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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File Number: 0-30235
EXELIXIS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3257395
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
170 Harbor Way
P.O. Box 511
South San Francisco, CA 94083
(Address of principal executive offices, including zip code)
(650) 837-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
As of April 30, 2003, there were 59,872,301 shares of the registrant's common
stock outstanding.
EXELIXIS, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
March 31, 2003 and December 31, 2002 3
Consolidated Condensed Statements of Operations
Three Months Ended March 31, 2003 and 2002 4
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 2003 and 2002 5
Notes to Consolidated Condensed Financial Statements
March 31, 2003 6
Item 2. ManagementDiscussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURE
CERTIFICATIONS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXELIXIS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
2003 2002 (1)
------------ ------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 73,146 $ 84,522
Short-term investments 123,113 131,704
Other receivables 3,270 3,325
Other current assets 4,533 3,841
------------ ------------
Total current assets 204,062 223,392
Restricted cash 7,610 5,761
Property and equipment, net 32,230 32,406
Related-party receivables 713 904
Goodwill 67,364 67,364
Other intangibles, net 4,635 4,802
Other assets 4,215 4,484
------------ ------------
Total assets $ 320,829 $ 339,113
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,495 $ 4,717
Other accrued expenses 9,618 7,992
Accrued compensation and benefits 4,112 5,060
Current portion of capital lease obligations 6,894 6,840
Current portion of notes payable and bank obligations 2,205 1,840
Deferred revenue 29,696 23,790
------------ ------------
Total current liabilities 56,020 50,239
Capital lease obligations 4,545 6,280
Notes payable and bank obligations 5,110 3,973
Convertible promissory note and loan 55,000 55,000
Other long-term liabilities 369 119
Deferred revenue 44,248 47,582
------------ ------------
Total liabilities 165,292 163,193
------------ ------------
Commitments
Stockholders' equity:
Preferred stock - -
Common stock 60 59
Additional paid-in-capital 465,536 463,764
Notes receivable from stockholders (843) (1,210)
Deferred stock compensation, net (648) (977)
Accumulated other comprehensive income 1,844 1,638
Accumulated deficit (310,412) (287,354)
------------ ------------
Total stockholders' equity 155,537 175,920
------------ ------------
Total liabilities and stockholders' equity $ 320,829 $ 339,113
============ ============
(1) The consolidated condensed balance sheet at December 31, 2002 has been
derived from the audited financial statement at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
EXELIXIS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended March 31,
----------------------------
2003 2002
----------- -----------
(unaudited)
Revenues:
Contract and government grants $ 9,202 $ 8,909
License 3,128 2,633
----------- -----------
Total revenues 12,330 11,542
----------- -----------
Operating expenses:
Research and development (1) 30,303 26,190
General and administrative (2) 5,168 4,676
Amortization of intangibles 166 166
Total operating expenses 35,637 31,032
----------- -----------
Loss from operations (23,307) (19,490)
Other income (expense):
Interest income 1,226 2,121
Interest expense (918) (704)
Other income (expense), net 36 66
----------- -----------
Total other income 344 1,483
----------- -----------
Loss from continuing operations before income taxes (22,963) (18,007)
Provision for income taxes (95) -
----------- -----------
Loss from continuing operations (23,058) (18,007)
Loss from operations of discontinued segment - Genomica Corporation - (414)
----------- -----------
Net loss $ (23,058) $ (18,421)
=========== ===========
Loss per share from continuing operations $ (0.39) $ (0.32)
Loss per share from discontinued operations - (0.01)
----------- -----------
Net loss per share, basic and diluted $ (0.39) $ (0.33)
=========== ===========
Shares used in computing basic and diluted net loss per share 59,261 55,654
=========== ===========
(1) Includes stock compensation expense of $198 and $482 for the three months
ended March 31, 2003 and 2002, respectively.
(2) Includes stock compensation expense of $246 and $336 for the three months
ended March 31, 2003 and 2002, respectively.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
EXELIXIS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended March 31,
----------------------------
2003 2002
------------ ------------
Cash flows from operating activities: (unaudited)
Net loss $ (23,058) $ (18,421)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,964 3,250
Stock compensation expense 444 818
Amortization of intangibles 166 166
Other 95 108
Changes in assets and liabilities:
Other receivables (389) 257
Other current assets (501) (758)
Related-party receivables 187 25
Other assets 35 (200)
Accounts payable and other accrued expenses 809 (5,611)
Accrued merger and acquisition costs - (2,043)
Other long-term liabilities 250 -
Deferred revenue 2,569 (3,902)
------------ ------------
Net cash used in operating activities (15,429) (26,311)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (2,661) (474)
Change in restricted cash (1,849) -
Proceeds from maturities of short-term investments 59,440 34,558
Purchases of short-term investments (51,247) (20,327)
------------ ------------
Net cash provided by investing activities 3,683 13,757
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options, net of repurchases 99 64
Repayment of notes from stockholders 365 351
Principal payments on capital lease obligations (1,681) (1,511)
Proceeds from bank obligations 2,034 -
Principal payments on notes payable and bank obligations (539) (525)
------------ ------------
Net cash provided by (used in) financing activities 278 (1,621)
------------ ------------
Effect of foreign exchange rates on cash and cash equivalents 92 35
------------ ------------
Net increase in cash and cash equivalents (11,376) (14,140)
Cash and cash equivalents, at beginning of period 84,522 35,584
------------ ------------
Cash and cash equivalents, at end of period $ 73,146 $ 21,444
============ ============
The accompanying notes are an integral part of these consolidated condensed financial
statements.
EXELIXIS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2003
(unaudited)
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Exelixis, Inc. ("Exelixis" or the "Company") is a biotechnology company whose
primary mission is to develop proprietary human therapeutics by using its
integrated discovery platform to increase the speed, efficiency and quality of
pharmaceutical product discovery and development. The Company uses comparative
genomics and model system genetics to find new drug targets and compounds that
Exelixis believes would be difficult or impossible to uncover using other
experimental approaches. The Company's research is designed to identify novel
genes and proteins expressed by those genes that, when changed, either decrease
or increase the activity in a specific disease pathway in a therapeutically
relevant manner. These genes and proteins represent either potential product
targets or drugs that may treat disease or prevent disease initiation or
progression. The Company's most advanced proprietary pharmaceutical program
focuses on drug discovery and development of small molecules in cancer. While
the Company's proprietary programs focus on drug discovery and development,
Exelixis believes that its proprietary technologies are valuable to other
industries whose products can be enhanced by an understanding of DNA or
proteins, including the agrochemical, agricultural and diagnostic industries.
Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been
prepared by the Company in accordance with accounting principles generally
accepted in the United States for interim financial information and pursuant to
the instructions 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 generally accepted accounting principles
for complete financial statements. In the opinion of the Company's management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair statement of the results for the fiscal period have been
included. Operating results for the three-month period ended March 31, 2003 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2003, or for any future period. These financial statements
and notes should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 2002 included in
the Company's Annual Report on Form 10-K.
Net Loss Per Share
Basic and diluted net loss per share are computed by dividing the net loss for
the period by the weighted-average number of shares of common stock outstanding
during the period, adjusted for shares that are subject to repurchase. The
calculation of diluted net loss per share excludes potential common stock
because their effect is antidilutive. Potential common stock consists of common
stock subject to repurchase, incremental common shares issuable upon the
exercise of stock options and warrants and shares issuable upon conversion of a
convertible promissory note.
Stock-Based Compensation
The Company recognizes employee stock-based compensation under the intrinsic
value method of accounting as prescribed by Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, no compensation expense is recognized in the Company's financial
statements for the stock options granted to employees, which had an exercise
price equal to the fair value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123" (in thousands, except per share amounts):
Three Months Ended March 31,
----------------------------
2003 2002
------------ ------------
Net loss:
As reported $ (23,058) $ (18,421)
Add: Stock-based employee compensation expense included
in reported net loss 444 691
Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards (5,723) (6,222)
------------ ------------
Pro forma net loss $ (28,337) $ (23,952)
============ ============
Net loss per share (basic and diluted):
As reported $ (0.39) $ (0.33)
============ ============
Pro forma $ (0.48) $ (0.43)
============ ============
Since options vest over several years and additional option grants are expected
to be made in future years, the pro forma impact on the results of operations
for the three months ended March 31, 2003 and 2002, respectively, is not
necessarily representative of the pro forma effects on the results of operations
for future periods.
Reclassification
Certain prior period amounts have been reclassified to conform to the current
period presentation.
Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities."
