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Executives

Charles Butler – Executive Director, Corporate Communications and IR

George Scangos – CEO and President

Frank Karbe – EVP and CFO

Mike Morrissey – President, R&D

Analysts

Edward Tenthoff – Piper Jaffray

Joel Sendek – Lazard Capital Markets

George Farmer – Canaccord Adams

Joseph Pantginis – Merriman Curhan Ford

John Sonnier – William Blair

Ziad Bakri – Cowen

Jessica Lee – Goldman Sachs

Exelixis, Inc. (EXEL) Q1 2009 Earnings Call Transcript May 7, 2009 5:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the 2009 first quarter Exelixis earnings conference call. My name is Becky, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions)

I would now like to turn the presentation over to your host for today’s call, Mr. Charles Butler, Executive Director of Corporate Communications and Investor Relations. Please proceed.

Charles Butler

Thank you for joining us for the Exelixis first quarter 2009 earnings call. Joining me on today’s call are, as usual, George Scangos, Frank Karbe, and Mike Morrissey who will discuss the company’s outlook for this Q1 2009 financial and provide an R&D update.

Before we get started, I would like to note that during our presentation today, we will be making certain statements that are forward-looking including without limitation, statements related to our expectations regarding goals, timing, and success of our business development activity, including retrospect to our K inhibitor, XL147, and XL765. Our expectations that we will have significant near term cash inflows from further business development activities, our financial objectives, our 2009 year-end financial guidance, our development plans and goals for XL184, and the other compounds in the pipeline. The therapeutic and commercial value of XL184 and our other compounds, and the execution of our business strategy.

These statements are only predictions and are based upon our current assumptions and expectations. Our actual results and the timing of events could differ materially from these anticipated and said forward-looking statements because of risks and uncertainties discussed, in materials of the company’s presentation. Comments made during this presentation, and the risk factor section of our 10-Q for the quarter ended April 3rd, 2009, and our other reports filed with the Securities and Exchange Commission. We expressly disclaim any duty to make any updates or revisions to any forward-looking statements.

And with that, I will turn the call over to George to speak.

George Scangos

Okay. Thanks, Charles, and thanks, everyone for joining us on our call this afternoon. Last November, we laid out our plans that would help us to navigate the current market turmoil. And that involved focusing on our development efforts, partnering selected programs, and effectively managing our costs. Since then, I think we’ve executed well against that plan. And as a result – even in these difficult times, Exelixis has a solid foundation, on which we can continue to build our business.

In December, we brought in $240 million in committed funding from BMS. We announced another collaboration today with Boehringer Ingelheim that brought in a $15 million upfront payment, in which has additional near term milestone. We said that we intend to sign a substantial collaboration around our PI3K programs for the first half of the year and we’re on track to do so. We’re having discussions around some of our other assets which could lead to additional collaborates of later this year or early next.

The cash inflows that we projected are materializing. Our costs are down as compared to last year, as a result of our cost-saving efforts. And we’ll continue to appropriately manage our cost, balance our operating expenses, and our financial resources. So with the cash on hand and the committed funding, we have a significant financial runway, I think, to facilitate the ongoing development of our key compounds.

A new collaboration with BMS, for XL184 and XL281 is off to a great start. Our joint team has developed a comprehensive development plan for XL184. It’s designed to maximize the medical and commercial potentials of this policy drug candidate. Suffice to say that this program is important to Exelixis and we believe that it will be a significant value driver in the near future.

Michael will provide additional detail on XL184 in a moment. But let me say that we’re encouraged with what the joint team has achieved so far this year. The great deal of momentum around this program at BMS and at Exelixis and I expect that level will increase as we generate additional medical data.

XL147 and XL765 continue to distinguish itself in the clinic as the most advanced PI3K compounds in development, as the data generated today provide the foundation for the robust partner in discussions that we’re having around those compounds. We’re actively engaged in advanced discussions with multiple parties and are encouraged by the progress we’re making. Deals under discussion include our two clinical compounds as well as our discovery stage PI3K program.

We believe a collaboration around this pathway could be substantial and allow us to maintain our leadership position based on where these discussions are today and optimistic that we’ll close one of these deals in the near future.

And as we’ve done in the past, we’re working on deals that bring in significant upfront and committed cash, and create long term value for the company, and enable aggressive development to this compound that have potential as first-in-class therapies. Again, we’re pleased with where these discussions stand and we hope to be in this position to announce the deal soon.

