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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended April 2, 2021
or
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-30235
EXELIXIS, INC.
(Exact name of registrant as specified in its charter)

Delaware04-3257395
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)

1851 Harbor Bay Parkway
Alameda, CA 94502
(650) 837-7000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock $.001 Par Value per ShareEXELThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days).    Yes  ý No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No ý
As of April 26, 2021, there were 313,387,205 shares of the registrant’s common stock outstanding.


Table of Contents
EXELIXIS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
2

Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EXELIXIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
 
March 31, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$370,209 $319,217 
Short-term investments815,285 887,319 
Trade receivables, net177,673 160,875 
Inventory24,757 20,973 
Prepaid expenses and other current assets46,341 57,011 
Total current assets1,434,265 1,445,395 
Long-term investments328,860 330,751 
Property and equipment, net78,453 67,384 
Deferred tax assets, net160,598 156,711 
Goodwill63,684 63,684 
Other long-term assets124,682 73,408 
Total assets$2,190,542 $2,137,333 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$13,821 $23,632 
Accrued compensation and benefits37,945 51,189 
Accrued clinical trial liabilities59,762 52,251 
Rebates and fees due to customers31,468 20,683 
Accrued collaboration liabilities13,461 12,456 
Other current liabilities56,880 44,447 
Total current liabilities213,337 204,658 
Long-term portion of deferred revenues9,760 3,755 
Long-term portion of operating lease liabilities52,837 49,086 
Other long-term liabilities3,421 721 
Total liabilities279,355 258,220 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000 shares authorized and no shares issued
  
Common stock, $0.001 par value; 400,000 shares authorized; issued and outstanding: 313,262 and 311,627 at March 31, 2021 and December 31, 2020, respectively
313 312 
Additional paid-in capital2,354,103 2,321,895 
Accumulated other comprehensive income2,740 4,476 
Accumulated deficit(445,969)(447,570)
Total stockholders’ equity1,911,187 1,879,113 
Total liabilities and stockholders’ equity$2,190,542 $2,137,333 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3

Table of Contents
EXELIXIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
 Three Months Ended March 31,
 20212020
Revenues:
Net product revenues$227,212 $193,880 
License revenues27,528 20,879 
Collaboration services revenues15,490 12,156 
Total revenues270,230 226,915 
Operating expenses:
Cost of goods sold13,198 9,289 
Research and development159,288 101,877 
Selling, general and administrative102,351 62,940 
Total operating expenses274,837 174,106 
Income (loss) from operations(4,607)52,809 
Interest income2,682 7,220 
Other income (expense), net(90)6 
Income (loss) before income taxes(2,015)60,035 
Provision for (benefit from) income taxes(3,616)11,423 
Net income$1,601 $48,612 
Net income per share:
Basic$0.01 $0.16 
Diluted$0.00 $0.15 
Weighted-average common shares outstanding:
Basic312,473 305,388 
Diluted321,287 315,839 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EXELIXIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
Three Months Ended March 31,
20212020
Net income$1,601 $48,612 
Other comprehensive income (loss):
Net unrealized losses on available-for-sale debt securities, net of tax impact of $499 and $941, respectively
(1,736)(3,291)
Comprehensive income (loss)$(135)$45,321 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4

Table of Contents
EXELIXIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Three Months Ended March 31, 2021
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive IncomeAccumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 2020
311,627 $312 $2,321,895 $4,476 $(447,570)$1,879,113 
Net income— — — — 1,601 1,601 
Other comprehensive loss— — — (1,736)— (1,736)
Issuance of common stock under equity incentive plans1,635 1 4,201 — — 4,202 
Stock transactions associated with taxes withheld on equity awards— — (6,646)— — (6,646)
Stock-based compensation— — 34,653 — — 34,653 
Balance at March 31, 2021
313,262 $313 $2,354,103 $2,740 $(445,969)$1,911,187 
Three Months Ended March 31, 2020
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive Income (loss)Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 2019
304,831 $305 $2,241,947 $3,069 $(559,351)$1,685,970 
Net income— — — — 48,612 48,612 
Other comprehensive loss— — — (3,291)— (3,291)
Issuance of common stock under equity incentive plans949 1 4,171 — — 4,172 
Stock transactions associated with taxes withheld on equity awards— — (1,793)— — (1,793)
Stock-based compensation— — 13,982 — — 13,982 
Balance at March 31, 2020
305,780 $306 $2,258,307 $(222)$(510,739)$1,747,652 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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EXELIXIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Three Months Ended March 31,
 
20212020
Net income $1,601 $48,612 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation3,227 2,175 
Stock-based compensation34,653 13,982 
Non-cash lease expense1,221 1,174 
Deferred taxes(3,388)10,128 
Other, net6,578 (888)
Changes in operating assets and liabilities:
Trade receivables, net(17,690)(18,270)
Inventory(2,090)(4,695)
Prepaid expenses and other assets1,872 (2,863)
Deferred revenue13,422 8,850 
Accounts payable and other liabilities138 (2,131)
Net cash provided by operating activities39,544 56,074 
Cash flows from investing activities:
Purchases of property, equipment and other(13,557)(2,961)
Purchases of investments(331,612)(251,505)
Proceeds from maturities and sales of investments407,424 287,086 
Net cash provided by investing activities62,255 32,620 
Cash flows from financing activities:
Proceeds from issuance of common stock under equity incentive plans2,791 3,938 
Taxes paid related to net share settlement of equity awards(5,441)(1,793)
Net cash (used in) provided by financing activities(2,650)2,145 
Net increase in cash, cash equivalents and restricted cash equivalents99,149 90,839 
Cash, cash equivalents and restricted cash equivalents at beginning of period320,772 268,137 
Cash, cash equivalents and restricted cash equivalents at end of period$419,921 $358,976 
Supplemental cash flow disclosures:
Non-cash operating activities:
Right-of-use assets obtained in exchange for lease obligations$4,893 $576 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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EXELIXIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Exelixis, Inc. (Exelixis, we, our or us) is an oncology-focused biotechnology company that strives to accelerate the discovery, development and commercialization of new medicines for difficult-to-treat cancers. Our drug discovery and development capabilities and commercialization platform are the foundations upon which we intend to bring to market novel, effective and tolerable therapies to provide cancer patients with additional treatment options.
Since we were founded in 1994, four products resulting from our discovery efforts have progressed through clinical development, received regulatory approval and established a commercial presence in various geographies around the world. Two are derived from cabozantinib, our flagship molecule, an inhibitor of multiple tyrosine kinases including MET, AXL, VEGF receptors and RET. Our cabozantinib products are: CABOMETYX® (cabozantinib) tablets approved for advanced renal cell carcinoma (RCC), both alone and in combination with Bristol Myers Squibb Company’s OPDIVO® (nivolumab), and for previously treated hepatocellular carcinoma (HCC); and COMETRIQ® (cabozantinib) capsules approved for progressive, metastatic medullary thyroid cancer. For these types of cancer, cabozantinib has become or is becoming a standard of care. Beyond these approved indications, cabozantinib is currently the focus of a broad clinical development program and is being investigated both alone and in combination with other therapies in a wide variety of cancers.
The other two products resulting from our discovery efforts are: COTELLIC® (cobimetinib), an inhibitor of MEK, approved as part of multiple regimens to treat advanced melanoma and marketed under a collaboration with Genentech, Inc. (a member of the Roche Group) (Genentech); and MINNEBRO® (esaxerenone), an oral, non-steroidal, selective blocker of the mineralocorticoid receptor, approved for the treatment of hypertension in Japan and licensed to Daiichi Sankyo Company, Limited (Daiichi Sankyo).
