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Exelixis, Inc. (NASDAQ:EXEL)

Q4 2013 Results Earnings Conference Call

February 20, 2014; 05:00 p.m. ET

Executives

Michael Morrissey - President & Chief Executive Officer

Frank Karbe - Chief Financial Officer

Scott Garland - Chief Commercial Officer

Gisela Schwab - Chief Medical Officer

Charles Butler - Vice-President of Investor Relations

Analysts

Eric Schmidt - Cowen & Company

Joel Sendek - Stifel Nicolaus & Co.

Ted Tenthoff - Piper Jaffray

Whitney Ijem - JPMorgan

Michael Schmidt - Leerink Partners

Biren Amin - Jefferies & Company

Lee Kalowski - Credit Suisse

Echo He - The Maxim Group

Terence Flynn - Goldman Sachs

Operator

Good day ladies and gentlemen and welcome to the Exelixis, Inc. Q4 and financial results conference call. My name is Whitney and I will be your operator for today.

At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder this call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Charles Butler, Vice-President of Investor Relations. Please proceed.

Charles Butler

Thank you for joining us for the Exelixis’ fourth quarter and full year 2013 financial results call. Joining me on today’s call are Mike Morrissey, our President and CEO; Frank Karbe, our CFO; Scott Garland, our Chief Commercial Officer; and Gisela Schwab, our CMO, who will together review our corporate, financial and development progress for the quarter and year ended December 31, 2013.

They also will discuss part of the activities for 2014 and provide an update on ongoing clinical development activities for cabozantinib and the commercialization of COMETRIQ.

As a reminder we’re reporting our financial results on a GAAP basis only and as usual the complete press release with our results can be accessed through our website, at exelixis.com.

During the course of this presentation we will be making forward-looking statements regarding future events or the future performance of the company, including statements about possible future developments regarding clinical, regulatory, commercial, financial and strategic matters. Actual events or results of course could differ materially. We refer you to the documents that Exelixis' files from time to time with the Securities and Exchange Commission, and in particular the company’s Annual Report on Form 10-K filed today, February 20, 2014.

These documents contain and identify, under the heading Risk Factors, important factors that could cause actual results to differ materially from those contained in any forward-looking statements, including the availability of data at the referenced times, risk and uncertainties related to the initiation, conduct and results of clinical trials, the risk that unanticipated development could adversely impact the launch, commercialization, distribution and availability of COMETRIQ; the degree of market acceptance of and reimbursements for COMETRIQ, risks and uncertainties related to compliance with applicable regulatory requirements and market completion.

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

Mike Morrissey

All right, thank you Charles and thanks to everyone for joining us on the call today. We’re off to a busy start in 2014 and continue to focus on our key clinical, commercial and financial priorities.

As we have discussed previously, 2014 is a critically important year for Exelixis as we expect to achieve multiple clinical and corporate milestones that could be truly transformational if positive.

Exelixis remains focused on a single mission, to provide new treatment options for patients with new and diverse types of cancer, including prostate cancer, renal cancer, liver cancer and others, by investigating the potential of cabozantinib as an important oncology therapy. The entire Exelixis team is working with laser light focus couple with a high degree of urgency and dedication to help us build a franchise around the Cabozantinib opportunity.

Before handing the call over to Scott, Gisela and Frank for a review of our commercial development and financial highlights, I’ll take a few moments to outline our status at a high level. First, we are investing cabozantinib and cobimetinib in six global randomized pivotal trials. We discovered each of these compounds internally. We wholly own cabozantinib and are evaluating it in five pivotal trials for patients with prostate cancer, renal cancer, liver cancer and medullary thyroid cancer.

Cobimetinib, our MET inhibitor is partnering with Roche-Genentech. It’s in a pivotal trail named coBRIM in combination with Zelboraf in first line patients with BRAF mutation positive metastatic melanoma.

Second, we expect top line data from four of these pivotal trials in 2014. For cabozantinib we project having overall survival or OS data from COMET-1 and pain palliation data from COMET-2 in 2014, as well as OS data from the MTC exam trial.

In addition, Roche-Genentech confirmed guidance on their recent year-end 2013 call that they expect to have top line data and pursue regulatory filings for cobimetinib from the coBRIM study in 2014.

Third, we continue to advance on appropriately limited commercial effort for COMETRIQ in progressive metastatic MTC, while pursuing additional, potentially larger commercial indications. We remain firmly committed to getting this drug to MTC patients in need of additional therapeutic options on a global basis.

We received a positive CHMP opinion for COMETRIQ and MTC in December 2013 and hope to secure EMA approval shortly. COMETRIQ EU, MTC marketing and NPU activities will be coordinated by our distributor Swedish Orphan Biovitrum or Sobi as discussed previously.

