EXEL 2015.06.30 10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

THIS NOTE, AND ANY RIGHTS OF THE HOLDER ARISING OUT OF OR RELATING TO THIS NOTE, MAY, AT THE OPTION OF THE HOLDER, BE ENFORCED BY THE HOLDER IN THE COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE SOUTHERN DISTRICT OF THE STATE OF NEW YORK OR IN ANY OTHER COURTS HAVING JURISDICTION. FOR THE BENEFIT OF THE HOLDER, THE ISSUER HEREBY IRREVOCABLY AGREES THAT ANY LEGAL ACTION, SUIT OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND HEREBY CONSENTS THAT PERSONAL SERVICE OF SUMMONS OR OTHER LEGAL PROCESS MAY BE MADE AS SET FORTH IN SECTION 6.1 OF THE NOTE PURCHASE AGREEMENT, WHICH SERVICE THE ISSUER AGREES SHALL BE SUFFICIENT AND VALID. THE ISSUER HEREBY WAIVES ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED BY THIS NOTE.

Whenever this Note is held by a noteholder that is not a “United States person” within the meaning of Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the “Code”), then it is the intention of the Issuer and such noteholder that (x) all interest accrued and paid on this Note will qualify for exemption from United States withholding tax as “portfolio interest” because this Note is an obligation which is in “registered form” within the meaning of Sections 871(h)(2)(B) and 881(c)(2)(B) of the Code and the applicable Treasury Regulations promulgated thereunder, and (y) as such, all interest accrued and paid on this Note will be exempt from United States information reporting under Sections 6041 and 6049 of the Code and United States backup withholding under Section 3406 of the Code. The Issuer and the Holder shall reasonably cooperate with one another, and execute and file such forms or other documents, or do or refrain from doing such other acts, as may be required, to secure such exemptions from United States withholding tax, information reporting, and backup withholding. In furtherance of the foregoing, any Holder, transferee or assignee noteholder that is not a United States person shall represent, warrant and covenant to the Issuer that (i) such noteholder is not, and will not be as long as any amounts due under this Note have not been paid in full, a “United States person,” within the meaning of Section 7701(a)(30) of the Code; (ii) such noteholder is not, and will not be as long as any amounts due under this Note have not been paid in full, a person described in Section 881(c)(3) of the Code; (iii) on or prior to the date of transfer or assignment (and on or prior to the date the form provided pursuant to this clause (iii) is no longer valid) until all amounts due under this Note have been paid in full, such noteholder shall provide the Issuer with a properly executed U.S. Internal Revenue Service (“IRS”) Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding (or any successor form prescribed by the IRS), certifying as to such noteholder’s status for purposes of determining exemption from United States withholding tax, information reporting and backup withholding with respect to all payments to be made to such noteholder hereunder; (iv) if an event occurs that would require a change in the exempt status of such noteholder or any of the other information provided on the most recent IRS Form W-8BEN (or successor form) previously submitted by such noteholder to the Issuer, such noteholder will so inform the Issuer in writing (or by submitting to the Issuer a new IRS Form W-8BEN or successor form) within 30 days after the occurrence of such event; and (v) such noteholder will not assign or otherwise transfer this Note or any of its rights hereunder except in accordance with the provisions hereof. In the case of a Holder that is not a United States person and that, for U.S. federal income tax purposes, is treated as (A) a partnership (i) the representations, warranties and covenants set forth in the preceding sentence shall apply to such Holder and the Holder’s partners or members that are the beneficial owners of this Note for U.S. federal income tax purposes and are not United

States persons, and (ii) such Holder shall provide the Issuer with an IRS Form W-8IMY along with an IRS Form W-8BEN for each of such Holder’s partners or members (or an IRS Form W-8IMY with applicable IRS W-8BEN forms for such Holder’s partners or members) or (B) a disregarded entity, the representations, warranties and covenants set forth in the preceding sentence shall apply to such Holder’s beneficial owner. A Holder that is not a United States person and that is treated as a partnership or disregarded entity for U.S. federal income tax purposes shall, in lieu of an IRS Form W-8, provide IRS Form W-9 certifying exemption from U.S. backup withholding with respect to any of such Holder’s partners or members that are United States persons.