We remain committed to expanding our oncology product pipeline through our drug discovery efforts, which encompass both small molecule and biologics programs with multiple modalities and mechanisms of action.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include the accounts of Exelixis and those of our wholly-owned subsidiaries. These entities’ functional currency is the U.S. dollar. All intercompany balances and transactions have been eliminated.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial statements for the periods presented have been included. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for any future period. The accompanying Condensed Consolidated Financial Statements and Notes thereto should be read in conjunction with our Consolidated Financial Statements and Notes thereto for the year ended December 31, 2020, included in our Annual Report on Form 10-K submitted to the SEC on February 10, 2021.
We have adopted a 52- or 53-week fiscal year policy that generally ends on the Friday closest to December 31st. Fiscal year 2021, which is a 52-week fiscal year, will end on December 31, 2021 and fiscal year 2020, which was a 52-week fiscal year, ended on January 1, 2021. For convenience, references in this report as of and for the three months ended April 2, 2021 and April 3, 2020, and as of and for the fiscal year ended January 1, 2021, are indicated as being as of and for the fiscal periods ended March 31, 2021 and March 31, 2020 and the year ended December 31, 2020, respectively.
Segment Information
We operate in one business segment that focuses on the discovery, development and commercialization of new medicines for difficult-to-treat cancers. Our Chief Executive Officer, as the chief operating decision-maker, manages and allocates resources to our operations on a total consolidated basis. Consistent with this decision-making process, our Chief
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Executive Officer uses consolidated, single-segment financial information for purposes of evaluating performance, forecasting future period financial results, allocating resources and setting incentive targets.
All of our long-lived assets are located in the U.S. See “Note 2. Revenues” for enterprise-wide disclosures about product sales, revenues from major customers and revenues by geographic region.
Use of Estimates
The preparation of the accompanying Condensed Consolidated Financial Statements conforms to accounting principles generally accepted in the U.S., which requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosures. On an ongoing basis, we evaluate our significant estimates. We base our estimates on historical experience and on various other market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.
Reclassifications
Certain prior period amounts in the accompanying Condensed Consolidated Financial Statements have been reclassified to conform to the current period presentation. Such reclassifications did not impact previously reported total revenues, income from operations, net income, total assets, total liabilities or total stockholders’ equity.
Significant Accounting Policies
Except for the foreign currency forward contracts for non-designated hedges, there have been no material changes to our significant accounting policies during the three months ended March 31, 2021, as compared to the significant accounting policies disclosed in Note 1 – Significant Accounting Policies included in the our Annual Report on Form 10-K for the year ended December 31, 2020.
Foreign Currency Forward Contracts for Non-Designated Hedges
We may use forward foreign currency exchange contracts (forward contracts) to hedge certain operational exposures resulting from potential changes in foreign currency exchange rates. Our strategy is to enter into foreign currency forward contracts so that increases or decreases in our foreign currency exposures are offset by gains or losses on the foreign currency forward contracts thereby mitigating the risks and volatility associated with our foreign currency transactions. We do not apply hedge accounting treatment to these non-designated hedging instruments. We do not hold or issue derivative instruments for trading or speculative purposes.
Our foreign currency forward contracts are generally short-term in duration. Given the short duration of the forward contracts, amounts recorded generally are not significant. We account for our derivative instruments as either assets or liabilities on our Condensed Consolidated Balance Sheets and measure them at fair value. Derivatives not designated as hedging instruments are adjusted to fair value through earnings in other income (expense), net in the Condensed Consolidated Statements of Income.
Recently Adopted Accounting Pronouncements
On January 1, 2021, we adopted the Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740)-Simplifying the Accounting for Income Taxes (ASU 2019-12). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification (ASC) Topic 740, Income Taxes and clarifying and amending existing guidance. Our adoption of ASU 2019-12 did not have a significant impact on the accompanying Condensed Consolidated Financial Statements.
Recent Accounting Pronouncements Not Yet Adopted
There were no new accounting pronouncements issued since our filing of the Annual Report on Form 10-K for the year ended December 31, 2020, which could have a significant effect on our condensed consolidated financial statements.
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NOTE 2. REVENUES
Revenues consisted of the following (in thousands):
Three Months Ended March 31,
20212020
Product revenues:
Gross product revenues$314,205 $252,566 
Discounts and allowances(86,993)(58,686)
Net product revenues227,212 193,880 
Collaboration revenues:
License revenues27,528 20,879 
Collaboration services revenues15,490 12,156 
Total collaboration revenues43,018 33,035 
Total revenues$270,230 $226,915 
The percentage of total revenues by customer who individually accounted for 10% or more of our total revenues were as follows:
Three Months Ended March 31,
20212020
Affiliates of CVS Health Corporation15 %18 %
Affiliates of AmerisourceBergen Corporation14 %11 %
Affiliates of McKesson Corporation13 %15 %
Ipsen Pharma SAS13 %13 %
Affiliates of Optum Specialty Pharmacy9 %12 %
The percentage of trade receivables by customer who individually accounted for 10% or more of our trade receivables were as follows:
March 31, 2021December 31, 2020
Ipsen Pharma SAS22 %23 %
Affiliates of McKesson Corporation18 %12 %
Affiliates of AmerisourceBergen Corporation16 %11 %
Affiliates of CVS Health Corporation12 %11 %
Takeda Pharmaceutical Company Limited5 %10 %
Revenues by geographic region were as follows (in thousands):
Three Months Ended March 31,
20212020
U.S.$229,957 $196,596 
Europe33,806 29,036 
Japan6,467 1,283 
Total revenues$270,230 $226,915 
Total revenues include net product revenues attributed to geographic regions based on the ship-to location and license and collaboration services revenues attributed to geographic regions based on the location of our collaboration partners’ headquarters.
Net product revenues and license revenues are recorded in accordance with ASC Topic 606, Revenue from Contracts with Customers (Topic 606). License revenues include the recognition of the portion of milestones payments allocated to the transfer of intellectual property licenses for which it had become probable in the current period that the
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milestone would be achieved and a significant reversal of revenues would not occur, as well as royalty revenues and our share of profits under our collaboration agreement with Genentech. Collaboration services revenues were recorded in accordance with ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 and by analogy to Topic 606. Collaboration services revenues include the recognition of deferred revenues for the portion of upfront and milestone payments allocated to our research and development services performance obligations, development cost reimbursements earned under our collaboration agreements, product supply revenues, net of product supply costs, and the royalties we paid to GlaxoSmithKline (GSK) on sales of products containing cabozantinib by our collaboration partners. We received notification that, effective January 1, 2021, Royalty Pharma plc (Royalty Pharma) acquired from GSK all rights, title and interest in royalties on net product sales containing cabozantinib for non-U.S. markets for the full term of the royalty and for the U.S. market through September 2026, after which time U.S. royalties will revert back to GSK.
Net product revenues by product were as follows (in thousands):
Three Months Ended March 31,
20212020
CABOMETYX$223,595 $189,216 
COMETRIQ3,617 4,664 
Net product revenues$227,212 $193,880 
Product Sales Discounts and Allowances
The activities and ending reserve balances for each significant category of discounts and allowances, which constitute variable consideration, were as follows (in thousands):
Chargebacks, Discounts for Prompt Payment and Other
Other Customer Credits/Fees and Co-pay Assistance
Rebates
Total
Balance at December 31, 2020
$9,853 $3,279 $17,404 $30,536 
Provision related to sales made in:
Current period52,470 8,054 25,232 85,756 
Prior periods(27)(2)1,266 1,237 
Payments and customer credits issued(49,636)(5,622)(15,935)(71,193)
Balance at March 31, 2021
$12,660 $5,709 $27,967 $46,336 
The allowance for chargebacks, discounts for prompt payment and other are recorded as a reduction of trade receivables, net and the remaining reserves are recorded as rebates and fees due to customers or as other current liabilities in the accompanying Condensed Consolidated Balance Sheets.