The MTC commercial effort is an important first step towards building a global commercial presence. It helps us gain valuable experience as a commercial organization, so we are ready to launch cabozantinib rapidly and effectively in potentially larger commercial indications, if the date from our clinical trails enables us to do so.

Fourth and last, we believer we are in a solid financial position by focusing the company’s activities and operating expenses narrowly and intensively on cabozantinib. A small financing will be completed in January, coupled with the amendment of the Deerfield financing arrangement that gave us an option to extend its maturity until 2018, has extended our runway to the readouts of the RCC pivotal trail.

So we had a productive year in 2013 and are looking forward at 2014 as a transformational year for Exelixis. Our top priorities for 2014 include first, top line data readouts for the COMET studies; second, working towards submitting regulatory filings assuming positive COMTE data; third, expediting the enrolment of METEOR, our second line RCC trial as our highest enrolment priority; and fourth, initiating our commercial build out supporting the prostate cancer indication in the U.S. and EU and give positive COMET data.

So before we get on with the rest of the call I want to welcome Jeff Hessekiel to Exelixis as EVP and General Counsel. With over a decade of corporate and commercial experience specific to the biopharma industry, most of it gained in senior roles at Gilead, Jeff has the experience and background to help Exelixis navigate the opportunities and challenges that lie ahead of us as a global, commercial organization.

So with that, I’ll turn the call over to Scott for a review of our commercial efforts in the fourth quarter. After Scott, Gisela will briefly review our cabozantinib development activity and Frank will wrap-up with our financial update. We’ll then be happy to open the call for questions. Scott.

Scott Garland

Thanks Mike. COMETRIQ net revenues in the U.S. increased in the fourth quarter by 8%, drawing form $4 million to $4.3 million. Total worldwide COMETRIQ net revenues in the fourth quarter were also $4.3 million, which obviously reflects U.S. product sales only with no additional products purchased by our European distributor Sobi in the fourth quarter.

Product sales to Sobi to date have been to satisfy request for main patient use, which unpredictable. We expect Sobi to resumed purchases in Q1 as a positive CHNP recommendation in December may facility the approval of making penitent use program in countries such as France and Italy. All year worldwide that product revenue were $15 million.

We estimate our current penetration in MTC in the U.S. to be approximately 70% to 80%, which is quite high, especially for a drug that’s only been on the market for about a year. Given our high penetration, we expect MTC growth in the U.S. to remain modest for 2014. We expect additional growth going forward in MTC will come primarily from Europe.

Before moving into additional details around Q4 performances, we are taking a moment to provide some additional color commentary on the revenue growth seen in the fourth quarter. First, let me provide some perspective.

We’ve been saying all along that MTC is a small market opportunity and if the risk is definitely obviously the revenue numbers we’ve been providing on a quarterly basis reflect that. Of course the metric is an important treatment option for progressive metastasis MTC patients and we gladly have an opportunity to provide the drug to appropriate patients. We are talking about small numbers here.

Second, based on our current penetration estimate in the U.S., it appears that we got out to the gate quickly and achieved a relatively high penetration early in our approval. As I mentioned earlier, I would therefore expect growth going forward to be modest in the U.S. Finally with a market this small, sales will fluctuate accordingly, especially given the unpredictability of main patient used in Europe.

Overall, I’m satisfied with our commercial performance in 2013 and we will continue to appropriately drive MTC sales in 2014. My team’s focus has shifted towards planning for a prostate, so that we are ready to launch cabozantinib rapidly and effectively if the data from our customer studies and regulatory approves enables us to do so.

Now moving back to other measures of our Q4 performance. Our brand awareness amongst target oncologists is now 90% and overall custom satisfaction remains high for COMETRIQ. As I mentioned during our last call, market research indicates that 90% of healthcare practitioners surveyed rated their impressions of COMETRIQ as either favorable or highly favorable. Close to 90% said the drug exceeded their expectations.

In addition anecdotal feedback from prescribes, particularly those who’ve experienced using other VEGF TKIs indicate that they are comfortable managing the side effects associated with COMETRIQ.

In the fourth quarter we internalized our sales function and we now have 15 sales reps calling on MTC customers. The rest made over 2,300 calls, on physicians in the fourth quarter, with an average frequency of 2.1 calls.

Payer cover policies remain favorable for COMETRIQ in the approved indication. Their reaction to COMETRIQ remains positive and coverage is consistent with our labeled indication and category 1 NCCN rating. Today payers have discovered essentially an all MTC scripts submitted for reimbursement.

Average patient co-pay to-date is approximately $44 with 96% of patients paying less than $100 out of pocket for COMETRIQ. Recall that we offer comprehensive reimbursement support services through Exelixis access services, including co-pay assistance, benefits investigation, appeal support and referral to independent co-pay assistance charities.