Now while maintaining a strong financial position and strategically partnering some of our assets – our important components of our strategy, it’s important to keep in mind that both of these goals are really a means to an end, and that end is developing and commercializing novel therapies while being clinically and commercially successful, and provide meaningful benefit to patients. Everything we do to manage our expenses, identifying our partnership opportunities, is done with an eye towards what best enable us to move product candidates aggressively through development of the clinical data we need to support approval in multiple applications.

Other compounds including XL281 and XL228 also are moving forward well and overall, the compounds in our development pipeline continue to gain recognition and generated excitement in the pharmaceutical industry and in the clinical community. And I believe that’s reflected by the fact that we have seven abstracts covering five compounds accepted in this year’s ASCO meeting. So it's first quarter of 2009 behind us, we remain on solid financial ground, making progress in our partnering efforts and advancing our key development programs.

That said, we, of course, continue to be mindful of the current economic environment, the state of the capital markets. And with the market uncertainty likely to continue, our focus is on increasing shareholder values through advancing clinical programs, signing additional partnerships, and controlling our expenses. We’ve been a close watch on cost, and managing our operational expenses, so that we can navigate the turbulence in the economy while investing prudently in our key programs.

So with that, I will turn the call over to Frank Karbe, to review the financials current for quarter.

Frank Karbe

Thanks. As George indicated, we continue to be in a solid financial position at the end of the first quarter, with a healthy cash posh position of more than $230 million, and cash and committed funding of over $400 million. We expect significant cash inflows from further business development activities and our cost base is decreasing, as we realize the benefits of various cost saving measures.

Let me now turn to our first quarter results in detail and as a reminder, we’re putting our financial results on a GAAP-basis only. And as usual, the complete press release with our results can be accessed through our Web site at Exelixis.com.

I will start with revenues. Revenues for the quarter ended March ’09 were $25.3 million, compared to $27.9 million for the comparable period in ‘08. The decrease from ’08 to ‘09, primarily reflects the decrease in revenue, due to the conclusion of various collaboration agreements, most notably, the GSK collaboration, which concluded in October ’08, and which was partially offset by revenues associated with our new cancer collaboration with Bristol-Myers Squibb for XL184 and XL281.

Research and development expenses for the first quarter ‘09 amounted to $55.3 million, compared to $66 million for the comparable period in ’08. The decrease from ’08 to ’09 primarily reflects the focusing about development efforts, decreased personnel costs due to our November ’08 restructuring, and the impact from the other cost containment measures. These were partially offset increased development activities related to XL 184 and XL281.

General and Administrative expenses for the first quarter ’09, total of $8.5 million compared to $8.7 million for the comparable period in ’08. As a result of our new collaboration with XL184 and XL281, we have a new line item on our PNL called collaboration cost sharing. The count of the sharing of expenses between us and BMS. For the first quarter ’09, the net impact of the cost sharing resulted in reimbursements due to Exelixis of $1.8 million.

As we discussed in our last earnings call, we are responsible for the first $100 of expense for XL184. However, these expenses are netted against cost incurred for XL 281, for which BMS is responsible for 100%.

For Q1 ’09, our cost for XL281 exceeded BMS’ costs for XL184. As a result, the net impact of the cost sharing was in favor of Exelixis in Q1, and we recorded a $1.8 million reimbursement. However, for the full-year, we anticipate that BMS’ cost for XL184 will exceed our cost XL281. And therefore, we anticipate to be in a net paying position by the end of 2009.

Our net loss for the quarter was $36.2 million, or $0.34 per share, compared to $41.3 million or $0.39 per share for the comparable year in ’08. The decrease in net loss is mainly attributable to decreased expenditures resulting from our effort to focus our (inaudible) development efforts, which include the discontinuation of XL 647, XL 844, and XL 820 as well as other cost containment measures.

Cash and cash equivalence, short term and long term markable securities, investments help by Symphony Evolution, and restricted cash and investments total $237.7 million at March 31, 2009, compared to $284.2 million at December 31, 2008. Our cash inflows in Q1 included the $20 million license payment from DMS and our new collaboration for XL184 and XL281.