This interpretation will require the Company to consolidate a Variable Interest
Entity ("VIE") if the entity meets certain criteria and if the Company is
considered the primary beneficiary of the VIE (such as a direct or indirect
ability to make significant decisions of that entity or the obligation to absorb
a majority of the entity's expected losses or gains). FIN 46 also requires
additional disclosure of an entity's relationship with a VIE. The consolidation
provisions of this interpretation are currently required for all VIEs created
after January 31, 2003. For VIEs created prior to January 31, 2003, the
consolidation provisions of FIN 46 are effective July 1, 2003. The Company is
currently evaluating the effect that the adoption of FIN 46 will have on its
financial statements.
NOTE 2 COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains and losses on available-for-sale securities, unrealized gains
and losses on cash flow hedges and cumulative translation adjustments.
Comprehensive loss for the quarters ended March 31, 2003 and 2002 are as follows
(in thousands):
Three Months Ended March 31,
----------------------------
2003 2002
------------ ------------
Net loss $ (23,058) $ (18,421)
Decrease in unrealized gains on available-for-sale securities (29) (1,257)
Increase in unrealized gains on cash flow hedges 132 18
Increase (decrease) in cumulative translation adjustment 105 (50)
------------ ------------
Comprehensive loss $ (22,850) $ (19,710)
============ ============
The components of accumulated other comprehensive income are as follows (in
thousands):
March 31, December 31,
2003 2002
------------ ------------
Unrealized gains on available-for-sale securities $ 877 $ 906
Unrealized gains on cash flow hedges 251 119
Cumulative translation adjustment 718 613
------------ ------------
Accumulated other comprehensive income $ 1,846 $ 1,638
============ ============
NOTE 3 GENOMICA CORPORATION
In December 2001, in connection with the acquisition of Genomica Corporation
("Genomica"), Exelixis adopted an exit plan for Genomica. Under this exit plan,
the Company terminated Genomica's entire workforce and abandoned its leased
facilities in Boulder, Colorado and Sacramento, California. The estimated costs
of the exit plan amounted to $2.9 million and were included as part of the
liabilities assumed in the acquisition.
As of December 31, 2002, the remaining recorded obligation to exit the Genomica
activities was $825,000. During the quarter ended March 31, 2003, Exelixis paid
approximately $107,000 in lease payments reducing the balance of the lease
obligation to $718,000. As of March 31, 2003, the remaining actions to be taken
under the exit plan consisted primarily of residual payments related to the
lease obligation for the facility in Boulder, Colorado, which are expected to
continue until the termination of the lease in 2005, unless the facility is
subleased earlier.
In April 2002, Exelixis transferred the Genomica software business to Visualize,
Inc. ("Visualize") for future consideration of up to $2.4 million in license
fees and royalty payments. Pursuant to the terms of the transaction, Visualize
obtained a license with all rights and obligations to third parties currently
licensing the Genomica software, including the sole right to further develop and
license the software to other third parties. Royalties that Exelixis receives,
if any, will be recorded in the period they are earned as a gain from
discontinued operations. In addition, Visualize assumed the lease obligation
for the Company's abandoned facility in Sacramento, California. Exelixis
retains an internal use license for the software. As a result of this
transaction, the Company reported the operating results of Genomica and the
estimated loss on the sale of Genomica as discontinued operations. For the
quarter ended March 31, 2002, Genomica's operating results consisted of revenues
of approximately $18,000 and an operating loss of approximately $414,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis contains forward-looking statements.
These statements are based on our 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 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. Words such as "believe," "anticipate," "expect," "intend," "plan,"
"will," "may," "should," "estimate," "predict," "potential," "continue" or the
negative of such terms or other similar expressions, identify 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, but are not limited to,
those discussed in "Risk Factors" as well as those discussed elsewhere in this
Quarterly Report on Form 10-Q. This discussion and analysis should be read in
conjunction with our financial statements and accompanying notes included in
this report and the 2002 audited financial statements and notes thereto included
in our Annual Report on Form 10-K for the year ended December 31, 2002.
Operating results are not necessarily indicative of results that may occur in
future periods. We undertake no obligation to update any forward-looking
statement to reflect events after the date of this report.
Overview
We believe that we are a leader in the discovery and validation of high-quality
novel targets for several major human diseases, and a leader in the discovery of
potential new drug therapies, specifically for cancer and other proliferative
diseases. Our primary mission is to develop proprietary human therapeutics by
leveraging our integrated discovery platform to increase the speed, efficiency
and quality of pharmaceutical product discovery and development.
Through our expertise in comparative genomics and model system genetics, we are
able to find new drug targets that we believe would be difficult or impossible
to uncover using other experimental approaches. Our research is designed to
identify novel genes and proteins expressed by those genes that, when changed,
either decrease or increase the activity in a specific disease pathway in a
therapeutically relevant manner. These genes and proteins represent either
potential product targets or drugs that may treat disease or prevent disease
initiation or progression.
Our most advanced proprietary pharmaceutical program focuses on drug discovery
and development of small molecules in cancer. Specifically, the remarkable
evolutionary conservation of the biochemical pathways strongly supports the use
of simple model systems, such as fruit flies, nematode worms, zebrafish and
mice, to identify key components of critical cancer pathways that can then be
targeted for drug discovery. We expect to develop new cancer drugs by
exploiting the underlying "genetic liabilities" of tumor cells to provide
specificity in targeting these cells for destruction, while leaving normal cells
unharmed. We have discovered and are further developing a number of small
molecule drug targets in addition to monoclonal antibody drug targets.
Molecules directed against these targets may selectively kill cancer cells while
leaving normal cells unharmed, and may provide alternatives or supplements to
current cancer therapies.
We believe that our proprietary technologies are also valuable to other
industries whose products can be enhanced by an understanding of DNA or
proteins, including the agrochemical, agricultural and diagnostic industries.
Many of these industries have shorter product development cycles and lower risk
than the pharmaceutical industry, while at the same time generating significant
sales with attractive profit margins. By partnering with companies in multiple
industries, we believe that we are able to diversify our business risk, while at
the same time maximizing our future revenue stream opportunities.
Our strategy is to establish collaborations with major pharmaceutical,
biotechnology and agrochemical companies based on the strength of our
technologies and biological expertise in order to support additional development
of our proprietary products. Through these collaborations, we obtain license
fees and research funding, together with the opportunity to receive milestone
payments and royalties from research results and subsequent product development.
In addition, many of our collaborations have been structured strategically to
provide us access to technology to advance our internal programs, saving both
time and money, while at the same time retaining rights to use the same
information in different industries. Our collaborations with leading companies
in the agrochemical industries allow us to continue to expand our internal
development capabilities while providing our partners with novel targets and
assays. Since we believe that agrochemical products have reduced development
time and lower risk, we expect to be able to maximize our potential future
revenue stream through partnering in multiple industries. We have ongoing
commercial collaborations with several leading pharmaceutical, biotechnology and
agrochemical companies, including: Bayer CropScience LP (formerly Aventis USA
LP), Bayer Corporation, Bristol-Myers Squibb Company (two collaborations),
Cytokinetics, Inc., Dow AgroSciences LLC, Elan Pharmaceuticals, Inc., Merck &
Co., Inc. (two collaborations), Protein Design Labs, Inc., Renessen LLC, Scios
Inc., Schering-Plough Research Institute, Inc. and SmithKlineBeecham
Corporation.
In addition to our commercial collaborations, we have relationships with other
biotechnology companies, academic institutions and universities that provide us
access to specific technology or intellectual property for the enhancement of
our business. These include collaborations with leading biotechnology product
developers and solutions providers, among them: Affymetrix, Inc., GeneMachines,
AVI BioPharma, Inc., Silicon Genetics, Galapagos NV, Genomics Collaborative
Inc., Accelrys, Inc., Akceli, Inc., Ardais Corp., Cogen BioCognetics, Inc.,
Impath Predictive Oncology, Inc. and Virtual Arrays, Inc.
We have a history of operating losses resulting principally from costs
associated with research and development activities, investment in core
technologies and general and administrative functions. As a result of planned
expenditures for future research and development activities, including
manufacturing and development expenses for compounds in pre-clinical and
clinical studies, we expect to incur additional operating losses for the
foreseeable future.
Recent Developments
XL784
During the first quarter of 2003, we submitted our first investigational new
drug (IND) application to the U.S. Food & Drug Administration ("FDA") for our
proprietary small molecule anticancer compound, XL784. The target against which
XL784 is directed is a cell surface protease involved in cleavage of growth
factors that promote cell growth and differentiation. The target was originally
discovered in our anti-angiogenesis research program, and shows both
anti-angiogenic and anti-proliferative effects. In preclinical studies, XL784
is orally bioavailable and has shown good potency, pharmacologic activity and a
safety profile appropriate to support Phase 1 studies. Our clinical plans
include initiating Phase 1 first-in-man studies, to be conducted in healthy
volunteers, while continuing to explore the therapeutic utility of the compound
in various animal models of disease, including cardiovascular disease.