Moving to Europe, with the positive CHMP opinion we continue to work closely with Sobi, our distribution partner, to get ready for a potential approval in the EU. Reimbursement doc fees and nearing completion and we’ve had several positive interactions with national payers in some of the major countries in Europe.

Finally we made significant progress in our internal planning activities for a potential approval in CRPC. We’ve competed a comprehensive CRPC launch plan for the U.S., including market sizing, resourcing and distribution network planning. We also expect our first commercial hire in Europe to start in March and we’ve started work on a European launch plan. We will of course share the details of these plans with you when appropriate.

And with that I’ll turn the call over to Gisela.

Gisela Schwab

Thank you Scott. In the new few minutes I will provide an update on the progress of the development programs for cabozantinib. Our clinical and regulatory effort is intensely focused on expanding the cabozantinib opportunity across multiple indications.

As we have discussed previously, we have a broad strategy in place for evaluating the compound in a variety of indications and use internal resources to support Phase 3 trials and also work in partnership with a wide array of individual physician and cooperative groups through our collaboration with the National Cancer Institute’s, Cancer Therapy Evaluation Program or CTEP and an investigator sponsor trial program.

Our highest priority for 2014 is preparation for a date of readout and potential filing for a demand metastatic castration-resistant prostate cancer. So I will start the update with our ongoing COMET trails, which are our two Phase 3 pivotal trails in mCRPC.

As you know COMET-1, a randomized sturdy of randomized study of cabozantinib versus prednisone is focused on the assessment of overall survival as the primary end point. And COMET-2, a randomized study of cabozantinib versus mitoxantrone and prednisone is focused on pain response.

COMET-1 reached its in-target enrollment of 960 in September 2013 and COMET-2 continues to enroll patients. Together with our CRO partner, our internal team is highly focused on data retrieval. We are fully prepared for a data readout in 2014 and given suitable results, we are making preparations for a potential regulatory filings.

Consider together the basic objective of the COMET study is to evaluate meta cabozantinib to demonstrate a survival benefit and improvement of pain associated with bone metastases. If it is the case, we believe and this would differentiate cabozantinib from other agents used in the treatment of CRPC.

In addition to the COMET study we are also actively working to evaluate the suitability of cabozantinib for use in the earlier line of treatment of CRPC patients prior to chemotherapy. The first study in the setting will evaluate the combination of cabozantinib with abiraterone. This randomized phase 2 study commenced in the fourth quarter of 2013.

Data from a prior investigative response of Phase 1 CRPC study conducted at the Dana Farber Cancer Institute was published at AACR in 2013. Data from that small-scale study showed that cabozantinibs can be given safely in combination with full dose abiraterone and warranted additional investigation.

With that data in hand, we initiated our randomized Phase 2 study comparing full dose abiraterone versus cabozantinib given at three different doses of 40 milligram daily, 20 milligram daily or 20 milligrams every other day, combined with four doses of abiraterone. The patient population is a pre-chemo therapy population of CRPC patients with bone metastases and the primary end point is radiographic progression free survival.

A second trial will evaluate the combination of Cabozantinib with enzalutamide and is expected to start later in 2014. The objective for this first Phase 1 combination study is to evaluate drug-drug interaction and resulting impact on pharmacokinetics, as well as safety for different doses of Cabozantinib, given in combination with full dose enzalutamide.

Regarding the evaluation of cabozantinib in other indications, we are actively working on the execution of two new Phase 3 pivotal trials in metastatic renal cell cancer and in hepatocellular cancer or RCC and HCC respectively.

First regarding RCC. The phase III trial in RCC, which we call METEOR, was initiated in May 2013 and is now actively enrolling patients. METEOR is a 650 patient randomized open-label study that is comparing cabozantinib with everolimus in patients who have received and progressed on or following at least one prior VEGFR tyrosine kinase inhibitor, i.e., second or later line therapy.

The primary endpoint is progression free survival or PFS, and the secondary end point overall survival. We have selected the study sites and are now executing this global study with balance accrual weighted towards Western Europe, North America and Australia. At the end of 2013 more than 50% of the sites have been activated and we are now in the steep part of the curve of site activations and enrolment.

Now regarding HCC, our HCC trial is called CELESTIAL and was initiated in September 2013. It is a 760 patient study in patients who have received prior sorafenib. CELESTIAL will compare overall survival between patients treated with cabozantinib and those receiving placebo. Overall survival is the accepted endpoint in this indication and was the endpoint used to support the approval of sorafenib as first-line therapy in HCC.