Let me now comment briefly on our financial outlook. Our financial guidance for the full year 2009 remains unchanged. As it relates to the second quarter, I would like to remind you that we’re reaching the end of the four year term of our arrangement with Symphony Capital in June. We do not intend to repurchase the rights to any of the three components funded under these transactions. And we expect to incur a loss from the consolidation of SEI of approximately $10 million in the second quarter.

As a result of not exercising our repurchase option, we also would, in line with our original agreement with Symphony, issue 500,000 warrants to 25% premium to market for the five-year term and any remaining cash in SEI would be returned to Symphony.

Finally, I would like to comment briefly on the impact to our financial statements from the collaboration with Boehringer Ingelheim, which we announced earlier today. Under the terms of the agreement, we will receive a $15 million upfront payment and up to $339 million in milestone payments as well as royalties, on the sale of products commercialized under the collaboration. We expect to recognize the upfront payment as license revenue in 2009. Any milestone payments are expected to be recognized upon achievement as contract revenue.

So in summary, we continue to operate on a strong financial basis with cash and committed funding of over $400 million and a reduced cost base as a result of our ongoing cost containment efforts. Moreover, we expect to bring in more new term cash to with additional partnerships. So all in all, we are well under way in executing our strategy to enable us to operate free other capital markets for an extended period of time, and importantly, we have the financial resources to aggressively develop compounds in our pipeline, especially XL184, with our partner BMS.

With that, I’ll turn the call over to Mike.

Mike Morrissey

Thanks, Frank. This is a critical and an exciting time for the Exelixis’ R&D organization and pipeline. As George mentioned, XL184 remains our top priority. We have several other promising compounds that are being evaluated in the course.

XL184 is quickly moving into a critical phase of its development, as we, in conjunction with BMS, advance the ongoing Phase III trial in medullary thyroid cancer or MTC and the Phase II trial in glioblastoma or GBM. Our PI3Kprogram, which includes the clinical compounds XL147 and XL765 in earlier pre-clinical programs focusing on PI3K isoform selected inhibitors, continues to make significant progress. Our PI3K assets are attracting significant interest from a number of potential partners, in large part because these compounds are the most advanced clinically from a competitors’ perspective, and target a pathway that is clearly recognized as an essential mediator to tumor growth, proliferation, and survival.

Our earlier stage compounds and programs continue to progress as well. The new S1P1 deal we just announced with Boehringer Ingelheim is a testament of the strength of our drug discovery team to generate a wide variety of high quality compounds. We look forward to working with Boehringer through the S1P1 program.

.

Our immediate focus is prepping for ASCO that starts at the end of the month. Like last year, we will have a significant presence at this meeting, where we are scheduled to present seven abstracts, covering five compounds. There will be three successive poster presentations for XL184 on Sunday, May 30. These posters will present an update on the clinical data, test their imaging analysis, and bio market data from the Phase II clinical trial in relapse GDM patients. We’ll also have two oral presentations that will provide clinical updates on the Phase I trial of XL281, which is out-licensed to BMS, and XL228 on Sunday, May 30. In addition, oral presentations for our PI3K inhibitors XL147 and XL765 will be part of a special session on PI3K pathway inhibition on Monday, June 1.

I’d like to point out that this is the second year in a row that ASCO has selected data from our PI3K program for oral presentation, and I think this reflects both the enthusiasm in the ecology community around PI3K as a target for cancer therapy and the interest in particular XL147 and XL765.

These compounds, which are both in phase I-B and II trials are among the most advanced PI3K inhibitors in clinical development. We believe we have established a leadership position in this target class. And I think you’ll see that reflected in the data that will be presented in ASCO later this month and in the terms of a partnership we expect to sign in the near future.

With ASCO coming in a few weeks, I’ll keep today’s R&D update brief. Information about the specific presentation dates and times for our various ASCO aspects are available on the Exelixis Web site. Our ASCO data briefing will be held on Monday, June 1 at 6:30 PM.

Let me turn briefly to XL184 in a little more detail. We are pursuing multiple registration paths that are emerging for this promising compound. Improvement for the Phase III MTC trial is ongoing and we continue to open additional trial sites in Europe, which should add into our ongoing recruitment centers. BMS have also agreed on a broad development plan for XL184 that will explore multiple indications with significant commercial potential. We plan to begin rolling out these trials this summer.

GBM is a significant under-served market, and patients have few satisfactory treatment options after surgery and first line angio and chemotherapy. We believe there's an emerging opportunity for XL184 and GBM. The FDA granted accelerated approval of Avastin based on response rate and duration of response.