Pending FDA clearance of the IND, we intend to initiate the Phase 1 program
during the second quarter of 2003. [This clearance may be obtained before filing
in which case we will update.] The trial, designed as a dose escalation study to
measure the safety, pharmacokinetics and biological activity of XL784 following
oral administration, would be conducted at a single center. Based on
preclinical studies, the compound appears appropriate for testing in healthy
volunteers and, to date, has shown none of the toxicities associated with
traditional anticancer compounds that act through a cytotoxic mechanism. A
third-party manufacturer is supplying the drug product to be used in the
clinical trial.
Results of Operations
Total Revenues
Total revenues were approximately $12.3 million and $11.5 million for the
three-month periods ended March 31, 2003 and 2002, respectively. The increase
from 2002 to 2003 was driven primarily by revenue from our corporate
collaboration with SmithKlineBeecham Corporation ("GlaxoSmithKline" or "GSK"),
partially offset by the reduction in revenue from the conclusion of our
Pharmacia Corporation relationship in February 2002.
Research and Development Expenses
Research and development expenses consist primarily of salaries and other
personnel-related expenses, facilities costs, lab supplies, consulting and
outsourcing expenses, licenses and depreciation of facilities and laboratory
equipment. Research and development expenses were $30.3 million and $26.2
million for the three-month periods ended March 31, 2003 and 2002, respectively.
The increase in 2003 over 2002 resulted primarily from the following costs:
- - Increased Personnel - Staffing costs in 2003 increased by approximately 6%
from 2002 levels to approximately $11.4 million. The increase was primarily
to support activities related to advancing our clinical and preclinical
development programs, in addition to supporting our collaborative
arrangements and our internal proprietary research and development efforts.
Salaries, bonuses, related fringe benefits, recruiting and relocation costs
are included in personnel costs. We expect these personnel costs to
increase further as we continue to build our organization.
- - Increased Lab Supplies - As a result of the increase in personnel, our
compound collaborations and expansion of our drug discovery operations, lab
supplies expense increased 4% to $5.3 million during the first quarter of
2003.
- - Increased Licenses and Consulting - The increase in license and consulting
expenses was 146% to $4.6 million during the first quarter of 2003. The
increase was driven primarily by activities related to advancing our
clinical and preclinical development programs. These activities included:
completing regulatory toxicology testing of XL784 and successfully filing
the IND application at the end of the first quarter of 2003; advancing a
series of development candidates and back-up compounds into preclinical
testing in anticipation of filing additional IND applications;
manufacturing drug substance for those compounds to support preclinical
studies; building additional infrastructure in clinical development to
support an expanding clinical pipeline; and costs associated with
manufacturing the rebeccamycin analogue to support initiation of
registration trials later in 2003.
We expect that research and development expenses will continue to increase in
absolute dollar amounts in the future, as we continue to advance drug discovery
and development programs, including manufacturing and clinical development
efforts on our maturing pipeline of products.
With respect to the rebeccamycin analogue, XL784 and our other proprietary
compounds, we are currently relying on collaborators and third-party contractors
to produce materials for clinical trials. We expect clinical costs will
increase in the future as we enter clinical trials for XL784 and other
proprietary product candidates and additional trials for our rebeccamycin
analogue. We currently do not have estimates of total costs to reach the market
by a particular drug candidate or in total. Our potential therapeutic products
are subject to a lengthy and uncertain regulatory process that may not result in
the necessary regulatory approvals, which could adversely affect our ability to
commercialize products. In addition, clinical trials of our potential products
may fail to demonstrate safety and efficacy, which could prevent or
significantly delay regulatory approval.
Our most advanced clinical program is the rebeccamycin analogue ("XL119"), an
anticancer compound that we in-licensed from Bristol-Myers Squibb Company in
2001. The rebeccamycin analogue has completed Phase 1 testing. The Phase 2
clinical testing program, which is being conducted by the National Cancer
Institute ("NCI"), is well advanced. To date, the most pronounced antitumor
activity was observed in upper gastrointestinal tumors (most prominently in bile
duct or hepatobiliary tumors), where several partial responses and instances of
prolonged disease stabilization occurred. We anticipate initiating next
development steps following discussions with the FDA.
General and Administrative Expenses
General and administrative expenses consist primarily of staffing costs to
support our research activities, facilities costs and professional expenses,
such as legal fees. General and administrative expenses were approximately $5.2
million and $4.7 million for the three-month periods ended March 31, 2003 and
2002, respectively. The increase in 2003 over 2002 of approximately 11% was
driven primarily by costs associated with personnel and facilities to support
expansion in our research and development operations.
Stock Compensation Expense
Deferred stock compensation for options granted to our employees is the
difference between the fair value for financial reporting purposes of our common
stock on the date such options were granted and their exercise price. Deferred
stock compensation for options granted to consultants has been determined based
upon estimated fair value, using the Black-Scholes option valuation model. As
of March 31, 2003, we had approximately $700,000 of remaining deferred stock
compensation related to stock options granted to consultants and employees.
Deferred stock compensation is recorded as a component of stockholders' equity
and is being amortized as stock compensation expense over the vesting periods of
the options, which is generally four years. We recognized stock compensation
expense of $400,000 and $800,000 for the three-month periods ended March 31,
2003 and 2002, respectively. The decrease in stock compensation expense in 2003
compared to 2002 primarily resulted from the accelerated amortization method
used for amortizing deferred compensation expense for accounting purposes.
During April 2001, we granted approximately 545,000 supplemental stock options
under our 2000 Equity Incentive Plan to certain employees (excluding officers
and directors) who had stock options under the 2000 Equity Incentive Plan with
exercise prices greater than $16.00 per share. The number of supplemental
options granted was equal to 50% of the corresponding original grant held by
each employee. The supplemental options have an exercise price of $16.00, vest
monthly over a two-year period beginning April 1, 2001 and have a 27-month term.
The vesting on the corresponding original stock options was suspended and will
resume in April 2003 following the completion of vesting of the supplemental
options. This new grant constitutes a synthetic repricing as defined in the
Financial Accounting Standards Board ("FASB") Interpretation Number 44,
"Accounting for Certain Transactions Involving Stock Compensation," and resulted
in certain options being reported using the variable plan method of accounting
for stock compensation expense until they are exercised, forfeited or expire.
For the quarter ended March 31, 2003, we recorded no compensation expense
compared to a reversal of $200,000 of compensation expense during the quarter
ended March 31, 2002, due to a decrease in the market value of our common stock
during that period.
Amortization of Intangibles
Intangible assets resulted from our acquisitions of Genomica Corporation,
Artemis Pharmaceuticals GmbH and Agritope, Inc. (renamed Exelixis Plant
Sciences). Amortization of intangibles was $200,000 for both of the three-month
periods ended March 31, 2003 and 2002.
Other Income (Expense), Net
Other income (expense), net, was $300,000 in income for the three-month period
ended March 31, 2003, compared to income of $1.5 million for the comparable
period in 2002. Other income (expense) consists primarily of interest income
earned on cash, cash equivalents and short-term investments, offset by interest
expense incurred on notes payable, bank obligations and capital lease
obligations. The decrease in 2003 from 2002 was primarily due to an overall
decline in interest rates coupled with an increase in interest expense related
to notes payable and bank obligations.
Discontinued Operations
Loss from discontinued operations was zero and approximately $400,000 for the
three-month periods ended March 31, 2003 and 2002, respectively. In April 2002,
we transferred the Genomica software business to Visualize for future
consideration of up to $2.4 million in license fees and royalty payments.
Pursuant to the terms of the transaction, Visualize obtained a license with all
rights and obligations to third parties currently licensing the Genomica
software, including the sole right to further develop and license the software
to other third parties. Royalties that we receive, if any, will be recorded in
the period they are earned as a gain in discontinued operations. In addition,
Visualize assumed the lease obligation for Genomica's abandoned facility in
Sacramento, California. We retained an internal use license for the software.
As a result of this transaction, we reported the operating results of Genomica
as discontinued operations. For the three-month period ended March 31, 2002,
Genomica's operating results included revenues of approximately $18,000 and an
operating loss of approximately $400,000.
Income Taxes
We have incurred net losses since inception and, consequently, have not recorded
any U.S. federal or state income taxes. We have recorded a tax provision of
approximately $95,000 for the period ended March 31, 2003 related to income
earned in our foreign operations, compared to none for the comparable period in
2002.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through the sale of
equity, equipment lease financings and other loan facilities and payments from
collaborators. Our initial public offering, completed in the second quarter of
2000, raised $124.5 million in net cash proceeds. In addition, we acquired
Genomica in December 2001, including $109.6 million in cash and investments. As
of March 31, 2003, we had approximately $203.9 million in cash, cash
equivalents, short-term investments and restricted cash.