We are very encouraged by the enthusiasm for these trials in the medical community, both studies are off to a good start and we hope to see top line data on RCC in 2015 and on HCC in the 2016 or ‘17 timeframe.

Now to finish, it is a pleasure to share an update on our EU filing of Cabozantinib in medullary thyroid cancer. In late December 2013, the CHNP has issued a positive opinion for conditional approval of COMETRIQ for the treatment of adult patients with progressive, unreceptable locally advanced or metastatic MTC.

Now the application for marketing approval is with the European Commission and we expect to receive a decision a soon. We are very pleased with our progress towards this important milestone. In the news this COMETRIQ may soon be available in the European union for patients with this devastating diseases.

We are working towards a Swedish Orphan Biovitrum our distribution partner in the EU for COMETRIQ, for MTC, to insure that we are prepared for a launch when and if EU approval have been granted.

With that I will turn the call over to Frank

Frank Karbe

Thanks Gisela. Let me begin with the fourth quarter and full year 2013 financial results and then move on to our 2014 financial outlook. As usual I will focus my comments on the highlights of our financial performance and refer you to our press release and today’s 10-K filing for additional details.

Net revenue for the quarter was $4.3 million, which was entirely related to U.S. sales of COMETRIQ, and $31.3 million for the full year of which $15 million was related to the sale of COMETRIQ. The gross-to-net discount amounted to 3.8% for Q4 and 4.4% for the full year.

R&D expenses for the quarter were $49.6 million and $178.8 million for the full year.

Year-over-year R&D expenses increased for both the fourth quarter as well as the full year, mainly as a result of substantially increased clinical trail expenses, predominantly driven by the ramp-up of COMET-1 and METEOR, our phase 3 pivotal studies in CRPC and RCC respectively, as well as the start up of CELESTIAL, our Phase 3 pivotal study in HCC.

For the year the increase in cost for those trails were partially offset by lower clinical trail costs related to the continued wind down of various Phase 2 studies for cabozantinib, most notably the randomized discontinuation trail, as well as the EXAM trail of pivotal study in patients with MTC.

SG&A expenses were $13.6 million for the quarter and $51 million for the full year. The increase year-over-year for the quarter as well as the full year was predominately due to increased expenses in connection with the launch of COMETRIQ, which includes fees for Sobi our European distributor and cost in connection with our salves force. On a full year basis higher legal patent and account changes, as well as stock based compensation and marketing expenses also contributed to the increase as compared to 2012.

Restructuring charges decreased by $7.1 million for the quarter by approximately $8 million for the year, mainly driven by an impairment charge of $7.1 million in Q4, 2012, in connection with having vacated one of our buildings.

Total cost and expenses for the quarter were $63.9 million and $232.1 million for the full year, in line with our exceptions and previously provided guidance. The increase year-over-year for both the quarter and the full year was driven by the higher R&D and SG&A expenses mentioned a moment ago, which was partially offset by lower restructuring changes.

Non-cash expenses comprised primarily of stock based compensation and restructuring expense was proximately $60 million in 2013 as compared to $23 million in 2012.

For other income expense, we incurred a net expense of $11.3 million for the quarter and $44.1 million for the full year. The substantial increase in expenses for the full year was as expected and highlighted in our guidance, primarily due to an increase in interest expenses of $18.1 million in connection with our convertible notes issued in August 2012.

It is important to note that $6.8 million of interest expense for the fourth quarter and $26.3 million for the full year 2013 reflects non-cash changes. We ended 2013 with $415.9 million in cash. This dose not include the approximately $76 million in net proceeds from our foreign equity offering in January of this year.

Let me now turn to the financial outlook for 2014. 2014 is a defining year for us. As you may imagine, the full year financial picture for the company will to some degree depend on the timing and results of the various Phase 3 studies we expect to read out this year.

With that in mind, please note that our financial guidance provided today includes no assumptions or financial contingencies concerning the outcome of these clinical trials. You can expect that we will update our guidance according throughout the year.

Our expense guidance assumes on going broad investment in the cabozantinib development program, which is largely driven by the cost associated with five ongoing Phase 3 studies. Our expense guidance also includes our contribution to the profit and loss share under our collaboration with Roche-Genentech on our MEK inhibitor cobimetinib.

So for the full year 2014 we do not expect any significant contract and license revenue. This is for two reasons, on one hand we have full recognized all revenues from past collaborations and we do not expect any new deals or significant milestone payments in 2014. As for product related revenue, we will continue our prior practice of not providing revenue guidance associated with sales for COMETRIQ.

We expect total cost and expenses in the range of $250 million to $280 million, including non-cash expenses of approximately $16 million to $18 million, which is primarily attributable to stock based compensation expense. We further expect interest expenses of approximately $47 million, which includes non-cash charges of $28 million related to the amortization of the debt discount on the 4.25% convertible notes as well as the interest accretion of the usual debt.