Based on the FDA’s decision and the benefit demonstrated by Avastin, we believe this decision is a positive outcome for other compounds like XL184 that may demonstrate meaningful effects and improvements in this difficult to treat indication. We continue to be encouraged by the preliminary data from the ongoing Phase II trial of XL184 and GBM. As a reminder, this trial included 46 second to third line GBM patients with advanced disease that have progressed on prior therapy and may have included anti-angiogenic therapy.

As we stated in our last call, we have amended the protocol to enroll an additional 100 patients, and this amendment is currently at multiple trial sites, and we anticipate that enrollment will commence soon.

So we leave there for now, as we'll have several opportunities over the next few weeks to discuss our compounds in more detail, as this data is presented. And with that, I'll turn the call to George.

George Scangos

Thanks, Michael. We're excited about our clinical programs and the opportunities that we have in ASCO to share more data with all of you and within all these communities. Given our good financial position, the partnering opportunities in our pipeline, I think we're well positioned to succeed in this quite difficult environment. Exelixis reports advancing towards multiple registration paths and our other compounds are moving forward as well. We have a substantial cash position and we continue to be encouraged by our ongoing partner in discussions.

Finally, I just like to take the opportunity to thank the Exelixis employees for continuing to work hard and produce at a high level, as we implemented our cost and payment plan. I know that these measures can generate a difficult environment. I think the team has successfully navigated the past few months by keeping focus on our mission. I think we’re moving into the second quarter with a great deal of positive energy and momentum.

And with that, we'll stop talking and be happy to open up the call for questions.

Question-and-Answer Session

Operator

(Operator instructions) And your first question comes from the line of Edward Tenthoff of Piper Jaffray. Please proceed.

Edward Tenthoff – Piper Jaffray

Great, thank you very much. Just one quick clarification on Frank's comment on Boehringer upfront and congrats on that deal, guys. Will that be on the second quarter? You said 2009 specifically.

Frank Karbe

Yes, well, we expect to recognize the entire upfront payment as revenue in the later part of this year.

Edward Tenthoff – Piper Jaffray

Okay, later part of this year. Great. And then Mike, you’ve said that the Avastin approval in glio certainly interesting based on the data that was presented. You see that as kind of a positive, how much that changed the landscape either for specifically for your compound, but just in terms of actually looking at pivotal studies and paths for illustration, does that actually make it more difficult to enroll patients or a higher bar, how do you kind of look at that in that way?

Mike Morrissey

Let me just comment on that briefly. I think first of all, the FDA’s decision to grant accelerated approval for Avastin and GBM is really great news for patients with this horrible disease and their families and caregivers. So it’s a big step forward for that population. The (inaudible) access clearly plays an important role in the tumor biology of GBM and Avastin is active in access at any good – we sort of look at other targets, other pathways are at play there and we think MET is very important member of that class family of targets that could actually help with GBM.

As we talked about preciously, MET is widely expressed and activated in many GBM tumors, and make – importantly continues to play an important role in driving that invasive phenotype that is seen in many patients with advanced disease. So I think you’ll see more about that in terms of the role that MET might play in GBM at our bio-market poster at ASCO in a few weeks.

Frank Karbe

I guess we were not overly surprised by the approval that was granted this week. So we've been tracking that area very closely, even before the ODAC meeting based on last year’s ASCO data. It was a pretty strong movement towards that being adopted as a model that could work in GBM. So we expected to see Avastin get accelerated approval based on improved – if you were looking at historical controls, but still from what modest increases in response rate and the ratio of response.

So I think my point of view, we're optimistic that other agents like XL184 could fair well in similar trials with equivalent populations and beat us, and I mention that, Avastin has not demonstrated any signal from the point of view of survival and that's still the gold standard from the perspective of full approval.

So from our point of view, there's a lot of enthusiasm for XL184 in the GBM setting. Certainly, investigators that we have on the Phase II trial are behind that and we're able to roll the first 46 patients rather quickly. The amendment is in for next hundred and we added more sites there, so I think that will go relatively quickly as well. If all goes well in terms of the data that we will get from that trial, we would expect to initiate pivotal trials in GBM and towards the end of this year or early in 2010. Frank?

Edward Tenthoff – Piper Jaffray

Well, thanks and I'll see you down in Orlando.