Contract Assets and Liabilities
We receive payments from our collaboration partners based on billing schedules established in each contract. Amounts are recorded as accounts receivable when our right to consideration is unconditional. We may also recognize revenue in advance of the contractual billing schedule and such amounts are recorded as a contract asset when recognized. We may be required to defer recognition of revenue for upfront and milestone payments until we perform our obligations under these arrangements, and such amounts are recorded as deferred revenue upon receipt or when due. For those contracts that have multiple performance obligations, contract assets and liabilities are reported on a net basis at the contract level. Contract assets and liabilities were as follows (in thousands):
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March 31, 2021December 31, 2020
Contract assets$ $ 
Contract liabilities:
Current portion(1)
$9,207 $1,790 
Long-term portion(2)
9,760 3,755 
Total contract liabilities$18,967 $5,545 
____________________
(1) Presented in other current liabilities in the accompanying Condensed Consolidated Balance Sheets.
(2) Presented in the long-term portion of deferred revenues in the accompanying Condensed Consolidated Balance Sheets.
During the three months ended March 31, 2021 and 2020, we recognized $2.5 million and $1.6 million, respectively, in revenues that were included in the beginning deferred revenues balance for those periods.
During the three months ended March 31, 2021, and 2020, we recognized $27.8 million and $18.8 million, respectively, in revenues for performance obligations satisfied in previous periods. Such revenues were primarily related to royalty payments allocated to the license performance obligations for our collaborations with Ipsen Pharma SAS (Ipsen), Takeda Pharmaceutical Company Limited (Takeda), Daiichi Sankyo Company, Limited (Daiichi Sankyo) and Genentech Inc. (a member of the Roche Group) (Genentech).
As of March 31, 2021, $87.3 million of the combined transaction prices for our Ipsen and Takeda collaborations were allocated to performance obligations that had not yet been satisfied. See “Note 3. Collaboration Agreements - Cabozantinib Collaborations - Performance Obligations and Transaction Prices for our Ipsen and Takeda Collaborations” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 for information about the expected timing to satisfy these performance obligations.
NOTE 3. COLLABORATION AGREEMENTS AND IN-LICENSING ARRANGEMENTS
We have established multiple collaborations with leading pharmaceutical companies for the commercialization and further development of our cabozantinib franchise. Additionally, we have entered into several research collaborations and in-licensing arrangements to further enhance our early-stage pipeline and expand our ability to discover, develop and commercialize novel therapies with the goal of providing new treatment options for cancer patients and their physicians. We also entered into other collaborations with leading pharmaceutical companies for other compounds and programs in our portfolio.
See “Note 3. Collaboration Agreements” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, or as further described below, for additional information on each of our collaboration agreements and in-licensing arrangements.
Cabozantinib Collaborations
Ipsen Collaboration
In February 2016, we entered into a collaboration agreement with Ipsen for the commercialization and further development of cabozantinib. Under the terms of the collaboration agreement, as amended, Ipsen received exclusive commercialization rights for current and potential future cabozantinib indications outside of the U.S. and Japan. We have also agreed to collaborate with Ipsen on the development of cabozantinib for current and potential future indications. The parties’ efforts are governed through a joint steering committee and appropriate subcommittees established to guide and oversee the collaboration’s operation and strategic direction; provided, however, that we retain final decision-making authority with respect to cabozantinib’s ongoing development.
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Revenues under the collaboration agreement with Ipsen were as follows (in thousands):
Three Months Ended March 31,
20212020
License revenues$22,451 $17,949 
Collaboration services revenues11,355 11,087 
Total$33,806 $29,036 
As of March 31, 2021, $44.8 million of the transaction price was allocated to our research and development services performance obligations that has not yet been satisfied.
Takeda Collaboration
In January 2017, we entered into a collaboration and license agreement with Takeda, which was subsequently amended effective March 2018, May 2019 and September 2020 to, among other things, modify the amount of reimbursements we are eligible to receive for costs associated with our required pharmacovigilance activities, modify the amount of milestones we are eligible to receive, and modify certain cost sharing obligations related to the Japan-specific development costs associated with CONTACT-01 and CONTACT-02 clinical trials. Pursuant to this collaboration and license agreement, as amended, Takeda has exclusive commercialization rights for current and potential future cabozantinib indications in Japan, and the parties have agreed to collaborate on the clinical development of cabozantinib in Japan. The operation and strategic direction of the parties’ collaboration is governed through a joint executive committee and appropriate subcommittees.
Revenues under the collaboration agreement with Takeda were as follows (in thousands):
Three Months Ended March 31,
20212020
License revenues$1,301 $ 
Collaboration services revenues4,135 1,069 
Total$5,436 $1,069 
As of March 31, 2021, $42.5 million of the transaction price was allocated to our research and development services performance obligations that has not yet been satisfied.
GSK & Royalty Pharma
In October 2002, we established a product development and commercialization collaboration agreement with GSK, that required us to pay a 3% royalty to GSK on the worldwide net sales of any product incorporating cabozantinib by us and our collaboration partners. As disclosed in Note 2, we received notification that, effective January 1, 2021, Royalty Pharma acquired from GSK all rights, title and interest in royalties on net product sales containing cabozantinib for non-U.S. markets for the full term of the royalty and for the U.S. market through September 2026, after which time U.S. royalties will revert back to GSK. Royalties earned by GSK and Royalty Pharma in connection with our sales of cabozantinib are included in cost of goods sold and as a reduction of collaboration services revenues for sales by our collaboration partners. Such royalties were $10.1 million and $8.1 million during the three months ended March 31, 2021 and 2020, respectively.
Genentech Collaboration
In December 2006, we out-licensed the development and commercialization of cobimetinib to Genentech under a worldwide collaboration agreement. In November 2015, the U.S. Food and Drug Administration (FDA) approved cobimetinib, under the brand name COTELLIC, in combination with Genentech’s ZELBORAF® (vemurafenib) for the treatment of patients with BRAF V600E or V600K mutation-positive advanced melanoma. COTELLIC in combination with ZELBORAF has also been approved in the European Union and multiple additional countries for use in the same indication. In July 2020, the FDA also approved COTELLIC for use in combination with ZELBORAF and TECENTRIQ® (atezolizumab) for the treatment of patients with BRAF V600 mutation-positive advanced melanoma in previously untreated patients. License revenues under the collaboration agreement with Genentech were as follows (in thousands):
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Three Months Ended March 31,
 
20212020
Profits on U.S. commercialization$1,794 $1,407 
Royalty revenues on ex-U.S. sales$951 $1,309 
Research Collaborations and In-Licensing Arrangements
In the first quarter of 2021, we entered into additional licensing and collaboration agreements in support of our preclinical pipeline with Adagene, Inc. (Adagene) and WuXi Biologics Ireland Ltd (WuXi Bio). As part of these agreements we made aggregate upfront payments of $14.0 million in exchange for licenses to develop and commercialize products. We committed to make payments to Adagene for potential future development milestones of $55.0 million, regulatory milestones of $200.0 million, and commercial milestones of $525.0 million, each in the aggregate, as well as royalties on future net product sales. We also committed to make payments to WuXi Bio for potential future development milestones of $18.5 million, regulatory milestones of $30.0 million, and commercial milestones of $80.0 million, each per product, as well as royalties on future net product sales.
NOTE 4. CASH AND INVESTMENTS
Cash, Cash Equivalents and Restricted Cash Equivalents
A reconciliation of cash, cash equivalents, and restricted cash equivalents reported in the accompanying Condensed Consolidated Balance Sheets to the amount reported within the accompanying Condensed Consolidated Statements of Cash Flows was as follows (in thousands):
 
March 31, 2021December 31, 2020
Cash and cash equivalents$370,209 $319,217 
Restricted cash equivalents included in other long-term assets49,712 1,555 
Cash, cash equivalents, and restricted cash equivalents as reported in the accompanying Condensed Consolidated Statements of Cash Flows$419,921 $320,772 
Restricted cash equivalents are used to collateralize letters of credit and consist of money-market funds and certificates of deposit with original maturities of 90 days or less. The restricted cash equivalents are classified as other long-term assets based upon the remaining term of the underlying restriction. As of March 31, 2021, restricted cash equivalents included $48.2 million of short-term investments as collateral under our standby letter of credit entered into in January 2021 as guarantee of our obligation to fund our portion of the total tenant improvements related to our build-to-suit lease at our corporate campus.