In order to qualify as a “registered note” for purposes of the Code, transfer of this Note may be effected only by (i) surrender of this Note to the Issuer and the re-issuance of this Note to the transferee, or the Issuer’s issuance to the Holder of a new note in the same form as this Note but with the transferee denoted as the Holder, or (ii) the recording of the identity of the transferee by the Affiliate of the Holder that is maintaining a record ownership register of this Note as agent to, and on behalf of, the Issuer. Such Affiliate in its capacity as such agent shall notify the Issuer in writing immediately upon any change in such identity. The terms and conditions of this Note shall be binding upon and inure to the benefit of the Issuer and the Holder and their permitted assigns; provided, however, that if any such assignment (whether by operation of law, by way of transfer or participation, or otherwise) is to any noteholder that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code, then such noteholder shall submit to the Issuer on or before the date of such assignment an IRS Form W-8BEN (or any successor form) certifying as to such noteholder’s status for purposes of determining exemption from United States withholding tax, information reporting and backup withholding with respect to all payments to be made to such noteholder under the new note (or other instrument). Any attempted transfer in violation of the relevant provisions of this Note shall be void and of no force and effect. Until there has been a valid transfer of this Note and of all of the rights hereunder by the Holder in accordance with this Note, the Issuer shall deem and treat the Holder as the absolute beneficial owner and holder of this Note and of all of the rights hereunder for all purposes (including, without limitation, for the purpose of receiving all payments to be made under this Note).

This Note constitutes a renewal and restatement of, and replacement and substitution for, (i) a portion equal to $16,852,000 principal amount of that certain Secured Convertible Note dated as of July 2, 2010 in the original principal amount of $47,492,000 executed by Issuer in favor of Holder, as Assignee of Deerfield Private Design Fund, L.P. and (ii) a portion equal to $27,148,000 principal amount of that certain Secured Convertible Note dated as of July 2, 2010 in the original principal amount of $76,508,000 executed by Issuer in favor of Holder, as Assignee of Deerfield Private Design International, L.P. (collectively, the “Prior Notes”). The indebtedness evidenced by the Prior Notes is continuing indebtedness evidenced hereby and nothing herein shall be deemed to constitute payment, settlement or novation of the Prior Notes or to release or otherwise adversely affect any Lien securing such indebtedness.



Delaware	04-3257395
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)



PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets – June 30, 2015 and December 31, 2014	3
	Condensed Consolidated Statements of Operations – Three and Six Months Ended June 30, 2015 and 2014	4
	Condensed Consolidated Statements of Comprehensive Loss – Three and Six Months Ended June 30, 2015 and 2014	4
	Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2015 and 2014	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	56
SIGNATURES
EXHIBIT INDEX



	June 30, 2015			December 31, 2014*
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	61,949		$	80,395
Short-term investments	14,648			63,890
Short-term restricted cash and investments	6,109			12,212
Trade and other receivables	3,758			4,882
Inventory	2,608			2,381
Prepaid expenses and other current assets	2,731			3,481
Total current assets	91,803			167,241
Long-term investments	81,598			81,579
Long-term restricted cash and investments	2,684			4,684
Property and equipment, net	1,812			2,432
Goodwill	63,684			63,684
Other assets	7,197			8,340
Total assets	$	248,778		$	327,960
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	3,398		$	6,413
Accrued clinical trial liabilities	32,572			41,545
Accrued compensation and benefits	3,249			3,350
Other accrued liabilities	15,803			12,282
Current portion of convertible notes	—			98,880
Current portion of loans payable	—			381
Current portion of restructuring	5,294			6,426
Deferred revenue	—			2,583
Total current liabilities	60,316			171,860
Long-term portion of convertible notes	291,225			182,395
Long-term portion of loans payable	80,000			80,000
Long-term portion of restructuring	3,080			4,365
Other long-term liabilities	2,345			4,169
Total liabilities	436,966			442,789
Commitments
Stockholders’ deficit:
Preferred stock	—			—
Common stock, $0.001 par value; 400,000,000 shares authorized; issued and outstanding: 196,381,220 and 195,895,769 shares at June 30, 2015 and December 31, 2014, respectively	196			196
Additional paid-in capital	1,657,626			1,652,400
Accumulated other comprehensive loss	(174		)	(121		)
Accumulated deficit	(1,845,836		)	(1,767,304		)
Total stockholders’ deficit	(188,188		)	(114,829		)
Total liabilities and stockholders’ deficit	$	248,778		$	327,960