Operator

And your next question comes from Joel Sendek with Lazard Capital Market. Please proceed.

Joel Sendek – Lazard Capital Markets

Thanks a lot. First, on the partnering front, on the fourth quarter call you said that, if my notes are correct, there are several collaborations that fit into your ASCO. So I’m wondering, with BI in the bag and PI3K PO pretty closed. Should we expect anything more for the rest of the year or is anything else baked into the guidance for the year?

George Scangos

Yes, Joel this is George. With the ideal amount and the PI3K discussions entering the final lap here, we are having a number of other ongoing discussions. We're not in any urgent need of cash. And so we will take those as they come. We have a number of earlier assets, XL228 which will be presented at the ASCO. And you'll see at ASCO, it has a very nice data set, backlog partner. XL888, which is a very nice (inaudible) HSP90 inhibitor is moving forward. We've had substantial interest in that compound.

We have XL388, which is a very nice mTOR inhibitor, moving forward in a number of earlier stages of discovery capabilities. There are – there is interest in each of those from multiple parties. We’re having those discussions but we’ll take them as they come. We don’t need to sign any more near term. We may when it comes around.

Joel Sendek – Lazard Capital Markets

Okay, then that two quick follow ups. On the BI deal, how much of the 335 is pre-commercialization, with just round numbers if you could help us or percentages?

Frank Karbe

Yes, we haven’t broken that out, Joe, so we can’t really comment.

Joel Sendek – Lazard Capital Markets

Okay, let me try one more. On the data at ASCO for XL184, can you tell us how many patients approximately we’ll see?

Frank Karbe

The clinical update will contain this full 46 patients that were enrolled in the additional part of that Phase II trial.

Joel Sendek – Lazard Capital Markets

Okay. Great. My final question is on housekeeping on the cost sharing, that new line you have on the income statement. Do you write in or receive a check each quarter, or is this a yearly throughout? How does that work?

Frank Karbe

It works on a quarterly basis.

Joel Sendek – Lazard Capital Markets

Okay. So that actual cash that you write out or bank depending on how it breaks down?

Frank Karbe

That’s correct. And in the first quarter, we’ve received a check from BMS of $1.8 million.

Joel Sendek – Lazard Capital Markets

Okay. Great. Thanks a lot.

Operator

And your next question comes from the line of George Farmer with Canaccord Adams. Please proceed.

George Farmer – Canaccord Adams

Thanks for taking my question. I’m assuming that GBM is one of the indications that you and BMS are moving forward with 184. Is that correct?

Frank Karbe

That’s one of the indications that we are currently pursuing as a collaboration and so we have development plans evolving there. Yes.

George Farmer – Canaccord Adams

Okay. And so given the requirements for getting Avastin approved in GBM. It sounds like this Phase II study, a sufficient number of patients are treated could be a pivotal study. Is that fair? Is that a worthy conjecture?

Frank Karbe

Well, I wouldn’t characterize it as a pivotal study. Certainly, we’re looking into expand the data sets in the second line GBM study with the extra patients. And depending upon how that data looks, there were potential regulatory options.

The one we have right now is probably premature from the standpoint of pre-ASCO, pre-data, all that kind of stuff like that. We’re certainly looking at it very opportunistically, depending upon how the data works out.

George Farmer – Canaccord Adams

Okay. And Frank, you’ve been pretty dead-on with your guidance in years past so far. Looking at the run rate based on the first quarter revenue in your guidance for 140 to 170, I believe, in revenue this year. And then even with the BI deal, it doesn’t seem like you’re on that kind of on track to hit that guidance. So I’m assuming that these other business development deals you have in the works are going to make up for that crutch. Is that fair to assume?

Frank Karbe

That’s a good observation and a correct observation, George. I think all our revenues are in a quarterly basis increased for the remainder of the year that and that will very much be a function of other business developments and deals that we put in place.

George Farmer – Canaccord Adams

Okay. Great. Thanks very much.

Operator

And the next question comes from the line of Joseph Pantginis with Merriman Curhan Ford. Please proceed.

Joseph Pantginis – Merriman Curhan Ford

Hi, guys. Congratulations on the BI deal and thanks for taking the question. When you talk about controlling cost, other than the potential inflow of revenues from new deals, et cetera, do you have any other color as to what you mean by controlling cost?