Our operating activities used cash of approximately $15.4 million and $26.3
million for the three-month periods ended March 31, 2003 and 2002, respectively.
For the three-month period ended March 31, 2003, cash used in operating
activities related primarily to funding net losses and an increase in deferred
revenue from our collaborators, partially offset by non-cash charges related to
depreciation. For the comparable period in 2002, cash used in operating
activities related primarily to funding net losses, cash payments related to our
December 2001 acquisition of Genomica and a decrease in deferred revenue from
our collaborators, partially offset by non-cash charges related to depreciation.
Our investing activities provided cash of approximately $3.7 million and $13.8
million for the three-month periods ended March 31, 2003 and 2002, respectively.
The cash provided resulted primarily from the proceeds from maturities of
short-term investments, offset by purchases of short-term investments.
Our financing activities provided cash of approximately $300,000 for the
three-month period ended March 31, 2003 and used cash of $1.6 million for the
comparable period in 2002. For the three-month period ended March 31, 2003,
cash provided from financing activities resulted primarily from proceeds from
bank obligations, partially offset by principal payments on capital lease
obligations. For the comparable period in 2002, cash used in financing
activities resulted primarily from principal payments on capital lease
obligations and notes payable, partially offset by repayment of notes from
stockholders and proceeds from the exercise of stock options, net of
repurchases.
We believe that our current cash and cash equivalents, short-term investments
and funding to be received from collaborators, will be sufficient to satisfy our
anticipated cash needs for at least the next two years. Changes in our
operating plan as well as factors described in our "Risk Factors" elsewhere in
this Quarterly Report on Form 10-Q could require us to consume available
resources much sooner than we expect. It is possible that we will seek
additional financing within this timeframe. We may raise additional funds
through public or private financing, collaborative relationships or other
arrangements. In July 2001, we filed a registration statement on Form S-3 to
offer and sell up to $150.0 million of our common stock. We have no current
commitments to offer or sell securities with respect to shares that may be
offered or sold pursuant to that filing. We cannot assure you that additional
funding, if sought, will be available or, even if available, will be available
on terms favorable to us. Further, any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants. Our failure to raise capital when needed may harm our
business and operating results.
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." This interpretation will require
us to consolidate a Variable Interest Entity ("VIE") (formerly referred to as a
special purpose entity) if the entity meets certain criteria and if we are
considered the primary beneficiary of the VIE (such as a direct or indirect
ability to make significant decisions of that entity or the obligation to absorb
a majority of the entity's expected losses or gains). FIN 46 also requires
additional disclosure of an entity's relationship with a VIE. The consolidation
provisions of this interpretation are required for all VIEs created after
January 31, 2003. For VIEs in existence prior to January 31, 2003, the
consolidation provisions of FIN 46 are effective July 1, 2003. We are currently
evaluating the effect that the adoption of FIN 46 will have on our financial
statements.
Disclosures on Stock Option Plans
Option Program Description
Our stock option program is a broad-based, long-term retention program that is
intended to attract and retain talented employees and align stockholder and
employee interests. We consider our stock option program to be critical to our
operation and productivity; essentially all of our employees participate. Of
the options we granted in 2002, 94% went to employees other than the five most
highly compensated executive officers. Options are currently granted under two
stock option plans: one under which options to purchase shares of our stock are
granted to non-employee directors and one under which options to purchase shares
of our stock may be granted to all employees. Option vesting periods are
generally four years.
Our board of directors or a designated committee of our board of directors is
responsible for the administration of our employee stock option plans and
determines the term, exercise price and vesting terms of each option. Incentive
stock options may be granted at an exercise price per share at least equal to
the estimated fair value per underlying common share on the date of grant (not
less than 110% of the estimated fair value in the case of holders of more than
10% of our voting stock). Options granted under the plans are exercisable when
granted and generally expire ten years from the date of grant (five years for
incentive stock options granted to holders of more than 10% of our voting
stock).
Distribution and Dilutive Effect of Options
Employee and Executive Option Grants
[GRAPHIC OMITED]
[GRAPHIC OMITED]
* Our chief executive officer and the four other most highly compensated
executive officers for the most recently completed fiscal year are referred to
as the "listed officers."
During the three months ended March 31, 2003, we granted our employees options
to purchase 976,236 shares of our common stock, which was net of 479,039 shares
related to forfeited options. The net options granted after forfeitures
represented 1.6% of our total outstanding shares of common stock, which was
approximately 59.4 million as of the beginning of 2003.
During the three months ended March 31, 2003, 960,000 options were granted to
the listed officers. Options granted to the listed officers as a percentage of
total options granted to all employees varies from year to year. The percentage
of grants to listed officers as a percentage of total options granted decreased
in 2002 as compared to 2001. The decrease primarily related to the listed
officers receiving their 2002 annual merit grant during the first quarter of
2003 instead of the fourth quarter of 2002, which would have been consistent
with the timing of prior years' annual merit grants. If the listed officers had
received their annual merit grants during the fourth quarter of 2002, their
grants would have comprised 20% of the total options granted in 2002.
General Option Information
Summary of Option Activity
[GRAPHIC OMITED]
[GRAPHIC OMITED]
In-the-Money and Out-of-the-Money Option Information as of March 31, 2003
[GRAPHIC OMITED]
[GRAPHIC OMITED]
[GRAPHIC OMITED]
[GRAPHIC OMITED]
Equity Compensation Plan Information
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily to
our investment portfolio and our long-term debt. We had investments in debt
securities of approximately $198.6 million and $213.8 million at March 31, 2003
and December 31, 2002, respectively. Our investments are subject to interest
rate risk, and our interest income may fluctuate due to changes in U.S. interest
rates. By policy, we limit our investments to money market instruments, debt
securities of U.S. government agencies and debt obligations of U.S.
corporations. We manage market risk by our diversification requirements, which
limit the amount of our portfolio that can be invested in a single issuer. We
manage credit risk by limiting our purchases to high-quality issuers. Through
our money managers, we maintain risk management control systems to monitor
interest rate risk. The risk management control systems use analytical
techniques, including sensitivity analysis.
We had long-term debt outstanding of approximately $64.7 million and $65.3
million at March 31, 2003 and December 31, 2002, respectively. Our payment
commitments associated with these debt instruments are fixed during the
corresponding terms and are comprised of interest payments, principal payments
or a combination thereof. The fair value of our long-term debt will fluctuate
with movements of interest rates, increasing in periods of declining rates of
interest and declining in periods of increasing rates of interest.
We have estimated the effects on our interest rate sensitive assets and
liabilities based on a one percentage point hypothetical increase or decrease in
interest rates as of March 31, 2003 and December 31, 2002. As of March 31, 2003,
a decrease in interest rates of one percentage point would have a net adverse
change in the fair value of interest rate sensitive assets and liabilities of
approximately $1.4 million. As of December 31, 2002, a decrease in interest
rates of one percentage point would have a net adverse change in the fair value
of interest rate sensitive assets and liabilities of approximately $1.6 million.
We have assumed the changes occur immediately and uniformly to each category of
instrument containing interest rate risks. Significant variations in market
interest rates could produce changes in the timing of repayments due to
available prepayment options. The fair value of such instruments could be
affected and, therefore, actual results might differ from our estimate.
We are exposed to foreign currency exchange rate fluctuations related to the
operations of our German subsidiaries. The revenues and expenses of our German
subsidiaries are denominated in Euro. At the end of each reporting period, the
revenues and expenses of these subsidiaries are translated into U.S. dollars
using the average currency rate in effect for the period, and assets and
liabilities are translated into U.S. dollars using the exchange rate in effect
at the end of the period. Fluctuations in exchange rates, therefore, impact our
financial condition and results of operations as reported in U.S. dollars.
We use derivative financial instruments to reduce our exposure to foreign
currency exchange rate movements on our consolidated operating results. As of
March 31, 2003, we had outstanding an aggregate notional amount of $4.3 million
of written foreign currency put option contracts and a notional amount of $2.2
million of purchased foreign currency call option contracts denominated in Euro.
Both the put and call option contracts have an average exercise price of $1.0291
and expire no later than October 10, 2003. The fair value of these contracts at
March 31, 2003 was approximately $251,000, which is reflected on the balance
sheet as an asset. As of December 31, 2002, we had outstanding an aggregate
notional amount of $5.8 million of written foreign currency put option contracts
and a notional amount of $2.9 million of purchased foreign currency call option
contracts denominated in Euro. Both the put and call option contracts have an
average exercise price of $1.0289 and expire no later than October 10, 2003.