Cash, Cash Equivalents, Restricted Cash Equivalents and Investments
Cash, cash equivalents, restricted cash equivalents and investments consisted of the following (in thousands):
March 31, 2021
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Debt securities available-for-sale:
Commercial paper$667,071 $219 $(1)$667,289 
Corporate bonds495,490 3,609 (275)498,824 
U.S. Treasury and government-sponsored enterprises148,208 83 (7)148,284 
Municipal bonds27,776 64 (8)27,832 
Total debt securities available-for-sale1,338,545 3,975 (291)1,342,229 
Cash52,757   52,757 
Money market funds105,775   105,775 
Certificates of deposit63,305   63,305 
Total cash, cash equivalents, restricted cash equivalents and investments$1,560,382 $3,975 $(291)$1,564,066 
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December 31, 2020
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Debt securities available-for-sale:
Commercial paper$569,456 $372 $ $569,828 
Corporate bonds543,520 5,244 (7)548,757 
U.S. Treasury and government-sponsored enterprises208,326 232 (4)208,554 
Municipal bonds28,680 83 (1)28,762 
Total debt securities available-for-sale1,349,982 5,931 (12)1,355,901 
Cash82,176   82,176 
Money market funds40,761   40,761 
Certificates of deposit60,004   60,004 
Total cash, cash equivalents, restricted cash equivalents and investments
$1,532,923 $5,931 $(12)$1,538,842 
Interest receivable was $3.6 million and $4.5 million as of March 31, 2021 and December 31, 2020, respectively, and is included in prepaid expenses and other current assets in the accompanying Condensed Consolidated Balance Sheets.
Realized gains and losses on the sales of investments were insignificant during the three months ended March 31, 2021 and 2020.
We manage credit risk associated with our investment portfolio through our investment policy, which limits purchases to high-quality issuers and limits the amount of our portfolio that can be invested in a single issuer. The fair value and gross unrealized losses on debt securities available-for-sale in an unrealized loss position were as follows (in thousands):
March 31, 2021
Fair Value
Gross Unrealized Losses
Commercial paper$4,722 $(1)
Corporate bonds131,468 (275)
U.S. Treasury and government-sponsored enterprises31,981 (7)
Municipal bonds12,120 (8)
Total$180,291 $(291)
December 31, 2020
Fair Value
Gross Unrealized Losses
Corporate bonds$28,445 $(7)
U.S. Treasury and government-sponsored enterprises21,989 (4)
Municipal bonds5,865 (1)
Total$56,299 $(12)
All securities presented have been in an unrealized loss position for less than 12 months. There were 53 and 14 investments in an unrealized loss position as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021 and 2020, we did not record an allowance for credit losses or other impairment charges on our investment securities. Based upon our quarterly impairment review, we determined that the unrealized losses were not attributed to credit risk but were primarily associated with changes in interest rates and market liquidity. Based on the scheduled maturities of our investments, we determined that it was more likely than not that we will hold these investments for a period of time sufficient for a recovery of our cost basis.
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The fair value of debt securities available-for-sale by contractual maturity was as follows (in thousands):
 
March 31, 2021December 31, 2020
Maturing in one year or less$1,021,369 $1,034,150 
Maturing after one year through five years320,860 321,751 
Total debt securities available-for-sale$1,342,229 $1,355,901 
NOTE 5. FORWARD CURRENCY CONTRACTS
In January 2021, we initiated an operational hedging program and entered into forward contracts to hedge certain operational exposures for the changes in foreign currency exchanges rates associated with assets or liabilities denominated in foreign currencies, primarily the Euro.
As of March 31, 2021, we had one forward contract outstanding to sell €9.3 million. The forward contract has a maturity of three months, is recorded at fair value and is included in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. The fair value of the forward contract at March 31, 2021 was not material. The forward contract is considered a Level 2 in the fair value hierarchy of our fair value measurements. For the three months ended March 31, 2021, we recognized $0.4 million of gains on the maturity of our forward contracts, which is included in other income (expense), net on our Condensed Consolidated Statements of Income.
NOTE 6. FAIR VALUE MEASUREMENTS
Fair value reflects the amounts that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy has the following three levels:
Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2 - inputs other than level 1 that are observable either directly or indirectly, such as quoted prices in active markets for similar instruments or on industry models using data inputs, such as interest rates and prices that can be directly observed or corroborated in active markets;
Level 3 - unobservable inputs that are supported by little or no market activity that are significant to the fair value measurement
The classifications within the fair value hierarchy of our financial assets that were measured and recorded at fair value on a recurring basis were as follows (in thousands):
March 31, 2021
Level 1
Level 2
Total
Commercial paper$ $667,289 $667,289 
Corporate bonds 498,824 498,824 
U.S. Treasury and government-sponsored enterprises 148,284 148,284 
Municipal bonds 27,832 27,832 
Total debt securities available-for-sale 1,342,229 1,342,229 
Money market funds105,775  105,775 
Certificates of deposit 63,305 63,305 
Total financial assets carried at fair value$105,775 $1,405,534 $1,511,309 
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December 31, 2020
Level 1
Level 2
Total
Commercial paper$ $569,828 $569,828 
Corporate bonds 548,757 548,757 
U.S. Treasury and government-sponsored enterprises 208,554 208,554 
Municipal bonds 28,762 28,762 
Total debt securities available-for-sale 1,355,901 1,355,901 
Money market funds40,761  40,761 
Certificates of deposit 60,004 60,004 
Total financial assets carried at fair value$40,761 $1,415,905 $1,456,666 
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 for similar assets as observable inputs for pricing, which is a Level 2 input.
The carrying amount of our remaining financial assets and liabilities, which include cash, receivables and payables, approximate their fair values due to their short-term nature.
NOTE 7. INVENTORY
Inventory consisted of the following (in thousands):
 
March 31, 2021December 31, 2020
Raw materials$7,988 $7,773 
Work in process21,873 20,610 
Finished goods5,786 7,291 
Total$35,647 $35,674 

Balance Sheet classification:
Current portion included in inventory$24,757 $20,973 
Long-term portion included in other long-term assets10,890 14,701 
Total$35,647 $35,674 
Write-downs related to excess and expiring inventory were $2.1 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively.
NOTE 8. STOCK-BASED COMPENSATION
We allocated the stock-based compensation expense for our equity incentive plans and our Employee Stock Purchase Plan (ESPP) as follows (in thousands):
Three Months Ended March 31,
20212020
Research and development$12,396 $5,086 
Selling, general and administrative22,257 8,896 
Total stock-based compensation expense$34,653 $13,982 
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Stock-based compensation for each type of award under our equity incentive plans and ESPP were as follows (in thousands):
Three Months Ended March 31,
20212020
Stock options$4,694 $4,994 
Restricted stock units11,669 7,797 
Performance stock units17,947 496 
ESPP343 695 
Total stock-based compensation expense$34,653 $13,982 
As of March 31, 2021, 9,272,614 shares were available for grant under the Exelixis, Inc. 2017 Equity Incentive Plan (as amended and restated, the 2017 Plan). The share reserve is reduced by 1 share for each share issued pursuant to a stock option and 1.5 shares for full value awards granted in the form of restricted stock units (RSUs). 
During the three months ended March 31, 2021, we granted 881,440 stock options with a weighted average exercise price of $21.75 per share and a weighted average grant date fair value of $9.88 per share. As of March 31, 2021, there were 15,688,044 stock options outstanding and $30.7 million of related unrecognized compensation expense.