And then the second question that I have is regarding the XL228 compound, I know that’s in the early stage at this point, but do you have any current plans with regard to what the product’s profile might be? Would you go after CML as an initial indication or is it too early to tell? Thanks a lot.

Frank Karbe

As it relates to the first question on controlling cost, there are number of elements in play there. The significant one is if we patent a program, we typically offload a substantial portion of the development expenses associated with it. We’ve seen that with BMS deal, where we’ve offloaded 65% of the expenses for XL184. 100% of the expenses were XL281. With the transfer of XL880 to GSK last year, we’ve obviously offloaded a lot of development expenses.

And with the deal we have just signed with Boehringer Ingelheim, it’s the same. We’ve uploaded future development expense programs and with regards to the PI3K program, the PI3K deal that we’ve alluded too. We expect a similar expense upload.

On top of that, we have taken a variety of cost containment measures, which we initiated last year. They’re ongoing. And if you would look into our financial disclosures in detail, you will see that we have a reduction in our cost base across the board. I can tell you our T&E expenses, our lab supply expenses, and so forth, they have all come down as result of us being much more focused on our expenses.

Joseph Pantginis – Merriman Curhan Ford

Great, thanks a lot. And on the XL228 potential product profile at this point?

Frank Karbe

Yes, the current plans right now, the ASCO data will highlight the activities of the compounds and the experience of the compounds in patients with solid tumors. We also have a case of one trial going again, as we mentioned, in the refractory CML population. That will not be discussed at ASCO in a few weeks.

We have multiples – cohorts that are going to start enrolling in terms of the MTD expansion cohort for the solid tumor trial around that small cell lung cancer, multiple myeloma, and colorectal cancer that will allow us in the context of the solid tumor approach and coupled with the activities going on within CML, to be able to focus developments into a go or no go, and then focus our development activities into one or two of those populations by the end of the year.

So, work’s in progress. The data set that we’ll see at ASCO is very encouraging and I think, by the end of the year, we would have enough data in these expansion cohorts to feel good about the plan that we have on forward in Phase II.

Joseph Pantginis – Merriman Curhan Ford

Great. Thanks a lot, guys.

Operator

And your next question comes from the line of John Sonnier of William Blair. Please proceed.

John Sonnier – William Blair

Thanks for taking the question and congrats on a lot of good progress over there. My question is about the Bristol relationship and I guess it’s probably for George or Michael.

XL184 is getting a lot more visibility. It seems to be gaining momentum. It will be highly visible at ASCO. Does this product and other in that relationship move forward? How are you structured to handle clinical direction, dispute resolution, and how much input are you guys going to have in that process? And how should we think about that going forward?

Mike Morrissey

Yes, John. It’s Mike. We have a very solid long term relationship with BMS. It covers the entire continuum of activities and components of their business and our business from an R&D point of view. So we have an exceedingly good relationship to be able to advance the program in a truly joint fashion. We are talking with them and working with them through all the formal type committees as well as a large number of very strong personal relationships that allow us to navigate the complexities of any collaboration around development plans and things that come from that.

So I think the organizations are aligned and really working as a single team when it comes to XL184, around the same set of goals. It’s been marvelous over the last number of years and it continues to work extremely well as we go forward with this new opportunity.

John Sonnier – William Blair

George, do you want to comment on this?

George Scangos

We’ve been working with BMS for ten years, just about now. And this is our eighth collaboration, I believe. So we’ve worked with them, as Mike said, for a long time. We have a great relationship. I think the teams have done a great job of working together to formulate a development plan for XL184, and we continue to talk with them frequently as the new data comes in, and I don’t anticipate any issues there. It has truly been a joint effort and I expect that it will continue to be so.

John Sonnier – William Blair

Okay. I appreciate that. Thank you.

Operator

And your next question comes from the line of Ziad Bakri of Cowen. Please proceed.

Ziad Bakri – Cowen

Hi guys. Thanks for taking my question. My question is on the expense line. I know that you guys have cut-cost a lot in the first quarter. Guidance for operating expenses is still $290 million to $320 million for the year, and that obviously goes for quite a big ramp in Q1 over the rest of the year. I just wondered maybe if you could give us a little more color on why you expect higher expenses to be coming in.

Mike Morrissey

Yes, we can comment on this. I think the increase in expenses that you alluded to is expected to come mainly from a ramp-up in the XL184 program. As you know, with the beginning of the collaboration with BMS, we have been working over the last few months to develop the development plans for this compound, and we expect that a significant amount of activity will be initiated in the later part of the year.