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Revenues:
Net product revenues	$	7,992		$	6,562		$	17,380		$	11,467
Operating expenses:
Cost of goods sold	686			477			1,452			786
Research and development	24,506			50,976			46,788			105,823
Selling, general and administrative	12,789			16,466			22,320			31,157
Restructuring charge	1,291			331			860			377
Total operating expenses	39,272			68,250			71,420			138,143
Loss from operations	(31,280		)	(61,688		)	(54,040		)	(126,676		)
Other income (expense), net:
Interest income and other, net	(123		)	359			(130		)	2,490
Interest expense	(11,959		)	(12,081		)	(24,362		)	(23,843		)
Total other income (expense), net	(12,082		)	(11,722		)	(24,492		)	(21,353		)
Net loss	$	(43,362	)	$	(73,410	)	$	(78,532	)	$	(148,029	)
Net loss per share, basic and diluted	$	(0.22	)	$	(0.38	)	$	(0.40	)	$	(0.77	)
Shares used in computing basic and diluted net loss per share	196,201			194,929			196,052			193,323


ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to


*	The condensed consolidated balance sheet as of December 31, 2014 has been derived from the audited financial statements as of that date.


(1)	Other comprehensive (loss) income consisted solely of unrealized losses or gains, net on available for sale securities arising during the periods presented. There were no reclassification adjustments to net loss resulting from realized losses or gains on the sale of securities and there was no income tax expense related to other comprehensive (loss) income during those periods.



	Employee Severance and Other Benefits			Facility Charges			Asset Sales			Legal and Other Fees		Total
Restructuring liability as of December 31, 2014	$	1,290		$	—		$	—		$	47	$	1,337
Restructuring charge (recovery)	(28		)	1,220			(905		)	—		287
Cash (payments) receipts, net	(1,022		)	(207		)	1,284			—		55
Other non-cash items	—			278			(379		)	3		(98		)
Restructuring liability as of June 30, 2015	$	240		$	1,291		$	—		$	50	$	1,581



	Facility Charges
Restructuring liability as of December 31, 2014	$	9,454
Restructuring charge	573
Cash payments	(3,559		)
Adjustments or non-cash credits	325
Restructuring liability as of June 30, 2015	$	6,793



	June 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents	$	61,949	$	—	$	—		$	61,949
Short-term investments	14,780		8		(140		)	14,648
Short-term restricted cash and investments	6,041		68		—			6,109
Long-term investments	81,600		—		(2		)	81,598
Long-term restricted cash and investments	2,684		—					2,684
Total cash and investments	$	167,054	$	76	$	(142	)	$	166,988



	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents	$	80,395	$	—	$	—		$	80,395
Short-term investments	63,988		37		(135		)	63,890
Short-term restricted cash and investments	12,105		107		—			12,212
Long-term investments	81,600		1		(22		)	81,579
Long-term restricted cash and investments	4,684		—		—			4,684
Total cash and investments	$	242,772	$	145	$	(157	)	$	242,760



	Mature within One Year		After One Year through Two Years		Fair Value
Money market funds	$	67,922	$	—	$	67,922
Commercial paper	30,354		—		30,354
Corporate bonds	59,190		1,322		60,512
U.S. Treasury and government sponsored enterprises	6,109		—		6,109
Total investments	$	163,575	$	1,322	$	164,897



	June 30, 2015			December 31, 2014
Raw materials	$	1,030		$	1,118
Work in process	2,605			2,845
Finished goods	890			559
Total	4,525			4,522
Less: non-current portion included in Other assets	(1,917		)	(2,141		)
Inventory	$	2,608		$	2,381



	June 30, 2015				December 31, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
2019 Notes	$	191,597	$	245,180	$	182,395	$	156,889
Silicon Valley Bank term loan	$	80,000	$	79,926	$	80,000	$	79,943
Silicon Valley Bank line of credit	$	—	$	—	$	381	$	381


•	When available, we value investments based on quoted prices for those financial instruments, which is a Level 1 input. Our remaining investments are valued using third-party pricing sources, which use observable market prices, interest rates and yield curves observable at commonly quoted intervals of similar assets as observable inputs for pricing, which is a Level 2 input.



	March 18, 2015		December 31, 2014		January 22, 2014 (issuance date)
Risk-free interest rate	0.87	%	1.07	%	0.95	%
Dividend yield	—	%	—	%	—	%
Volatility	95	%	96	%	57	%
Average expected life	2.8 years		3.1 years		3.2 years



	Stock Options
	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Weighted average grant-date fair values	$	2.41		$	2.33		$	1.28		$	3.65
Assumptions:
Risk-free interest rate	1.27		%	1.75		%	1.20		%	1.66		%
Dividend yield	—		%	—		%	—		%	—		%
Volatility	106		%	80		%	89		%	81		%
Expected life	4.5 years			5.8 years			4.5 years			5.6 years