During the three months ended March 31, 2021, we granted 3,059,698 service-based restricted stock units (RSUs) with a weighted average grant date fair value of $21.43 per share. As of March 31, 2021, there were 8,282,867 RSUs outstanding and $155.9 million of related unrecognized compensation expense.
Stock options and RSUs granted to employees during the three months ended March 31, 2021 have vesting conditions and contractual lives of a similar nature to those described in “Note 8. Employee Benefit Plans” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
In March 2021, we awarded 1,027,650 (the target amount) performance-based restricted stock units (PSUs), subject to a performance and a market condition (the 2021 PSUs). Pursuant to the terms of 2021 PSUs, the holders of the awards may earn up to 200% of the target amount of shares, depending on the level of achievement of the performance condition related to certain net product revenues and a total shareholder return (TSR) market condition. The TSR market condition is based on our relative TSR percentile rank compared to companies in the NASDAQ Biotechnology Index during the performance period, which is January 2, 2021 through December 29, 2023. Fifty percent of the shares earned subject to the performance and market conditions will vest at the end of the performance period and the remainder will vest approximately one year later subject to employee’s continuous service. The 2021 PSUs will be forfeited if the performance condition at or above a threshold level is not achieved by December 29, 2023.
A Monte Carlo simulation model was used to determine the grant date fair value of $24.54 for the 2021 PSUs based on the following assumptions:
Fair value of the Company’s common stock on grant date
$21.31 
Expected volatility
49 %
Risk-free interest rate
0.29 %
Dividend yield
 %
The Monte Carlo simulation model also assumed correlations of returns of the stock prices of the Company’s common stock and the common stock of a peer group of companies and historical stock price volatility of the peer group of companies. The valuation model also used terms based on the length of the performance period and compound annual growth rate goals for total stockholder return based on the provisions of the award.
As of March 31, 2021, there were 8,767,305 PSUs outstanding and $161.2 million of related unrecognized compensation expense. Expense recognition for PSUs commences when it is determined that achievement of the performance target is probable. During the three months ended March 31, 2021, we achieved additional performance targets for 461,532 additional PSUs granted during 2019. For more information about our PSUs, see “Note 8. Employee Benefit Plans” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
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NOTE 9. PROVISION FOR (BENEFIT FROM) INCOME TAXES
The effective tax rate for the three months ended March 31, 2021 differed from the U.S. federal statutory tax rate of 21% primarily due to excess tax benefits related to the exercise of certain stock options, in relation to the generation of a small pre-tax loss during the period. The effective tax rate for the three months ended March 31, 2020 differed from U.S. federal statutory tax rate of 21% primarily due to excess tax benefits related to the exercise of certain stock options during the period and the generation of federal tax credits.
NOTE 10. NET INCOME PER SHARE
Net income per share - basic and diluted, were computed as follows (in thousands, except per share amounts):
Three Months Ended March 31,
20212020
Numerator:
Net income$1,601 $48,612 
Denominator:
Weighted-average common shares outstanding — basic
312,473 305,388 
Dilutive securities8,814 10,451 
Weighted-average common shares outstanding — diluted
321,287 315,839 
Net income per share — basic$0.01 $0.16 
Net income per share — diluted$0.00 $0.15 
Dilutive securities included outstanding stock options and PSOs, unvested RSUs and PSUs and ESPP contributions.
Certain potential common shares were excluded from our calculation of weighted-average common shares outstanding - diluted because either they would have had an anti-dilutive effect on net income per share or they were related to shares from PSUs that were contingently issuable and the contingency had not been satisfied at the end of the reporting period. The weighted-average potential common shares excluded from our calculation were as follows (in thousands):
Three Months Ended March 31,
20212020
Anti-dilutive securities and contingently issuable shares excluded10,007 12,014 
NOTE 11. COMMITMENTS AND CONTINGENCIES
In September 2019, we received a notice letter regarding an Abbreviated New Drug Application (ANDA) submitted to the FDA by MSN Pharmaceuticals, Inc. (MSN), requesting approval to market a generic version of CABOMETYX tablets. MSN’s initial notice letter included a Paragraph IV certification with respect to our U.S. Patent Nos. 8,877,776, 9,724,342, 10,034,873 and 10,039,757, which are listed in the Approved Drug Products with Therapeutic Equivalence Evaluations, also referred to as the Orange Book. MSN’s initial notice letter did not provide a Paragraph IV certification against U.S. Patent No. 7,579,473, the composition of matter patent, or U.S. Patent No. 8,497,284, a method of use patent. On October 29, 2019, we filed a complaint in the United States District Court for the District of Delaware for patent infringement against MSN asserting U.S. Patent No. 8,877,776 arising from MSN’s ANDA filing with the FDA. On November 20, 2019, MSN filed its response to the complaint, alleging that U.S. Patent No. 8,877,776 is invalid and not infringed. On May 5, 2020, we received notice from MSN that it had amended its ANDA to assert additional Paragraph IV certifications. The ANDA now requests approval to market a generic version of CABOMETYX tablets prior to expiration of the two previously unasserted CABOMETYX patents: U.S. Patent No. 7,579,473 and U.S. Patent No. 8,497,284. On May 11, 2020, we filed a complaint in the United States District Court for the District of Delaware for patent infringement against MSN asserting U.S. Patent No. 7,579,473 and U.S. Patent No. 8,497,284 arising from MSN’s amended ANDA filing with the FDA. Neither of our complaints alleges infringement of U.S. Patent Nos. 9,724,342, 10,034,873 and 10,039,757. On May 22, 2020, MSN filed its response to the complaint, alleging that each of U.S. Patent No. 7,579,473 and U.S. Patent No. 8,497,284 is invalid and not infringed. On March 23, 2021, MSN filed its First Amended Answer and Counterclaims (amending its prior filing from May 22, 2020), seeking, among other things, a declaratory judgment that U.S. Patent No. 9,809,549 is invalid and would not be infringed by
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MSN if its generic version of CABOMETYX tablets were approved by the FDA. On April 7, 2021, we filed our response to MSN’s First Amended Answer and Counterclaims, denying, among other things, that U.S. Patent No. 9,809,549 is invalid or would not be infringed. In our complaints, we are seeking, among other relief, an order that the effective date of any FDA approval of the ANDA would be a date no earlier than the expiration of all of U.S. Patent No. 7,579,473, U.S. Patent No. 8,497,284 and U.S. Patent No. 8,877,776, the latest of which expires on October 8, 2030, and equitable relief enjoining MSN from infringing these patents. These lawsuits against MSN have been consolidated, and a bench trial has been scheduled for May 2022.
In May 2021, we received a notice letter from Teva Pharmaceuticals USA, Inc. (Teva) regarding an ANDA Teva submitted to the FDA, requesting approval to market a generic version of CABOMETYX tablets. Teva’s notice letter included a Paragraph IV certification with respect to our U.S. Patent Nos. 9,724,342 (formulations), 10,034,873 (methods of treatment) and 10,039,757 (methods of treatment), which are listed in the Orange Book and expire in 2033, 2031 and 2031, respectively. Teva’s notice letter did not provide a Paragraph IV certification against any additional CABOMETYX patents. We are reviewing the details of the Paragraph IV certification notice.
The sale of any generic version of CABOMETYX earlier than its patent expiration could significantly decrease our revenues derived from the U.S. sales of CABOMETYX and thereby materially harm our business, financial condition and results of operations. It is not possible at this time to determine the likelihood of an unfavorable outcome or estimate of the amount or range of any potential loss.
We may also from time to time become a party or subject to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. Some of these proceedings have involved, and may involve in the future, claims that are subject to substantial uncertainties and unascertainable damages.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements. These statements are based on Exelixis, Inc.’s (Exelixis, we, our or us) current expectations, assumptions, estimates and projections about our business and our industry and involve known and unknown risks, uncertainties and other factors that may cause our company’s or our industry’s results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in, or contemplated by, the forward-looking statements. Our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as those discussed elsewhere in this report. These and many other factors could affect our future financial and operating results. We undertake no obligation to update any forward-looking statement to reflect events after the date of this report.