Finally, we expect to end 2014 with greater than $200 million in cash. With a year end cash balance of $416 million at the end of 2013, trust proceeds from our January equity offering of approximately $76 million, as well as with the amendment to the Deerfield financing arrangement announced in January, which gives us an option to extend the maturity date by three years, we are in a strong position to continue the broad development of cabozantinib and to work towards the potential built out of our commercial infrastructure.

With that, I will turn the call back to Mike for his closing comments.

Michael Morrissey

All right, thanks Frank. We will keep my closing remarks brief today, so we can get to the Q&A session.

As you heard from the team today, we continue to make progress across all parts of our business and we’re vectoring towards an important set of milestones in 2014. I want to reiterate that we have a singular focus to advance the near term cabozantinib opportunity in metastatic prostate cancer and to expand into other important oncology indications in the short term, given suitable data from our initial set of pivotal trials. Our overall goals are unchanged to bring new therapies to patients with cancer and to build value for investors.

So we’ll stop here. Thank you for your time and attention and we’re happy to take your questions. Operator

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question comes from the line of Eric Schmidt, Cowen and Company. Please proceed.

Eric Schmidt - Cowen & Company

Thanks for taking my question and for the call today. Maybe for Gisela, would you expect much of the delay from the time, the events in COMET-1 are achieved either at the interim or the final to the time of which you’re able to report the outcome out to Wall Street investors.

Gisela Schwab

I think as soon as we know the results and are certain about the results and by the entity review the results and make recommendations, we would come forward with the information, so there’s no delay really.

Eric Schmidt - Cowen & Company

Okay, and then I assume maybe you have to provide European regulators with an update of the MTC survival data at the time of the CHMP recommendation. Is that a fair assumption?

Gisela Schwab

Well we have provided, especially to the European regulators the same information as we have provided to the U.S. FDA, so the filings are essentially identical and so there’s really nothing more to say about that. Any specific…

Eric Schmidt - Cowen & Company

So can you talk about what we should be seeing from ASCO if anything on that trial or can you further narrow it down where we might see the final survival analysis?

Gisela Schwab

Yes, regarding the final survival analysis, we are expecting data in 2014. So a follow-up on the survival event is ongoing as we speak. And regarding the filing itself, as you probably recall, during the review of the trial by the FDA we provided a 120 day safety update and in the context of that there was an interim analysis in the documents that the FDA has published on their website.

Eric Schmidt - Cowen & Company

Okay, so no guidance on what we might see at ASCO from the MTC study or whether we’d see the start date at that point in time.

Michael Morrissey

Yes Eric, this is Mike. As usual we’re not going to comment on what we see at ASCO until abstracts have been accepted. So it’s a little early for that right now, so we’ll let that question go until we have more clarity on that going forward.

Eric Schmidt - Cowen & Company

Okay, fair enough. Maybe just one last one for Scott and then I’ll sign off. You know we’ve had COMETRIQ out there for about 12 months now. I’m just kind of wondering, what you’ve learnt from the MTC experience, either positive or negative that you think you can now apply and learn from when it comes to a potential launch in prostate. Thanks.

Scott Garland

Yes, thanks. Again we’ve had COMETRIQ out there for about 12 months and I think what we’ve learned in general is what we thought going into it is a very small market opportunity. I would say that we got out of the gate quickly and I feel good about our ability to execute commercially, that’s been great.

We’ve also been able to establish some things around distribution network and also just some internal processes that I think will bode well for us if we are fortunate enough to be in a situation we’re launching in prostate cancer and some of that infrastructure already exists and it will help us get out of the gate very quickly right away. I would say generally that’s about where we are right now and all in all I’m actually quite pleased with how we’ve done so far with our commercialization in MTC.

Eric Schmidt - Cowen & Company

Great, thanks a lot.

Operator

Your next question comes from the line of Joel Sendek with Stifel. Please proceed.

Joel Sendek – Stifel Nicolaus & Co.

Hi, thanks. I guess I have a couple of questions. I mean first, how soon will you be able to file if the COMET-1 interim data is positive and given the fact there would be a supplemental filing, what type of turnaround do you think you likely could achieve?

Michael Morrissey

Yes Joel, it’s Mike again. That question and a whole host of related questions are really important ones. I think our view here is to address all those issues if and when we have positive data and talk much more detailed and explicitly about those kinds of forward looking events and timing.

So it’s a fair question. We acknowledge all those issues, are important issues, but again I think from our point of view we’d rather just focus on giving the data and then dealing with that once we have the data.

Joel Sendek – Stifel Nicolaus & Co.