	June 30, 2015		December 31, 2014
Convertible Senior Subordinated Notes due 2019	$	191,597	$	182,395
Secured Convertible Notes due 2018	99,627		98,880
Silicon Valley Bank term loan	80,000		80,000
Silicon Valley Bank line of credit	—		381
Total debt	371,224		361,656
Less: current portion	—		(99,261		)
Long-term debt	$	371,224	$	262,395



	June 30, 2015		December 31, 2014
Net carrying amount of the liability component	$	191,597	$	182,395
Unamortized discount of the liability component	95,903		105,105
Face amount of the 2019 Notes	$	287,500	$	287,500



	June 30, 2015
	Level 1		Level 2		Total
Money market funds	$	67,922	$	—	$	67,922
Commercial paper	—		30,354		30,354
Corporate bonds	—		60,512		60,512
U.S. Treasury and government sponsored enterprises	—		6,109		6,109
Total financial assets	$	67,922	$	96,975	$	164,897



Balance at December 31, 2014	$	921
Unrealized loss at final re-measurement of warrants on March 18, 2015, included in Interest income and other, net	549
Transfer of warrant from Other long-term liabilities to Additional paid-in capital at their estimated fair value upon warrant repricing on March 18, 2015	(1,470		)
Balance at June 30, 2015	$	—



	Employee Stock Purchase Plan
	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Weighted average grant-date fair values	$	1.11		$	1.32		$	0.85		$	1.44
Assumptions:
Risk-free interest rate	0.07		%	0.06		%	0.10		%	0.07		%
Dividend yield	—		%	—		%	—		%	—		%
Volatility	104		%	67		%	99		%	64		%
Expected life	6 months			6 months			6 months			6 months



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Options outstanding at December 31, 2014	27,811,992		$	5.00
Granted	4,940,850		$	2.11
Forfeited	(510,043	)	$	4.72
Expired	(3,692,827	)	$	6.08
Options outstanding at June 30, 2015	28,549,972		$	4.37	4.70 years	$	21,476
Exercisable June 30, 2015	12,605,226		$	6.83	2.75 years	$	31



	Shares		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Awards outstanding at December 31, 2014	961,469		$	3.82
Awarded	205,253		$	3.08
Released	(268,400	)	$	2.11
Forfeited	(89,773	)	$	5.29
Awards outstanding at June 30, 2015	808,549		$	4.04	1.79 years	$	2,781



	June 30
	2015	2014
Convertible debt	88,008	54,123
Outstanding stock options, unvested RSUs and ESPP contributions	29,049	26,308
Warrants	1,000	1,000
Total potentially dilutive shares	118,057	81,431


•	A Study of MEHD7945A and Cobimetinib (GDC-0973) in Patients with Locally Advanced or Metastatic Cancers with Mutant KRAS (NCT01986166);


•	A Phase 1b Study of MPDL3280A (an Engineered Anti-PDL1 Antibody) in Combination with Cobimetinib in Patients with Locally Advanced or Metastatic Solid Tumors (NCT01988896);


•	Trial of Vemurafenib/Cobimetinib with or without Bevacizumab in Patients with Stage IV BRAF V600 Mutant Melanoma (NCT01495988);


•	A Study of Cobimetinib in Combination with Paclitaxel as First-line Treatment for Patients with Metastatic Triple-negative Breast Cancer (NCT02322814);


•	A Study of Neo-adjuvant Use of Vemurafenib Plus Cobimetinib for BRAF Mutant Melanoma with Palpable Lymph Node Metastases (NCT02036086);


•	A Phase II Study of Cobimetinib in Combination with Vemurafenib in Active Melanoma Brain Metastases (CoBRIM-B) (NCT02230306);


•	Neoadjuvant Vemurafenib + Cobimetinib in Melanoma: NEO-VC (NCT02303951);


•	Vemurafenib Plus Cobimetinib in Metastatic Melanoma (REPOSIT) (NCT02414750);


•	A Phase Ib, Open-Label, Dose-Escalation Study Of The Safety, Tolerability, and Pharmacokinetics of Cobimetinib and GDC-0994 In Patients with Locally Advanced or Metastatic Solid Tumors (NCT02457793);


•	A trial of Vemurafenib and Cobimetinib in Patients with Advanced BRAF V500 Mutant Melanoma (NCT2427893);


•	A Study of GDC-0973/XL518 in Patients With Solid Tumors (NCT00467779);


•	A Study to Evaluate the Pharmacokinetics and Safety of Cobimetinib in Volunteers With and Without Liver Damage (NCT02300025); and