This discussion and analysis should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this report and the consolidated financial statements and accompanying notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 submitted to the Securities and Exchange Commission (SEC) on February 10, 2021.
Overview
We are an oncology-focused biotechnology company that strives to accelerate the discovery, development and commercialization of new medicines for difficult-to-treat cancers. Since we were founded in 1994, four products resulting from our discovery efforts have progressed through clinical development, received regulatory approval and established a commercial presence in various geographies around the world. Two are derived from cabozantinib, our flagship molecule, an inhibitor of multiple tyrosine kinases including MET, AXL, VEGF receptors and RET. Our cabozantinib products are: CABOMETYX® (cabozantinib) tablets approved for advanced renal cell carcinoma (RCC), both alone and in combination with Bristol-Myers Squibb Company’s (BMS) OPDIVO® (nivolumab), and for previously treated hepatocellular carcinoma (HCC); and COMETRIQ® (cabozantinib) capsules approved for progressive, metastatic medullary thyroid cancer (MTC). For these types of cancer, cabozantinib has become or is becoming a standard of care.
The other two products resulting from our discovery efforts are: COTELLIC® (cobimetinib), an inhibitor of MEK, approved as part of multiple combination regimens to treat specific forms of advanced melanoma and marketed under a collaboration with Genentech, Inc. (a member of the Roche Group) (Genentech); and MINNEBRO® (esaxerenone), an oral,
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non-steroidal, selective blocker of the mineralocorticoid receptor, approved for the treatment of hypertension in Japan and licensed to Daiichi Sankyo Company, Limited (Daiichi Sankyo).
The U.S. Food and Drug Administration (FDA) first approved CABOMETYX for previously treated patients with advanced RCC in April 2016, and in December 2017 the FDA expanded CABOMETYX’s approval to include previously untreated patients with advanced RCC. Additionally, in January 2019, the FDA approved CABOMETYX for the treatment of patients with HCC who have been previously treated with sorafenib. Most recently on January 22, 2021, the FDA approved CABOMETYX in combination with OPDIVO as a first-line treatment of patients with advanced RCC.
To develop and commercialize CABOMETYX and COMETRIQ outside the U.S., we have entered into license agreements with Ipsen Pharma SAS (Ipsen) and Takeda Pharmaceutical Company Limited (Takeda). We granted to Ipsen the rights to develop and commercialize cabozantinib outside of the U.S. and Japan, and to Takeda the rights to develop and commercialize cabozantinib in Japan. Both Ipsen and Takeda also contribute financially and operationally to the further global development and commercialization of the cabozantinib franchise in other potential indications, and we continue to work closely with them on these activities. Utilizing its regulatory expertise and established international oncology marketing network, Ipsen has continued to execute on its commercialization plans for CABOMETYX, having received regulatory approvals and launched in multiple territories outside of the U.S., including in the European Union (EU) and Canada, as a treatment for advanced RCC and for HCC in adults who have previously been treated with sorafenib. In addition, in March 2021, Ipsen and BMS received regulatory approval from the European Commission (EC) for CABOMETYX in combination with OPDIVO as a first-line treatment for patients with advanced RCC , and both Ipsen and BMS plan to submit applications to approve the combination in other territories beyond the EU. With respect to the Japanese market, Takeda has received Manufacturing and Marketing Approvals from the Japanese Ministry of Health, Labour and Welfare (MHLW) of CABOMETYX as a treatment of patients with curatively unresectable or metastatic RCC and as a treatment of patients with unresectable HCC who progressed after cancer chemotherapy. In October 2020, Takeda and Ono Pharmaceutical Co., Ltd. (Ono), BMS’ development and commercialization partner in Japan, submitted a supplemental application to the Japanese MHLW for Manufacturing and Marketing Approval of CABOMETYX in combination with OPDIVO for the treatment of patients with unresectable, advanced or metastatic RCC.
In addition to our regulatory and commercialization efforts in the U.S. and the support provided to our collaboration partners for rest-of-world regulatory and commercialization activities, we are also pursuing other indications for cabozantinib that have the potential to increase the number of cancer patients who could benefit from this medicine. We are evaluating cabozantinib, both as a single agent and in combination with other therapies, in a broad development program comprising over 100 ongoing or planned clinical trials across multiple indications. We, along with our collaboration partners, sponsor some of the trials, and independent investigators conduct the remaining trials through our Cooperative Research and Development Agreement (CRADA) with the National Cancer Institute’s Cancer Therapy Evaluation Program (NCI-CTEP) or our investigator-sponsored trial program. Informed by the available data from these clinical trials, we continue to advance the development program for the cabozantinib franchise with potentially label-enabling trials. One pivotal trial that has resulted from this effort is COSMIC-311, our ongoing phase 3 pivotal trial evaluating cabozantinib versus placebo in patients with radioactive iodine (RAI)-refractory differentiated thyroid cancer (DTC) who have progressed after up to two VEGF receptor-targeted therapies. In December 2020, we announced that COSMIC-311 had met its co-primary endpoint of demonstrating significant improvement in progression-free survival (PFS), and in February 2021, we announced the FDA had granted Breakthrough Therapy Designation to cabozantinib as a potential treatment for patients with RAI-refractory DTC who have progressed following prior therapy. We intend to discuss the study results, proposed changes to the study conduct, as well as plans for filing an sNDA with the FDA in 2021.
We are particularly interested in continuing to evaluate cabozantinib’s potential in combination with immune checkpoint inhibitors (ICIs) to determine if these combinations further improve outcomes for patients. Building on preclinical and clinical observations that cabozantinib may promote a more immune-permissive tumor environment potentially resulting in cooperative activity of cabozantinib in combination with these products, we are evaluating cabozantinib in combination with a variety of ICIs. CheckMate -9ER, a phase 3 pivotal trial evaluating the combination of cabozantinib and nivolumab compared to sunitinib in previously untreated advanced or metastatic RCC, for which we and our collaboration partner BMS announced positive top-line results in April 2020, is reflective of this strategy. The trial met its primary endpoint of PFS at final analysis, as well as the secondary endpoints of overall survival (OS) at a pre-specified interim analysis and objective response rate (ORR), and showed that the combination of cabozantinib with nivolumab significantly improved the three key efficacy outcomes as compared with sunitinib, doubling PFS and ORR and reducing the risk of disease progression or death by 40 percent compared with sunitinib. Data from CheckMate -9ER served as the basis for the FDA’s and EC’s approval of CABOMETYX in combination with OPDIVO as a first-line treatment of patients with advanced RCC in January 2021 and March 2021, respectively. We are also collaborating with BMS on COSMIC-313, a phase 3
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pivotal trial evaluating the triplet combination of cabozantinib, nivolumab and ipilimumab versus the combination of nivolumab and ipilimumab in patients with previously untreated advanced intermediate- or poor-risk RCC. Enrollment for COSMIC-313 was completed in March 2021, and we expect to report top-line results of the event-driven analyses from the trial in 2022.
