It's nice to have friends with money -- especially if you're a drug developer.
Exercising the option triggers a $20 million milestone payment to Exelixis. That's not chump change, but it's not going to get Exelixis to its guidance of at least $200 million in the bank at the end of the year. At the end of last quarter, it had just $135 million in cash and investments, according to remarks in a conference call. Even with the cutbacks in staff earlier this month, the company will have to sign at least one deal before the end of next month.
The good news for Exelixis investors? The press release hints that management is pretty confident it'll be able to find partners for one or more of its drugs -- perhaps one of those GlaxoSmithKline
Under the terms of their collaboration, when Bristol-Myers picks up development of a drug candidate, it triggers a $20 million milestone payment and gives Exelixis two options. It can choose to co-promote the drug and get half the profits, which would put it on the hook for 35% of the development costs, or give Bristol-Myers the drug in exchange for future milestone and royalty payments. In this case, Exelixis chose to co-develop the drug, which leads me to believe that management thinks it'll have cash coming from another source.
It's clear that in this market, cash is king. Fortunately, Exelixis has been able to change its drug candidates and drug-discovering abilities into cash fairly easily. In addition to the Bristol-Myers and Glaxo deals, it also has partnerships with Wyeth
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of Exelixis. Glaxo is a selection of the Income Investor newsletter. The Fool has a disclosure policy.