Keep in mind, though, that a large portion of those expenses this year and next year in particular, will actually be borne by BMS. The general principle here is that 65% of the cost will be covered by BMS and 35% covered by Exelixis. You may recall on the last call, like I said, that our operating expense for 2009 may be at the same level in its totality to what it was last year, but the portion of the operating expense that we have to cover ourselves is actually coming down quite significantly. And that’s directly an impact of our strategy here to tighten more of our programs and reflect the structure of those partnerships that we have put in place.

Ziad Bakri – Cowen

Okay, thanks. And then question on XL184, could you just update on how enrollment is going in the medullary thyroid cancer trial? And maybe also, you talked about investigating XL184 and several different other indications. Apart from GBM and thyroid, what else do you guys look now?

Mike Morrissey

Yes, the XL184 pivotal trial on MTC enrollment is in line with our expectations. They mentioned in the remarks that we continue to add sites in Europe where we expect to see a good ramp-up in enrollment there as well. In terms of the broad development program with XL184, we have a very interesting and broad signal searching Phase II program that we’ll roll out in the early summer time frame that will allow us to look for signals in a variety of different tumor types, and use that to rapidly consider other histologies then to move forward in terms of our priority for potential optical trials.

So again, I think the interest in the compound is broad. Obviously, we see a signal in the MTC population, and we are certainly excited about what we’re seeing to date in GBM. So the compound clearly has a level of clinical activity and we’re really very excited to be working with BMS to expand the possibilities from the tumor type perspective.

George Scangos

Yes. Maybe I can just add something there. We saw, and you have seen a lot of the data on the initial cohort of patients from the MTC trial or the compound had a very high response rate, very good disease control rate, long lasting responses. We’re encouraged by the GBM data that will be out at ASCO in a few weeks.

From the Phase I data, there were good anecdotal suggestions that the compound was having beneficial effects on patients with a variety of other tumors, and certainly based on the mechanism of the compound, you would expect that to be the case. And so we are quite enthusiastic about the potential of this compound. Beyond thyroid cancer and beyond GBM, it’s a multiple tumor type. So that’s what we will be exploring.

Ziad Bakri – Cowen & Company

Great. Thanks.

Operator

(Operator instructions) And your next question comes from the line of Jessica Lee of Goldman Sachs. Please proceed.

Jessica Lee – Goldman Sachs

Thanks for taking my questions. First, going back to XL184 for GBM, just wondering whether you have thought about potential combination with Avastin?

Mike Morrissey

Yes, absolutely. That’s one of the many potential interesting combinations that we’ve considered in terms of a variety of targets, pathways, approaches that might make sense in the context of the generic lesions that really sort of drive that tumor type. So that’s certainly one that we think might be interesting to pursue.

Jessica Lee – Goldman Sachs

Okay. Then on your S1P1 agonist program, how is it – how are your compounds different from Novartis compounds?

Mike Morrissey

I’ll answer that question. That’s somewhat of a high level just with respect to the confidentiality around the program with BI, our new partner. I would say the features and compounds that are now in advanced pre-clinical testing have the typical Exelixis drug discovery phenotype of high potency against the target of interest in this one, S1P1-R, high level of selectivity amongst the different S1P subtypes, very good exposure and one dose orally, good overall PK properties, long pharmacodynamic duration of action, and good emerging signs of efficacy from the samplings of various disease models.

So I think, overall we’re excited about the profile. We think the selectivity here is relatively important based upon the experience with FGY-720. And again, we’re excited to be able to work with Boehringer to move these compounds forward.

Jessica Lee – Goldman Sachs

So shall we assume that your program or your compounds might be superior to FGY-720?

Mike Morrissey

Well, they look really good pre-clinically, that’s the first step in the process, and then we have to move them into the next level, if you will, to understand how they might behave in that setting as well.

Jessica Lee – Goldman Sachs

Great. Thank you.

Operator

There are no further questions at this time. I would like to turn the call back over to you, gentlemen, for closing remarks.

George Scangos

Okay. Well, thanks everybody. I appreciate you interest in the call. I know there are a lot of calls going on at the same time. And we look forward to seeing you all at ASCO in a few weeks.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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Source: Exelixis, Inc. Q1 2009 Earnings Call Transcript
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