In an effort to expand our exploration of combinations with ICIs, we have also initiated multiple trials evaluating cabozantinib in combination with F. Hoffmann-La Roche Ltd.’s (Roche) ICI, atezolizumab. COSMIC-312 is a phase 3 pivotal trial evaluating cabozantinib in combination with atezolizumab versus sorafenib in previously untreated advanced HCC, for which we announced in August 2020 that enrollment was completed. Based on current event rates, we anticipate announcing top-line results in the second quarter of 2021, and if the data are supportive, we anticipate filing a supplemental New Drug Application (sNDA) with the FDA in the second half of 2021. COSMIC-021 is a broad phase 1b study evaluating the safety and tolerability of cabozantinib in combination with atezolizumab in patients with locally advanced or metastatic solid tumors. Based on continuing encouraging efficacy and safety data certain cohorts have been or may be further expanded, including the cohorts of patients with non-small cell lung cancer (NSCLC) who have been previously treated with an ICI and metastatic castration-resistant prostate cancer (mCRPC) who have been previously treated with enzalutamide and/or abiraterone acetate and experienced radiographic disease progression in soft tissue. We anticipate completing enrollment of up to 1,732 patients in the trial in the first half of 2021, although both the timing and final number of patients are subject to the initiation of additional cohorts or expansion of selected existing cohorts, as well as any further delays resulting from the COVID-19 pandemic. Since the initiation of the trial, data from COSMIC-021 have been instrumental in guiding our clinical development strategy for cabozantinib in combination with ICIs, including supporting the initiation of COSMIC-312, and three phase 3 pivotal trials in collaboration with Roche, CONTACT-01, CONTACT-02 and CONTACT-03, evaluating the combination of cabozantinib with atezolizumab in patients with metastatic NSCLC, mCRPC and advanced RCC, respectively. Based on regulatory feedback from the FDA, and if supported by the clinical data, we intend to file with the FDA for accelerated approval in an mCRPC indication in 2021.
We remain committed to expanding our oncology product pipeline through drug discovery efforts, which encompass both small molecule and biologics programs with multiple modalities and mechanisms of action. Our small molecule discovery programs are supported by a robust and expanding infrastructure, including a library of 4.6 million compounds. We have extensive experience in the identification and optimization of drug candidates against multiple target classes for oncology, inflammation and metabolic diseases. The first compound to advance from our recent drug discovery efforts is XL092, a next-generation oral tyrosine kinase inhibitor that targets VEGF receptors, MET, AXL, MER and other kinases implicated in cancer’s growth and spread. In designing XL092, we sought to build upon our experience with cabozantinib, retaining the target profile of cabozantinib while improving key characteristics, including the pharmacokinetic half-life. We are currently evaluating XL092 in STELLAR-001, a phase 1b clinical trial in patients with advanced solid tumors, for which dose-escalation cohorts evaluating the compound, both as a single agent and in combination with atezolizumab, are currently enrolling, and we expect the trial will begin to enroll patients in additional dose-escalation cohorts evaluating XL092 in combination with avelumab, an ICI developed by Merck KGaA, Darmstadt, Germany (Merck KGaA) and Pfizer Inc. (Pfizer), during the second quarter of 2021. We expect that once recommended doses of both single-agent XL092 and XL092 in combination with atezolizumab or avelumab are established, the trial will begin to enroll expansion cohorts for patients with clear cell and non-clear cell RCC, hormone-receptor positive breast cancer, mCRPC and urothelial carcinoma (UC).
We also augment our internal small molecule discovery activities through research collaborations and in-licensing arrangements with other companies engaged in small molecule discovery. The most advanced compound to emerge from these arrangements is XL102 (formerly AUR102), the lead program targeting cyclin-dependent kinase 7 under our collaboration with Aurigene Discovery Technologies Limited (Aurigene). In December 2020, based on encouraging preclinical data, we exercised our exclusive option to license XL102 from Aurigene. Following the FDA’s acceptance of our Investigational New Drug (IND) application in December 2020, we initiated a phase 1 clinical trial of the compound in January 2021.
Beyond small molecules, we have additionally launched rigorous efforts to discover and advance biologic drug candidates, such as bispecific antibodies, antibody drug conjugates (ADCs) and other innovative biologics that have the potential to become anti-cancer therapies. To facilitate the growth of these biologics programs, we have established multiple research collaborations and in-licensing arrangements, expanding our access to antibodies or other binders, which are the starting point for use with additional technology platforms that we employ to generate next-generation ADCs or bispecific antibodies. Most recently, we entered into a collaboration and license agreement with Adagene Inc. (Adagene), focused on using Adagene’s SAFEbodyTM technology to develop novel masked ADCs or other innovative biologics with potential for improved therapeutic index, as well as an exclusive license agreement with WuXi Biologics Ireland Limited, a
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wholly owned subsidiary of WuXi Biologics (Cayman) Inc. (individually and collectively referred to as WuXi Bio), focused on leveraging WuXi Bio’s panel of monoclonal antibodies (mAbs) for the development of ADC, bispecific and certain other novel tumor-targeting biologics applications. We have already made significant progress under our biologics-focused research collaborations and in-licensing arrangements and believe we will continue to do so during the remainder of 2021. For example, based on promising preclinical data for XB002 (formerly known as ICON-2), the lead Tissue Factor ADC program under our research collaboration with Iconic Therapeutics, Inc. (Iconic), we exercised our exclusive option to license XB002 in December 2020. Following the FDA’s acceptance of our IND in April 2021, we expect to initiate a phase 1 clinical trial of XB002 during the second quarter of 2021. Also, in May 2021, we executed an asset purchase agreement with GamaMabs Pharma SA (GamaMabs), under which we will, upon the closing of the asset purchase and subject to certain conditions, acquire all rights, title and interest in GamaMabs’ antibody program directed at anti-Müllerian hormone receptor 2 (AMHR2), a novel oncology target with relevance in multiple forms of cancer.
We will continue to engage in business development initiatives aimed at acquiring and in-licensing promising oncology platforms and assets and then further characterize and develop them utilizing our established preclinical and clinical development infrastructure. In total, we are advancing drug candidates across approximately 20 ongoing discovery programs toward and through preclinical development, and subject to preclinical data, we have the potential to submit multiple INDs later in 2021.
COVID-19 Update
As of the date of this Quarterly Report, the COVID-19 pandemic continues to have a modest impact on our business operations, in particular on our clinical trial, drug discovery and commercial activities. We have and continue to undertake considerable efforts to mitigate the various problems presented by this crisis, including as described below:
Clinical Trials. To varying degrees and at different rates across our clinical trials, we experienced declines in screening and enrollment activity during the early days of the COVID-19 pandemic, as well as delays in new site activations and restrictions on the access to treatment sites that is necessary to monitor clinical study progress and administration. Beginning during the second quarter of 2020 and throughout the rest of 2020 and the first quarter of 2021, however, that trend reversed, and screening and enrollment activity began to increase. As a result, we and our collaboration partners, including principal investigators and personnel at clinical trial sites, have been successful overall in preventing material delays to our ongoing and planned clinical trials due to the COVID-19 pandemic. We have done this through ongoing assessment of the COVID-19 pandemic’s impact and, wherever possible, taking proactive steps in compliance with guidance issued by the FDA, EMA and other regulatory agencies to support the safety of our patients and their access to treatment, as well as to maintain the high quality of our clinical trials. We recognize, however, that we may have to make further operational adjustments to our ongoing and planned clinical trials and that patient enrollment, and new clinical trial site initiations may be further slowed due to the COVID-19 pandemic, especially if it is further prolonged or grows in severity.
Drug Discovery and Preclinical Development. We have partially resumed internal drug discovery in our laboratories following a temporary suspension of these activities while we observed the shelter in place orders issued by the State of California and Alameda County. While this temporary suspension did not result in any significant changes to the timelines for our late-stage discovery work, we did experience modest delays in the advancement of certain of our early-stage programs. We also experienced some modest delays with respect to the portion of drug discovery work outsourced to third-party contractors in regions first impacted by COVID-19. However, those service providers have resumed discovery work and are meeting their contractual obligations in accordance with planned timelines. With respect to the preclinical development work outsourced to third-party contractors, to date that work has continued without substantial delay or interference resulting from the COVID-19 pandemic.
Commercial Activities. Our field employees have partially resumed their in-person promotional activities while supplementing these activities with telephonic and virtual interactions. These efforts enabled them to remain engaged with healthcare professionals and to be available to them as an informational resource. Overall, despite the challenges posed by the COVID-19 pandemic, we believe our commercial business has been only modestly impacted. We believe this is the case largely because of the gravity of the cancer conditions that our products are indicated to treat and because CABOMETYX has been available in the U.S. since 2016, which means its safety and efficacy profile is well known to most healthcare professionals that treat the conditions for which it is indicated.