The fair value of these contracts at December 31, 2002 was approximately
$119,000, which is reflected on the balance sheet as an asset. Our hedging
strategy is designed such that any potential losses on these instruments will be
materially offset in earnings by a reduction in Euro denominated costs for our
German operations. We cannot give any assurance that our hedging strategies
will be effective or that transaction losses can be minimized or forecasted
accurately.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this report, our
principal executive officer and principal financial officer have concluded that
Exelixis' disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) are sufficiently effective to ensure that the information required to be
disclosed by Exelixis in the reports that we file under the Exchange Act is
gathered, analyzed and disclosed with adequate timeliness, accuracy and
completeness.
Changes in internal controls. There have been no significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation referred to above, nor were
there any significant deficiencies or material weaknesses in Exelixis' internal
controls. Accordingly, no corrective actions were required or undertaken.
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 a company have been
detected.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
RISK FACTORS
EXELIXIS HAS A HISTORY OF NET LOSSES. WE EXPECT TO CONTINUE TO INCUR NET LOSSES,
AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.
We have incurred net losses each year since our inception, including a net loss
of approximately $23.1 million for the quarter ended March 31, 2003. As of that
date, we had an accumulated deficit of approximately $310.4 million. We expect
these losses to continue and anticipate negative operating cash flow for the
foreseeable future. The size of these net losses will depend, in part, on the
rate of growth, if any, in our license and contract revenues and on the level of
our expenses. Our research and development expenditures and general and
administrative costs have exceeded our revenues to date, and we expect to spend
significant additional amounts to fund research and development in order to
enhance our core technologies and undertake product development. In 2001, we
acquired a rebeccamycin analogue that is in Phase 2 clinical development. We
anticipate initiating next development steps following discussions with the U.S.
Food and Drug Administration, or FDA. Drug substance to be used in
Exelixis-sponsored clinical trials has been manufactured in bulk supply by
third-party suppliers. In addition, we recently filed our first IND for a
proprietary compound, XL784, and plan to initiate Phase 1 safety trials in the
second quarter of 2003, pending acceptance of the application by the FDA. As a
result, we expect that our operating expenses will increase significantly in the
near term, and consequently, we will need to generate significant additional
revenues to achieve profitability. Even if we do increase our revenues and
achieve profitability, we may not be able to sustain or increase profitability.
WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE, WHICH MAY NOT BE AVAILABLE TO US.
Our future capital requirements will be substantial and will depend on many
factors, including:
- payments received under collaborative agreements;
- the progress and scope of our collaborative and independent research
and development projects;
- our need to expand our product and clinical development efforts as
well as develop manufacturing and marketing capabilities to
commercialize products;
- the filing, prosecution and enforcement of patent claims; and
- increased costs for clinical activities.
We anticipate that our current cash and cash equivalents, short-term investments
and funding to be received from collaborators will enable us to maintain our
currently planned operations for at least the next two years. Changes to our
current operating plan may require us to consume available capital resources
significantly sooner than we expect. We may be unable to raise sufficient
additional capital when we need it, on favorable terms or at all. If our capital
resources are insufficient to meet future capital requirements, we will have to
raise additional funds. The sale of equity or convertible debt securities in the
future may be dilutive to our stockholders, and debt financing arrangements may
require us to pledge certain assets and enter into covenants that would restrict
our ability to incur further indebtedness. If we are unable to obtain adequate
funds on reasonable terms, we may be required to curtail operations
significantly or to obtain funds by entering into financing, supply or
collaboration agreements on unattractive terms.
DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH MAY DIVERT RESOURCES AND LIMIT
OUR ABILITY TO SUCCESSFULLY EXPAND OUR OPERATIONS.
We have experienced a period of rapid and substantial growth that has placed,
and our anticipated growth in the future will continue to place, a strain on our
research, administrative and operational infrastructure. As our operations
expand domestically and internationally, we will need to continue to manage
multiple locations and additional relationships with various collaborative
partners, suppliers and other third parties. Our ability to manage our
operations and growth effectively requires us to continue to improve our
operational, financial and management controls, reporting systems and
procedures. In addition, recent SEC rules and regulations have increased the
internal control and regulatory requirements under which we operate. We may not
be able to successfully implement improvements to our management information and
control systems in an efficient or timely manner and may discover deficiencies
in existing systems and controls. In addition, acquisitions involve the
integration of different financial, internal control and management reporting
systems. We may not be able to successfully integrate the administrative and
operational infrastructure without significant additional improvements and
investments in management systems and procedures.
WE ARE DEPENDENT ON OUR COLLABORATIONS WITH MAJOR COMPANIES. IF WE ARE UNABLE TO
ACHIEVE MILESTONES, DEVELOP PRODUCTS OR RENEW OR ENTER INTO NEW COLLABORATIONS,
OUR REVENUES MAY DECREASE AND OUR ACTIVITIES MAY FAIL TO LEAD TO COMMERCIALIZED
PRODUCTS.
Substantially all of our revenues to date have been derived from collaborative
research and development agreements. Revenues from research and development
collaborations depend upon continuation of the collaborations, the achievement
of milestones and royalties derived from future products developed from our
research. If we are unable to successfully achieve milestones or our
collaborators fail to develop successful products, we will not earn the revenues
contemplated under such collaborative agreements. In addition, some of our
collaborations are exclusive and preclude us from entering into additional
collaborative arrangements with other parties in the area or field of
exclusivity.
We currently have collaborative research agreements with Bayer Corporation,
Bristol-Myers Squibb (two agreements), SmithKlineBeecham, Protein Design Labs,
Dow AgroSciences, Renessen and Bayer CropScience. Our current collaborative
agreement with Bayer Corporation is scheduled to expire in 2008, after which it
will automatically be extended for one-year terms unless terminated by either
party upon 12-months written notice. Our agreement permits Bayer to terminate
our collaborative activities prior to 2008 upon the occurrence of specified
conditions, such as the failure to agree on key strategic issues after a period
of years or the acquisition of Exelixis by certain specified third parties. Our
agreement with Bayer is subject to termination at an earlier date if two or more
of our Chief Executive Officer, Chief Scientific Officer, Agricultural
Biotechnology Program Leader and Chief Informatics Officer cease to have a
relationship with us within nine months of each other. Our MOA collaborative
agreement with Bristol-Myers Squibb expires in September 2004. Our cancer
collaborative agreement with Bristol-Myers Squibb expires in July 2004. Our
recent alliance with SmithKlineBeecham is scheduled to expire in October 2008,
but is subject to earlier termination at the discretion of SmithKlineBeecham
starting in 2005 if Exelixis fails to meet certain diligence obligations.
Research funding under our collaborative agreement with Protein Design Labs will
expire in June 2003. Similarly, funding under our arrangement with Dow
AgroSciences is scheduled to expire in July 2003, after which Dow AgroSciences
has the option to renew on an annual basis. Our collaborative research
arrangement with Bayer CropScience is scheduled to expire in September 2004.
The Bayer CropScience arrangement is conducted through a limited liability
company, Agrinomics, which is owned equally by Bayer CropScience and Exelixis.
Bayer CropScience may surrender its interest in Agrinomics and terminate the
related research collaboration prior to the scheduled expiration upon the
payment of the subsequent year's funding commitment. Agrinomics is party to a
recent collaborative agreement with Renessen, which expires in December 2005 but
is subject to earlier termination at the discretion of Renessen prior to October
2003.
If these existing agreements are not renewed or if we are unable to enter into
new collaborative agreements on commercially acceptable terms, our revenues and
product development efforts may be adversely affected. For example, our
agreement with Pharmacia Corporation terminated by mutual agreement in February
2002, which eliminated the opportunity for us to earn approximately $9.0 million
in research revenue in 2002 and 2003. Although we have entered into other
collaborations that offset this loss of revenue, we may not be able to enter
into a new collaborative agreement on similar or superior financial terms than
those under our existing arrangements, and the timing of new collaborative
agreements may have a significant effect on our ability to continue to
successfully meet our corporate goals and milestones.
CONFLICTS WITH OUR COLLABORATORS COULD JEOPARDIZE THE OUTCOME OF OUR
COLLABORATIVE AGREEMENTS AND OUR ABILITY TO COMMERCIALIZE PRODUCTS.
We are conducting proprietary research programs in specific disease, therapeutic
modality and agricultural product areas that are not covered by our
collaborative agreements. Our pursuit of opportunities in agricultural and
pharmaceutical markets could, however, result in conflicts with our
collaborators in the event that any of our collaborators take the position that
our internal activities overlap with those areas that are exclusive to our
collaborative agreements, and we should be precluded from such internal
activities. Moreover, disagreements with our collaborators could develop over
rights to our intellectual property. In addition, our collaborative agreements
may have provisions that give rise to disputes regarding the rights and
obligations of the parties, including the rights of collaborators with respect
to our internal programs and disease area research. Any conflict with or among
our collaborators could lead to the termination of our collaborative agreements,
delay collaborative activities, reduce our ability to renew agreements or obtain
future collaboration agreements or result in litigation or arbitration and would
negatively impact our relationship with existing collaborators.