Okay then, just a housekeeping one. I was trying to listen to another call at the same time. Gisela, did you say the RCC trial will read out some time in 2015. Is there any more specificity as to when that data might come?

Gisela Schwab

You heard that correctly. We have guided towards 2015 for top line results for RCC and there’s no specific guidance as to when in 2015, not at this time, early in the game.

Joel Sendek – Stifel Nicolaus & Co.

There is no change to your previous guidance. Okay, thank you.

Operator

Your next question comes from the line of Ted Tenthoff with Piper Jaffray. Please proceed.

Ted Tenthoff – Piper Jaffray

Great, thank you very much for taking my question. I guess just around powering assumption, I don’t think you shared that in the past and I just want to ask if there’s any update with respect to the numbers of events and any incremental information you want to provide around kind of powering assumptions with the interim look and when we maybe can expect that for COMET-1?

Gisela Schwab

Yes, Ted we had spoken about the events necessary for the final analysis, which is 578 events amongst the 960 patients enrolled and so that provides 90% power for an HR of 0.75. We’ve also spoken about the fact that we are running an interim analysis to a series of events and regarding the specific timing of that, we have, we can’t really speak to that at this time.

Ted Tenthoff – Piper Jaffray

Okay, we look forward to the data. And can you give us any update on cobimetinib and when we could be expecting some data read outs from Roche on that one.

Michael Morrissey

Again, Ted its Mike. All we can really say is what they said publicly and that’s been pretty simple. Again they expect to have top line data and file in 2014. So that’s their public communication and that’s all we can say right now.

Ted Tenthoff – Piper Jaffray

Thanks a lot guys.

Michael Morrissey

Thanks Ted.

Operator

Our next question comes from the line of Cory Kasimov with JPMorgan. Please proceed.

Whitney Ijem – JPMorgan

Hi guys, this is Whitney on for Cory today. Just wondering if you can remind us of the mechanics of your Sobi agreement and sort of how your selling drug to them. Is it at a discount and that’s sort of where their cut comes in or is it strictly sort of fee milestone based to them?

Frank Karbe

We basically sell product to them based on the transfer price and that transfer price is consistent with the price that we have in the United States. That product that we’ve been selling to them so far is strictly for main patient use. We’ve not disclosed any other details about the arrangement that we have them, but it is a fee-based arrangement primarily in that regard.

Whitney Ijem – JPMorgan

Got it, and then just one COMET question. If you can comment whether the event rate and drop out rate are at least tracking within expectations without giving any details obviously.

Michael Morrissey

Yes, it’s Mike again. We’re not commenting on any aspect of the ongoing pivotal trials right now.

Whitney Ijem – JPMorgan

Had to try, thanks.

Michael Morrissey

All right.

Operator

Your next question comes from the line of Michael Schmidt with Leerink. Please proceed.

Michael Schmidt - Leerink Partners

Hey, thanks for taking my question. I just had one on cabozantinib and MTC. What is the average duration of therapy now commercially on the market?

Michael Morrissey

Yes, so it’s a bit early to get an official read on duration. As you know treatment duration is a metric that you have to measure when patients finish therapy and because we’re somewhat still early in our launch, it would be premature to comment on what we’re seeing in the marketplace. I think what we said in the past is what we’ve seen in the EXAM trial, which was an average treatment duration of 10 months.

One point I would like to make about that and actually sort of highlights the point I made earlier around the dynamic nature of treatment duration early in your approval. When we first unblinded EXAM, the average treatment duration for COMETRIQ was six months and at the 120 day update it had grown to 10 months and that gives you an idea of what happens when these patients are on therapy for longer, they start to pull that average up when you have more mature patient follow-up. So that’s generally where we are, but in terms of giving specifics in the market right now, it would be premature to do at this point.

Michael Schmidt - Leerink Partners

Got it, sure. And then I guess the question on COMET-2. Where are your in enrollment with that study?

Gisela Schwab

Sure. Enrollment in COMET-2 is currently ongoing and we haven’t commented on the specific numbers on any study.

Michael Schmidt - Leerink Partners

Okay, great. That’s just great, thanks.

Operator

Our next question comes from the line of Biren Amin with Jefferies. Please proceed.

Biren Amin – Jefferies & Company

Yes, thanks for taking my questions guys. I guess if you could maybe provide an update on your efforts on MTC enlisting for prostate.

Scott Garland

We missed that. Say it again.

Biren Amin – Jefferies & Company

So you know I guess efforts for listing cabozantinib and SEC and guidelines for the prostate cancer indication.

Scott Garland

Yes, this is Scott. I mean obviously entity and independent panel, we don’t control that at all. So there isn’t a whole lot more to say about the MTC enlisting than that.

