 patients across North America and Europe. The trial's primary endpoint is increased survival of patients with bile duct tumors treated with XL119 vs. the chemotherapy agents 5-fluorouracil and leucovorin.
Funding from the collaboration will help advance other products in Exelixis' pipeline. The company is preparing to submit its eighth investigational new drug application later this year.
"We have been very successful in filing all these INDs," Karbe said, adding that the company anticipates filing three more in 2006.
"With these two transactions, we've essentially resolved the financing challenge," he said.
Most of Exelixis' compounds are aimed at oncology, and are designed to inhibit proteins involved in tumor proliferation and angiogenesis, though each compound inhibits a different spectrum of receptor tyrosine kinases. The only exception is the renal disease drug, XL784, which is a metalloprotease enzyme.
The company reported a net loss of $27.4 million, or 36 cents per share, for the first quarter. As of March 31, Exelixis had cash, cash equivalents and short-term investments totaling $139.1 million.
Karbe said the company likely will update its guidance for 2005 when it releases it second-quarter results. Its previously stated guidance had Exelixis finishing the year with $100 million in cash, though, "with these recent developments, our runway has gotten a lot longer."
Shares of Exelixis (NASDAQ:EXEL) gained 26 cents Monday to close at $7.19.