We have limited or no control over the resources that our collaborators may
choose to devote to our joint efforts. Our collaborators may breach or terminate
their agreements with us or fail to perform their obligations thereunder.
Further, our collaborators may elect not to develop products arising out of our
collaborative arrangements or may fail to devote sufficient resources to the
development, manufacture, marketing or sale of such products. Certain of our
collaborators could also become our competitors in the future. If our
collaborators develop competing products, preclude us from entering into
collaborations with their competitors, fail to obtain necessary regulatory
approvals, terminate their agreements with us prematurely or fail to devote
sufficient resources to the development and commercialization of our products,
our product development efforts could be delayed and may fail to lead to
commercialized products.
OUR POTENTIAL THERAPEUTIC PRODUCTS ARE SUBJECT TO A LENGTHY AND UNCERTAIN
REGULATORY PROCESS THAT MAY NOT RESULT IN THE NECESSARY REGULATORY APPROVALS,
WHICH COULD ADVERSELY AFFECT OUR ABILITY TO COMMERCIALIZE PRODUCTS.
The FDA must approve any drug or biologic product before it can be marketed in
the U.S. Any products resulting from our research and development efforts must
also be approved by the regulatory agencies of foreign governments before the
product can be sold outside of the U.S. Before a new drug application or
biologics license application can be filed with the FDA, the product candidate
must undergo extensive clinical trials, which can take many years and may
require substantial expenditures. The regulatory process also requires
preclinical testing. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations, which could delay, limit or prevent
regulatory approval. In addition, delays or rejections may be encountered based
upon changes in regulatory policy for product approval during the period of
product development and regulatory agency review. Completion of clinical trials
may take several years or more, but the length of time generally varies
substantially according to the type, complexity, novelty and intended use of a
product candidate. We currently estimate that typical clinical trials are
completed over the following timelines:
Clinical Phase Estimated Completion Period
-------------- ---------------------------
Phase 1 1 Year
Phase 2 1-2 Years
Phase 3 2-4 Years
However, the duration and the cost of clinical trials may vary significantly
over the life of a project as a result of differences arising during the
clinical trial protocol, including, among others, the following:
- the number of patients that ultimately participate in the trial;
- the duration of patient follow-up that seems appropriate in view of
the results;
- the number of clinical sites included in the trials; and
- the length of time required to enroll suitable patient subjects.
Any clinical trial may fail to produce results satisfactory to the FDA. The FDA
could determine that the design of a clinical trial is inadequate to produce
reliable results. Negative or inconclusive results or adverse medical events
during a clinical trial could cause a clinical trial to be repeated or
development of a product or clinical trial to be terminated. The clinical
development and regulatory approval process is expensive and time consuming. Any
failure to obtain regulatory approval could delay or prevent us from
commercializing products.
Our efforts to date have been primarily limited to identifying targets and
developing small molecule compounds against those targets. Significant research
and development efforts will be necessary before any of our products directed
against such targets can be commercialized. If regulatory approval is granted to
any of our products, the approval may impose limitations on the uses for which a
product may be marketed. Further, even if regulatory approval is obtained, a
marketed product and its manufacturer are subject to continual review, and
discovery of previously unknown problems with a product or manufacturer may
result in restrictions and sanctions with respect to the product, manufacturer
and relevant manufacturing facility, including withdrawal of the product from
the market.
CLINICAL TESTING OF OUR POTENTIAL PRODUCTS MAY FAIL TO DEMONSTRATE SAFETY AND
EFFICACY, WHICH COULD PREVENT OR SIGNIFICANTLY DELAY REGULATORY APPROVAL.
Clinical trials are inherently risky and may reveal that our potential products
are ineffective or have unacceptable toxicity or other side effects that may
significantly limit the possibility of regulatory approval of the potential
product. The regulatory review and approval process is extensive and uncertain
and typically takes many years to complete. The FDA requires submission of
extensive preclinical, clinical and manufacturing data for each indication for
which approval is sought in order to assess the safety and efficacy of the
potential product. In addition, the results of preliminary studies do not
necessarily predict clinical or commercial success, and larger later-stage
clinical trials may fail to confirm the results observed in the preliminary
studies. With respect to our own proprietary compounds in development, we have
established timelines for manufacturing and clinical development based on
existing knowledge of the compound and industry metrics. We have limited
experience in conducting clinical studies and may not be able to assure that any
specified timelines with respect to the initiation or completion of clinical
studies may be achieved.
In July 2001, we acquired a cancer compound, a rebeccamycin analogue, currently
in Phase 2 clinical studies. This compound was manufactured by Bristol-Myers
Squibb, and clinical trials to date have been conducted by the National Cancer
Institute, or NCI. We will have to conduct additional clinical testing in order
to meet FDA requirements for regulatory approval. We have no prior experience
in conducting clinical trials, and, in conjunction with the NCI, we expect to
undertake further clinical development of this compound under our own IND in
order to obtain regulatory approval. We are currently in discussions with the
FDA regarding a registration clinical trial program. We may not be able to
rapidly or effectively assume responsibility for further development of this
compound or meet the requirements identified based on our discussions with the
FDA. We do not know whether planned clinical trials will begin on time, will be
completed on schedule, or at all, will be sufficient for registration or will
result in approvable products. Our product development costs will increase if we
have delays in testing or approvals or if we need to perform more or larger
clinical trials than planned. If the delays are significant, our financial
results and the commercial prospects for our products will be harmed, and our
ability to become profitable will be delayed.
WE LACK THE CAPABILITY TO MANUFACTURE COMPOUNDS FOR CLINICAL TRIALS AND WILL
RELY ON THIRD PARTIES TO MANUFACTURE OUR POTENTIAL PRODUCTS, AND WE MAY BE
UNABLE TO OBTAIN REQUIRED MATERIAL IN A TIMELY MANNER OR AT A QUALITY LEVEL
REQUIRED TO RECEIVE REGULATORY APPROVAL.
We currently do not have manufacturing capabilities or experience necessary to
produce materials for clinical trials, including for our Phase 2 clinical
compound, a rebeccamycin analogue. We intend to rely on collaborators and
third-party contractors to produce materials necessary for preclinical and
clinical testing. We will rely on selected manufacturers to deliver materials
on a timely basis and to comply with applicable regulatory requirements,
including the FDA's current Good Manufacturing Practices, or GMP. These
manufacturers may not be able to produce material on a timely basis or
manufacture material at the quality level or in the quantity required to meet
our development timelines and applicable regulatory requirements. If we are
unable to contract for production of sufficient quantity and quality of
materials on acceptable terms, our planned clinical trials may be delayed.
Delays in preclinical or clinical testing could delay the filing of our INDs and
the initiation of clinical trials that we have currently planned. In addition,
our outsourcing efforts with respect to manufacturing clinical supplies will
result in a dependence on our suppliers to timely manufacture and deliver
sufficient quantities of materials produced under GMP conditions to enable us to
conduct planned clinical trials, and if possible to bring products to market in
a timely manner.
WE HAVE NO EXPERIENCE IN DEVELOPING, MANUFACTURING AND MARKETING PRODUCTS AND
MAY BE UNABLE TO COMMERCIALIZE PROPRIETARY PRODUCTS.
Initially, we relied on our collaborators to develop and commercialize products
based on our research and development efforts. We have limited or no experience
in using the targets that we identify to develop our own proprietary products,
or developing small molecule compounds against those targets. Our recent
efforts in applying our drug development capabilities to our proprietary targets
in cancer are subject to significant risk and uncertainty, particularly with
respect to our ability to meet currently estimated timelines and goals for
completing preclinical development efforts and filing an IND for compounds
developed. In order for us to commercialize products, we would need to
significantly enhance our capabilities with respect to product development and
establish manufacturing and marketing capabilities, either directly or through
outsourcing or licensing arrangements. We may not be able to enter into such
outsourcing or licensing agreements on commercially reasonable terms, or at all.
SINCE OUR TECHNOLOGIES HAVE MANY POTENTIAL APPLICATIONS AND WE HAVE LIMITED
RESOURCES, OUR FOCUS ON A PARTICULAR AREA MAY RESULT IN OUR FAILURE TO
CAPITALIZE ON MORE PROFITABLE AREAS.