Biren Amin – Jefferies & Company

Okay, and then I guess could you maybe – I know you haven’t or you said that your not commenting on COMET-1, but can you maybe share what the geographic spots been for COMET-1, the U.S. versus ex-U.S.

Michael Morrissey

Yes Biren, again that’s a fair question. We’re just not commenting on any aspect of that or any other ongoing pivotal trial.

Biren Amin – Jefferies & Company

Okay, and I guess you know in your press release Mike, you mentioned in the first bullet that with COMET-1 that you had reached the enrollment target of 960 patients in September, but the enrollment closed in November. How should I think about that? And should I assume that you enrolled more than 960 patients in the study.

Michael Morrissey

What COMET is, when you close enrollments or you give the estimate for when the enrollment will be – target will be reached, there’s always a few patients still in the screening. So we certainly went over the 960 number. Again, the details we will share at the appropriate time post data.

Biren Amin – Jefferies & Company

Great. Thanks for taking my questions.

Operator

Our next question comes from the line of Lee Kalowski with Credit Suisse. Please proceed.

Lee Kalowski - Credit Suisse

Thank you. Just a couple of questions on MTC. In light of Sobi not making a purchase this quarter, as we think about next year and I understand your not giving guidance, but I guess conceptually how should we think about ex-U.S. sales coming online as various countries start reimbursing and can you confirm whether Sobi has made a purchase this quarter, Q1?

Scott Garland

So I’ll take the second question first. No, I can’t confirm that Sobi’s made a purchase in Q1. We’ll certainly provide you that information when we do the Q1 earnings call.

Back to your first question on how to think about the MTC market ex-U.S. So what we said in the past is that the market is relatively comparable in terms of patient numbers. So we’ve been saying about 500 to 700 patients in the United States and that would be a similar number in Europe. That is for the first and second line patients.

The other thing to think about though as it relates to Europe is pricing obviously is different than the United Stated. We’ve obviously not set our price for COMETRIQ in MTC, but if you look across other indications with other drugs, you’ll see the pricing discounts of upwards of 40%. So that’s something you want to think about.

The other thing is it can take time for the pricing reimbursement to get set in Europe. It’s a much more sort of detailed process and it can take upwards of 12 to 18 months, but the ramp will be different in Europe than it would be in the United States. I’d just say right now the team here in the United States is obviously happy with what we’ve done with medullary, but we’re really ramping up our efforts on preparing for potential launch in prostate cancer if and when you have an opportunity to do that.

Lee Kalowski - Credit Suisse

Okay. And when you say in the U.S. you reached 70% to 80% penetration, can you provide any further details on what the denominator is there? I mean does that sort of mean your reaching the upper limit of potential penetration of patients in this indication in the U.S.?

Scott Garland

Yes, it does. The denominator is basically the sort of total market opportunity across all lines of therapy. So its important to realize its not a market share number and its not specific to line of therapy, so its cumulative and it is meant to give you an idea of what the sort of forward looking growth might be for the United States and I said in my prepared remarks I would expect that to be modest going forward.

Lee Kalowski - Credit Suisse

Got it. And as your preparing, as you point out for the prostate cancer indication really gearing up there, as we think about the initial labeled indication, call it the COMET-1 criteria, should we be thinking about Jevtana, the market for Jevtana as the appropriate sort of patient population for COMETRIQ in its initial indication or do you think that if could be larger and if so, why do you think it would be larger than or where do you think the patient will be coming from who aren’t going on Jevtana?

Scott Garland

So you know as I mentioned, we had done a lot of work internally on the potential for prostate cancer, including very, very detailed market sizing work. Its too early for me to comment on that, if they wanted to stay focused on MTC and not sort of step into the prostate world till we have an opportunity or we’ll share that with you till we have an opportunity to share that with you in the future.

What I can say is based on the work that we’ve done, there’s still a very high-end medical need in prostate cancer. We know there are roughly 30,000 patients who die each year. There’s plenty of room for new therapies, because patients are not getting cured with existing therapies and I cannot tell you how excited I am about the possibility of being able to compete in that market if and when we have an opportunity to do so.

Lee Kalowski - Credit Suisse

Okay. Thank you Scott.

Scott Garland

Thank you.

Operator

Our next question comes from the line of Echo He with The Maxim Group. Please proceed.

Echo He - The Maxim Group

Thank you so much for taking my questions. I’m just wondering about the MTC market, could you disclose approximately how many patients are using this drug in the past quarter?

Scott Garland

Yes, for competitive reasons we won’t be providing any specifics around how many patients are on therapy. I can just reiterate what we told them from a revenue perspective and that was $4.0 million, but I don’t want to provide any specifics about the number of patients at any given quarter.

