A Bird in the Hand for Exelixis

If only the mice in my basement were worth as much as Exelixis' (Nasdaq: EXEL  ) rodents.

On Tuesday, the Rule Breakers pick announced that it had raised $20 million by selling an 80% stake in its mouse models discovery business to privately held Taconic Farms.

Exelixis hasn't exactly been selling the types of mice you can get at your friendly neighborhood pet store. Basically, the company's Germany-based mouse models business develops genetically modified mice that are specially designed to have drugs tested in them. Mice and other animals are used in preclinical drug development before humans receive drug candidates in phase 1 and later clinical-stage trials.

Exelixis has raised $110 million in 2007 from this deal, a $72 million dilutive financing in September, and an $18 million sale of its plant trait business to Dow Chemical in August. All that won't do much to lengthen its cash reserves, though, since the company is expecting $260 million to $290 million in operating expenses for the year, and these costs are only likely to go up in 2008.

Exelixis's guidance is for "at least" $270 million in cash and investments at the end of the year. Another $35 million cash infusion could be coming in December, if partner GlaxoSmithKline (NYSE: GSK  ) chooses to take over development of phase 2 cancer compound XL880. But this extra cash wouldn't be added to Exelixis' balance sheet; it would be used to partially pay back an earlier loan from GSK.

There's no indication of how important a role this mouse model business plays in Exelixis' drug discovery activities. Exelixis' mouse model subsidiary generated nearly $8 million in sales last year to academic institutions and other drugmakers, but it ultimately lost $100,000. Earnings shouldn't be hurt by Exelixis' sale of a majority stake.   

Other development-stage drugmakers, like Pharmacopeia (Nasdaq: PCOP  ) and Rule Breakers pick Array BioPharma (Nasdaq: ARRY  ) also have pretty productive drug-discovery businesses. As it is still retaining "preferred access" to the mice produced from the company, the sale of this business likely won't have any impact on Exelixis' industry-leading drug-discovery research.


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