- California biotech Exelixis Inc. cleared its books of most of its remaining debt, making a planned early repayment of $123.8 million to retire a series of convertible notes issued seven years ago to entities associated with Deerfield Management Company.
- The repayment, completed one year ahead of the July 2018 maturity date, will save Exelixis about $12 million in interest expenses, the company estimated.
- "Over the course of the last year, Exelixis has retired more than $490 million of corporate debt, significantly de-levering its balance sheet and enabling the company to plan for its future, which includes maximizing the opportunity for Cabometyx to help patients, while also planning for the next generation of Exelixis medicines," said company CEO Michael Morrissey in a statement.
Exelixis product revenues have surged following the commercial launch of its kidney cancer drug Cabometyx (cabozantinib) in April 2016. Sales of the drug totaled $69 million in the first quarter of this year, giving the South San Francisco biotech a stronger cash position to pay down some of its debt.
Prior to retiring the Deerfield convertible notes, Exelixis in March had repaid the $80 million outstanding under a term loan with Silicon Valley Bank.
Wiping the Deerfield indebtedness clean will delever Exelixis balance sheet, at the cost of eating up a good portion of the company's cash and short-term securities holdings.
Exelixis held $183 million in cash and equivalents as well as $241 million in short-term investments as the end of March, according to a filing with the Securities and Exchange Commission.
While repaying early gives Exelixis more financial flexibility and saves interest costs, the hit to the company's cash holdings comes with an opportunity cost — i.e. less immediate money to invest in marketing Cabometyx now.
"Our commitment of cash resources to the prepayment of the Deerfield Notes could limit our ability to fund our current and future operating plans, which in turn could require us to raise additional funds," Exelexis stated as a caution in its SEC filing.
Exelixis is betting higher underlying operating cash flow, boosted by Cabometyx revenues, will provide the financial firepower to fund continued growth.
Operating cash flow for the first quarter actually fell by $88 million compared to the same period a year ago, but that was mainly due to a $200 million upfront payment Exelixis received from the French drugmaker Ipsen in the first quarter of 2016. Net income, on the other hand, swung from a near $60 million loss then to a $16.7 million gain in the more recent period.
If product revenues continue to grow steadily, Exelixis will be in a better position to funnel that money towards resumption of discovery operations and possible in-licensing of other assets down the road — opportunities Morrissey alluded to in the company statement on the repayment.