Echo He - The Maxim Group

Okay, I understand. My point is like that – I guess if given that 500 and 700 patients in the U.S., that patient pool that you gave as a reference, there approximately was – I think its that less than 50% of patients were on this drug and you just previously said that the penetration of this drug is already 70% to 80% in the market. I’m just asking, what was the reason? Did some patients stop to use the drug earlier or the doctors – for some patients doctors did not choose to get on COMATRIQ. What was the main reason the doctor did not choose?

Scott Garland

Echo, I think I know where your going here, so just let me reiterate a few things about the penetration number and the market size number that we’ve talked about in the past. The first thing I want to reiterate is that the number of 500 to 700 is the number of both first and second line patients and that’s an important consideration, because when you think about the fact that patients would not be treated in both lines of therapy by COMETRIQ, that would imply retreatment and we don’t do that.

The second thing to think about when your looking at that number and then trying to sort of calculate in any revenue estimates, is that it is cumulative since approval. Not all patients are on therapy as you would expect and you need to think about treatment duration, particularly to try to quarterize that.

The third thing you need to think about and this is true with any forecast that you do and true with any oral product, is that not all patients are 100% compliant when they take oral therapies or any therapies. So you’d want to take a look at that in terms of patients taking a drug holiday or patients skipping a dose, etcetera.

So I just want to make sure that you got to be really careful when you try to make conversions of penetration to revenue forecast. Its much more complicated than it might seem at face value.

Echo He - The Maxim Group

Yes, obviously it is. Just want to ask, what percentage, approximately what percent of patient data stop the treatment, because of toxicity intolerability or those kinds of things.

Scott Garland

Yes, so this for competitive reasons I don’t want to provide it at this point, but I can point you back to as what we saw in the EXAM trial, which was something around 16%, 17% of the patients. 16% of patients dose discontinued due to toxicity and what we’re seeing in the marketplace I would say is generally consistent with that.

Echo He - The Maxim Group

Okay, I got you. Thank you so much and that’s all.

Scott Garland

Well, thank you.

Operator

(Operator Instructions) Your next question comes from the line of Terence Flynn of Goldman Sachs. Please proceed.

Terence Flynn - Goldman Sachs

Hi, thanks for taking the question. Maybe you guys could just frame for us how you see the market opportunity in kidney and liver. Obviously kidney to me seems somewhat of a commoditized market, whereas second line liver more wide open there given the number of competitor failures, but do you think you could help frame for us those two opportunities. Thanks.

Michael Morrissey

Yes, it’s Mike. So as we discussed previously, the second line opportunity is certainly congested with a lot of either VEGF targeting molecules or mTOR inhibitor. Our view of that opportunity and those compounds is that they are roughly similar in terms of their overall activities, since they are relatively similar and their clinical data and even inhibition profile against the various targets involved.

So there’s not much differentiation in that space right now and I think certainly the data we’ve seen with Cabozantinib in Phase 2. There’s a lot of caveats that we talked about previously in the Phase 1b/2 trial for RCC small single agent, non-randomized with both kinds of caveats. You know we’ve seen potentially differentiating data in terms of PFS response rates and those kinds of things in a very late line population.

So our view is that if METEOR wins, if we’re able to come close to the kind of data we saw in the Phase 2 setting, that could represent an important advance both medically and commercially and differentiates the Cabozantinib in that indication from the other compounds in the mix, right, so. And again data speaks for itself and if the data is superior and weak and differentiating, then we think we have a very good opportunity from a commercial point of view. We could market on that and it would be very effective.

Liver as you said, again second line liver post failure on sorafenib is an area that has not seen a lot of success. There’s no current standard of care to my knowledge and would be one that again a win there would be very important from the standpoint of providing patients with new options post progression on sorafenib.

Terence Flynn - Goldman Sachs

Great. Thanks a lot.

Operator

Our next question comes from the line of Michael Schmidt with Leerink. Please proceed.

Michael Schmidt – Leerink Partners

I just had one on prostate cancer opportunity again. So you referenced the 29,000 prostate cancer deaths per year. Do you know what percentage of those died before receiving chemotherapy and how do you think that market evolving in the next few years?

Michael Morrissey

Yes, so I don’t know the numbers off the top of my head that have received chemotherapy prior to dying. I’ve done a lot of work and we’re actually doing some additional work around that. I guess right now I would say both, its premature for me to provide a lot of specifics around the market opportunity. I’m very happy to do that if and when the time is appropriate.

Michael Schmidt – Leerink Partners

Okay, great. Thank you.

Operator

There are no further questions in the queue. I would now like to turn the conference over to Dr. Michael Morrissey for closing remarks.

Michael Morrissey

Okay, thanks again for your time and interest in Exelixis and we’ll be looking forward to our next update in the future. Thank you.

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