We have limited financial and managerial resources. This requires us to focus on
product candidates in specific industries and forego opportunities with regard
to other products and industries. For example, depending on our ability to
allocate resources, a decision to concentrate on a particular agricultural
program may mean that we will not have resources available to apply the same
technology to a pharmaceutical project. While our technologies may permit us to
work in both areas, resource commitments may require trade-offs resulting in
delays in the development of certain programs or research areas, which may place
us at a competitive disadvantage. Our decisions impacting resource allocation
may not lead to the development of viable commercial products and may divert
resources from more profitable market opportunities.
OUR COMPETITORS MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAKE OUR PRODUCTS AND
TECHNOLOGIES OBSOLETE.
The biotechnology industry is highly fragmented and is characterized by rapid
technological change. In particular, the area of gene research is a rapidly
evolving field. We face, and will continue to face, intense competition from
large biotechnology and pharmaceutical companies, as well as academic research
institutions, clinical reference laboratories and government agencies that are
pursuing research activities similar to ours. Some of our competitors have
entered into collaborations with leading companies within our target markets,
including some of our existing collaborators. Our future success will depend on
our ability to maintain a competitive position with respect to technological
advances.
Any products that are developed through our technologies will compete in highly
competitive markets. Further, our competitors may be more effective at using
their technologies to develop commercial products. Many of the organizations
competing with us have greater capital resources, larger research and
development staffs and facilities, more experience in obtaining regulatory
approvals and more extensive product manufacturing and marketing capabilities.
As a result, our competitors may be able to more easily develop technologies and
products that would render our technologies and products, and those of our
collaborators, obsolete and noncompetitive.
IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, THIRD PARTIES
MAY BE ABLE TO USE OUR TECHNOLOGY, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO
COMPETE IN THE MARKET.
Our success will depend in part on our ability to obtain patents and maintain
adequate protection of the intellectual property related to our technologies and
products. The patent positions of biotechnology companies, including our patent
position, are generally uncertain and involve complex legal and factual
questions. We will be able to protect our intellectual property rights from
unauthorized use by third parties only to the extent that our technologies are
covered by valid and enforceable patents or are effectively maintained as trade
secrets. The laws of some foreign countries do not protect intellectual property
rights to the same extent as the laws of the U.S., and many companies have
encountered significant problems in protecting and defending such rights in
foreign jurisdictions. We will continue to apply for patents covering our
technologies and products as and when we deem appropriate. However, these
applications may be challenged or may fail to result in issued patents. Our
existing patents and any future patents we obtain may not be sufficiently broad
to prevent others from practicing our technologies or from developing competing
products. Furthermore, others may independently develop similar or alternative
technologies or design around our patents. In addition, our patents may be
challenged, invalidated or fail to provide us with any competitive advantages.
We rely on trade secret protection for our confidential and proprietary
information. We have taken security measures to protect our proprietary
information and trade secrets, but these measures may not provide adequate
protection. While we seek to protect our proprietary information by entering
into confidentiality agreements with employees, collaborators and consultants,
we cannot assure you that our proprietary information will not be disclosed, or
that we can meaningfully protect our trade secrets. In addition, our competitors
may independently develop substantially equivalent proprietary information or
may otherwise gain access to our trade secrets.
LITIGATION OR THIRD-PARTY CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT COULD
REQUIRE US TO SPEND SUBSTANTIAL TIME AND MONEY AND ADVERSELY AFFECT OUR ABILITY
TO DEVELOP AND COMMERCIALIZE PRODUCTS.
Our commercial success depends in part on our ability to avoid infringing
patents and proprietary rights of third parties and not breaching any licenses
that we have entered into with regard to our technologies. Other parties have
filed, and in the future are likely to file, patent applications covering genes
and gene fragments, techniques and methodologies relating to model systems and
products and technologies that we have developed or intend to develop. If
patents covering technologies required by our operations are issued to others,
we may have to rely on licenses from third parties, which may not be available
on commercially reasonable terms, or at all.
Third parties may accuse us of employing their proprietary technology without
authorization. In addition, third parties may obtain patents that relate to our
technologies and claim that use of such technologies infringes these patents.
Regardless of their merit, such claims could require us to incur substantial
costs, including the diversion of management and technical personnel, in
defending ourselves against any such claims or enforcing our patents. In the
event that a successful claim of infringement is brought against us, we may be
required to pay damages and obtain one or more licenses from third parties. We
may not be able to obtain these licenses at a reasonable cost, or at all.
Defense of any lawsuit or failure to obtain any of these licenses could
adversely affect our ability to develop and commercialize products.
THE LOSS OF KEY PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL COULD IMPAIR OUR ABILITY TO EXPAND OUR OPERATIONS.
We are highly dependent on the principal members of our management and
scientific staff, the loss of whose services might adversely impact the
achievement of our objectives and the continuation of existing collaborations.
In addition, recruiting and retaining qualified scientific and clinical
personnel to perform future research and development work will be critical to
our success. We do not currently have sufficient executive management and
technical personnel to fully execute our business plan. There is currently a
shortage of skilled executives and employees with technical expertise, and this
shortage is likely to continue. As a result, competition for skilled personnel
is intense, and turnover rates are high. Although we believe we will be
successful in attracting and retaining qualified personnel, competition for
experienced scientists from numerous companies and academic and other research
institutions may limit our ability to do so.
Our business operations will require additional expertise in specific industries
and areas applicable to products identified and developed through our
technologies. These activities will require the addition of new personnel,
including management and technical personnel and the development of additional
expertise by existing employees. The inability to attract such personnel or to
develop this expertise could prevent us from expanding our operations in a
timely manner, or at all.
OUR COLLABORATIONS WITH OUTSIDE SCIENTISTS MAY BE SUBJECT TO RESTRICTION AND
CHANGE.
We work with scientific and clinical advisors and collaborators at academic and
other institutions that assist us in our research and development efforts. These
scientists and advisors are not our employees and may have other commitments
that would limit their availability to us. Although our advisors and
collaborators generally agree not to do competing work, if a conflict of
interest between their work for us and their work for another entity arises, we
may lose their services. In addition, although our advisors and collaborators
sign agreements not to disclose our confidential information, it is possible
that valuable proprietary knowledge may become publicly known through them.
SOCIAL ISSUES MAY LIMIT THE PUBLIC ACCEPTANCE OF GENETICALLY ENGINEERED
PRODUCTS, WHICH COULD REDUCE DEMAND FOR OUR PRODUCTS.
Although our technology is not dependent on genetic engineering, genetic
engineering plays a prominent role in our approach to product development. For
example, research efforts focusing on plant traits may involve either selective
breeding or modification of existing genes in the plant under study. Public
attitudes may be influenced by claims that genetically engineered products are
unsafe for consumption or pose a danger to the environment. Such claims may
prevent our genetically engineered products from gaining public acceptance. The
commercial success of our future products will depend, in part, on public
acceptance of the use of genetically engineered products, including drugs and
plant and animal products.
The subject of genetically modified organisms has received negative publicity,
which has aroused public debate. For example, certain countries in Europe are
considering regulations that may ban products or require express labeling of
products that contain genetic modifications or are "genetically modified."
Adverse publicity has resulted in greater regulation internationally and trade
restrictions on imports of genetically altered products. If similar action is
taken in the U.S., genetic research and genetically engineered products could be
subject to greater domestic regulation, including stricter labeling
requirements. To date, our business has not been hampered by these activities.
However, such publicity in the future may prevent any products resulting from
our research from gaining market acceptance and reduce demand for our products.
LAWS AND REGULATIONS MAY REDUCE OUR ABILITY TO SELL GENETICALLY ENGINEERED
PRODUCTS THAT WE OR OUR COLLABORATORS DEVELOP IN THE FUTURE.
We or our collaborators may develop genetically engineered agricultural and
animal products. The field-testing, production and marketing of genetically
engineered products are subject to regulation by federal, state, local and
foreign governments. Regulatory agencies administering existing or future
regulations or legislation may prevent us from producing and marketing
genetically engineered products in a timely manner or under technically or
commercially feasible conditions. In addition, regulatory action or private
litigation could result in expenses, delays or other impediments to our product
development programs and the commercialization of products. The FDA has released
a policy statement stating that it will apply the same regulatory standards to
foods developed through genetic engineering as it applies to foods developed
through traditional plant breeding. Genetically engineered food products will be
subject to premarket review, however, if these products raise safety questions
or are deemed to be food additives. Our products may be subject to lengthy FDA
reviews and unfavorable FDA determinations if they raise questions regarding
safety or our products are deemed to be food additives.
The FDA has also announced that it will not require genetically engineered
agricultural products to be labeled as such, provided that these products are as
safe and have the same nutritional characteristics as conventionally developed
products. The FDA may reconsider or change its policies, and local or state
authorities may enact labeling requirements, either of which could have a
material adverse effect on our ability or the ability of our collaborators to
develop and market products resulting from our efforts.
WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR
BUSINESS. ANY CLAIMS RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF THESE
MATERIALS COULD BE TIME CONSUMING AND COSTLY.
Our research and development processes involve the controlled use of hazardous
materials, including chemicals and radioactive and biological materials. Our
operations produce hazardous waste products. We cannot eliminate the risk of
accidental contamination or discharge and any resultant injury from these
materials. Federal, state and local laws and regulations govern the use,
manufacture, storage, handling and disposal of hazardous materials. We may be
sued for any injury or contamination that results from our use or the use by
third parties of these materials, and our liability may exceed our insurance
coverage and our total assets. Compliance with environmental laws and
regulations may be expensive, and current or future environmental regulations
may impair our research, development and production efforts.
In addition, our collaborators may use hazardous materials in connection with
our collaborative efforts. To our knowledge, their work is performed in
accordance with applicable biosafety regulations. In the event of a lawsuit or
investigation, however, we could be held responsible for any injury caused to
persons or property by exposure to, or release of, these hazardous materials
used by these parties. Further, we may be required to indemnify our
collaborators against all damages and other liabilities arising out of our
development activities or products produced in connection with these
collaborations.
WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS
FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE, CAUSING INVESTOR LOSSES.
Our quarterly operating results have fluctuated in the past and are likely to
fluctuate in the future. A number of factors, many of which we cannot control,
could subject our operating results and stock price to volatility, including:
- recognition of upfront licensing or other fees;
- payments of non-refundable upfront or licensing fees to third parties;
- acceptance of our technologies and platforms;
- the success rate of our discovery efforts leading to milestone
payments and royalties;
- the introduction of new technologies or products by our competitors;
- the timing and willingness of collaborators to commercialize our
products;
- our ability to enter into new collaborative relationships;
- the termination or non-renewal of existing collaborations;
- the timing and amount of expenses incurred for clinical development
and manufacturing of our products;
- the impairment of acquired goodwill and other assets; and
- general and industry-specific economic conditions that may affect our
collaborators' research and development expenditures
A large portion of our expenses, including expenses for facilities, equipment
and personnel, are relatively fixed in the short term. In addition, we expect
operating expenses to increase significantly during the next year. Accordingly,
if our revenues decline or do not grow as anticipated due to the expiration of
existing contracts or our failure to obtain new contracts, our inability to meet
milestones or other factors, we may not be able to correspondingly reduce our
operating expenses. Failure to achieve anticipated levels of revenues could
therefore significantly harm our operating results for a particular fiscal
period.
Due to the possibility of fluctuations in our revenues and expenses, we believe
that quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. As a result, in some future quarters, our
operating results may not meet the expectations of stock market analysts and
investors, which could result in a decline in the price of our stock.
OUR STOCK PRICE MAY BE EXTREMELY VOLATILE.
We believe the trading price of our common stock will remain highly volatile and
may fluctuate substantially due to factors such as the following:
- the announcement of new products or services by us or our competitors;
- the failure of new products in clinical trials by us or our
competitors;
- quarterly variations in our or our competitors' results of operations;
- failure to achieve operating results projected by securities analysts;
- changes in earnings estimates or recommendations by securities
analysts;
- developments in the biotechnology industry;
- acquisitions of other companies or technologies; and
- general market conditions and other factors, including factors
unrelated to our operating performance or the operating performance of
our competitors.
These factors and fluctuations, as well as general economic, political and
market conditions, may materially adversely affect the market price of our
common stock.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted. A
securities class action suit against us could result in substantial costs and
divert management's attention and resources, which could have a material and
adverse effect on our business.
WE ARE EXPOSED TO RISKS ASSOCIATED WITH ACQUISITIONS.
We have made, and may in the future make, acquisitions of, or significant
investments in, businesses with complementary products, services and/or
technologies. Acquisitions involve numerous risks, including, but not limited
to:
- difficulties and increased costs in connection with integration of the
personnel, operations, technologies and products of acquired
companies;
- diversion of management's attention from other operational matters;
- the potential loss of key employees of acquired companies;
- the potential loss of key collaborators of the acquired companies;
- lack of synergy, or the inability to realize expected synergies,
resulting from the acquisition; and
- acquired intangible assets becoming impaired as a result of
technological advancements or worse-than-expected performance of the
acquired company.
Mergers and acquisitions are inherently risky, and the inability to effectively
manage these risks could materially and adversely affect our business, financial
condition and results of operations.
IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE COULD FACE
SUBSTANTIAL LIABILITIES THAT EXCEED OUR RESOURCES.
We may be held liable if any product our collaborators or we develop causes
injury or is found otherwise unsuitable during product testing, manufacturing,
marketing or sale. Although we intend to obtain general liability and product
liability insurance, this insurance may be prohibitively expensive, or may not
fully cover our potential liabilities. Inability to obtain sufficient insurance
coverage at an acceptable cost or to otherwise protect ourselves against
potential product liability claims could prevent or inhibit the
commercialization of products developed by our collaborators or us.
OUR HEADQUARTERS FACILITIES ARE LOCATED NEAR KNOWN EARTHQUAKE FAULT ZONES, AND
THE OCCURRENCE OF AN EARTHQUAKE OR OTHER CATASTROPHIC DISASTER COULD CAUSE
DAMAGE TO OUR FACILITIES AND EQUIPMENT, WHICH COULD REQUIRE US TO CEASE OR
CURTAIL OPERATIONS.
Given our headquarters location in South San Francisco, California, our
facilities are vulnerable to damage from earthquakes. We are also vulnerable
worldwide to damage from other types of disasters, including fire, floods, power
loss, communications failures and similar events. If any disaster were to occur,
our ability to operate our business at our facilities would be seriously, or
potentially completely, impaired. In addition, the unique nature of our research
activities could cause significant delays in our programs and make it difficult
for us to recover from a disaster. The insurance we maintain may not be adequate
to cover our losses resulting from disasters or other business interruptions.
Accordingly, an earthquake or other disaster could materially and adversely harm
our ability to conduct business.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market, the market price of our common stock could fall. These sales
also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deemed appropriate. For
example, following an acquisition, a significant number of shares of our common
stock held by new stockholders may become freely tradable. Similarly, shares of
common stock held by existing stockholders prior to our initial public offering
became freely tradable in 2000, subject in some instances to the volume and
other limitations of Rule 144 of the Securities Act. Sales of these shares and
other shares of common stock held by existing stockholders could cause the
market price of our common stock to decline.
SOME OF OUR EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER US, AND THEIR INTERESTS
COULD CONFLICT WITH THE BEST INTERESTS OF OUR OTHER STOCKHOLDERS.
Due to their combined stock holdings, our officers, directors and principal
stockholders (stockholders holding more than 5% of our common stock) acting
together, may be able to exert significant influence over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, this concentration of ownership
may delay or prevent a change in control of our company, even when a change may
be in the best interests of our stockholders. In addition, the interests of
these stockholders may not always coincide with our interests as a company or
the interests of other stockholders. Accordingly, these stockholders could cause
us to enter into transactions or agreements that you would not approve of.
AVAILABLE INFORMATION
We maintain a site on the world wide web at www.exelixis.com; however,
----------------
information found on our website is not incorporated by reference into this
report. We make available free of charge on or through our website our SEC
filings, including our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference (as stated therein) as part of this Quarterly
Report on Form 10-Q.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 7, 2003
EXELIXIS, INC.
/s/ Glen Y. Sato
-------------------
Glen Y. Sato
Chief Financial Officer, Vice President of Legal
Affairs and Secretary
(Principal Financial and Accounting Officer)
CERTIFICATION
I, George A. Scangos, Ph.D., Chief Executive Officer of Exelixis, Inc., certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Exelixis, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 7, 2003
---------------------
/s/ George A. Scangos
- --------------------------
George A. Scangos
President and Chief Executive Officer
CERTIFICATION
I, Glen Y. Sato, Chief Financial Officer of Exelixis, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Exelixis, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 7, 2003
---------------------
/s/ Glen Y. Sato
- --------------------------
Glen Y. Sato
Chief Financial Officer, Vice President
of Legal Affairs and Secretary
INDEX TO EXHIBITS
Exhibit
Number Description of Document
- ------ -------------------------
10.41 Separation Agreement by and between Exelixis, Inc. and Robert Myers
dated March 17, 003
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (1)
- --------------
(1) This certification "accompanies" the Quarterly Report on Form 10-Q to which
it relates, pursuant to Section 906 of the Sarbanes Oxley Act of 2002, and
is not deemed filed with the Securities and Exchange Commission and is not
to be incorporated by reference into any filing of Exelixis, Inc. under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended (whether made before or after the date of the Quarterly Report
on Form 10-Q), irrespective of any general incorporation language contained
in such filing.