Supply Chain. We have not experienced production delays or seen any significant impairment to our supply chain as a result of the COVID-19 pandemic. In addition, we continue to maintain substantial safety stock inventories for
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our commercial drug substance and drug products, which should be sufficient to maintain robust long-term supply. We continue to work closely with our third-party contract manufacturers, distributors, suppliers, comparator drug sourcing vendors and collaboration partners to safeguard both the timely production and delivery of our products.
General Business Operations. We have taken numerous temporary precautions to help mitigate the risk of transmission of the virus, including reducing the number of our employees working on-site at our Alameda headquarters under enhanced safety and social distancing protocols and initiating an on-site testing program. Although having most of our employees continue to work remotely has required that we devise new ways of working and collaborating, to date, the COVID-19 pandemic has only had a modest impact on our productivity and has not caused significant interruptions in our general business operations. For a discussion of workplace safety measures we have taken as a result of the COVID-19 pandemic, see “Business—Environmental, Health and Safety—Workplace Safety Measures in Response to COVID-19” in Part I, Item 1 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, submitted to the SEC on February 10, 2021.
The circumstances surrounding the COVID-19 pandemic are volatile and subject to rapid change. Despite our mitigation efforts, we may experience delays or an inability to execute on our clinical and preclinical development plans, reduced revenues or other adverse impacts to our business, which are described in more detail in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. We recognize that this pandemic will continue to present unique challenges for us throughout 2021, and potentially into 2022.
First Quarter 2021 Business Updates and Financial Highlights
During the first quarter of 2021, we continued to execute on our business objectives, generating significant revenues from operations and enabling us to continue to seek to maximize the clinical and commercial potential of our products and expand our product pipeline. Significant business updates and financial highlights for the quarter and subsequent to quarter-end include:
Business Updates
In January 2021, the FDA approved the combination of CABOMETYX and OPDIVO as a first-line treatment of patients with advanced RCC, and we commenced the commercial launch of the combination upon such approval. The approval was based on positive results from the phase 3 pivotal trial, CheckMate -9ER, in which the combination met its primary endpoint of significantly improving PFS at final analysis, as well as the secondary endpoints of OS at a pre-specified interim analysis and ORR, versus sunitinib.
In January 2021, we announced the initiation of a phase 1 clinical trial evaluating XL102, both as a single agent and in combination with other anti-cancer therapies for the treatment of inoperable, locally advanced or metastatic solid tumors.
In February 2021, we announced a collaboration and license agreement with Adagene to utilize Adagene’s SAFEbody technology platform to generate masked versions of mAbs from our growing preclinical pipeline for the development of ADCs or other innovative biologics.
In February 2021, cabozantinib was the subject of multiple data presentations at the virtual American Society of Clinical Oncology Genitourinary Cancers Symposium (ASCO GU 2021), including updated trial results with extended follow-up and patient-reported outcomes from the CheckMate -9ER trial demonstrating continued superior PFS, OS and ORR vs. sunitinib across both the subgroup of 75 patients with sarcomatoid histology and the full study population, as well as significantly improved health-related quality of life. Additional cabozantinib presentations at ASCO GU 2021 included: positive results from PAPMET (also known as SWOG S1500), a randomized phase 2 trial conducted by the Southwest Oncology Group evaluating cabozantinib versus sunitinib in patients with metastatic papillary RCC; positive findings from an international retrospective study of cabozantinib in RCC patients with brain metastases; and positive final results from the phase 1 clinical trial sponsored and conducted by NCI-CTEP, including seven expansion cohorts, evaluating cabozantinib in combination with nivolumab and in combination with both nivolumab and ipilimumab in patients with refractory metastatic genitourinary tumors.
In February 2021, we announced the FDA had granted Breakthrough Therapy Designation to cabozantinib as a potential treatment for patients with RAI-refractory DTC who have progressed following prior therapy.
In March 2021, we announced an exclusive license agreement with WuXi Bio for a panel of mAbs, discovered based on WuXi Bio’s integrated technology platforms for the development of ADC, bispecific and certain other novel tumor-targeting biologics applications.
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In March 2021, we announced a clinical trial collaboration and supply agreement with Merck KGaA and Pfizer to evaluate the safety and tolerability of XL092 in combination with avelumab in patients with locally advanced or metastatic UC as part of the ongoing STELLAR-001 phase 1b dose escalation study.
In March 2021, we announced the completion of patient enrollment in COSMIC-313, a phase 3 pivotal trial evaluating the triplet combination of cabozantinib, nivolumab and ipilimumab versus the combination of nivolumab and ipilimumab in patients with previously untreated advanced intermediate- or poor-risk RCC. COSMIC-313 is a multicenter, randomized, double-blind, controlled phase 3 pivotal trial that enrolled approximately 840 patients globally. The primary endpoint of the trial is PFS, and additional endpoints include OS and ORR.
In March 2021 and April 2021, Ipsen and BMS, respectively, received regulatory approval from the EC for CABOMETYX in combination with OPDIVO as a first-line treatment for patients with advanced RCC.
In April 2021, we announced the FDA’s acceptance of the IND for XB002 and our plans to initiate a phase 1 trial during the second quarter of 2021.
In May 2021, we announced an asset purchase agreement with GamaMabs to acquire GamaMabs’ antibody program directed at AMHR2.
In May 2021, we received a notice letter from Teva Pharmaceuticals USA, Inc. (Teva) regarding an Abbreviated New Drug Application (ANDA) Teva submitted to the FDA, requesting approval to market a generic version of CABOMETYX tablets. Teva’s notice letter included a Paragraph IV certification with respect to our U.S. Patent Nos. 9,724,342 (formulations), 10,034,873 (methods of treatment) and 10,039,757 (methods of treatment), which are listed in the Approved Drug Products with Therapeutic Equivalence Evaluations, also referred to as the Orange Book, and expire in 2033, 2031 and 2031, respectively. Teva’s notice letter did not provide a Paragraph IV certification against any additional CABOMETYX patents. We are reviewing the details of the Paragraph IV certification notice. We intend to continue to vigorously defend our cabozantinib intellectual property estate.
Financial Highlights
Net product revenues for the first quarter of 2021 were $227.2 million, compared to $193.9 million for the first quarter of 2020.
Total revenues for the first quarter of 2021 were $270.2 million, compared to $226.9 million for the first quarter of 2020.
Research and development expenses for the first quarter of 2021 were $159.3 million, compared to $101.9 million for the first quarter of 2020.
Selling, general and administrative expenses for the first quarter of 2021 were $102.4 million, compared to $62.9 million for the first quarter of 2020.
Provision for (benefit from) income taxes for the first quarter of 2021 was $(3.6) million, compared to $11.4 million for the first quarter of 2020.
Net income for the first quarter of 2021 was $1.6 million, or $0.01 per share, basic and $0.00 per share, diluted, compared to net income of $48.6 million, or $0.16 per share, basic and $0.15 per share diluted, for the first quarter of 2020.
Cash, cash equivalents, restricted cash equivalents and investments were $1.6 billion as of March 31, 2021, compared to $1.5 billion as of December 31, 2020.
See “Results of Operations” below for a discussion of the detailed components and analysis of the amounts above.
Challenges and Risks
In addition to the challenges and risks imposed by the COVID-19 pandemic and described under “—COVID-19 Update” above, we will also continue to face challenges and risks that may impact our ability to execute on our 2021 business objectives, and some of these risks to our business have been or may be exacerbated by the COVID-19 pandemic. In particular, for the foreseeable future, we expect our ability to generate sufficient cash flow to fund our business operations and growth will depend upon the continued commercial success of CABOMETYX, both alone or in combination with other therapies, as a treatment for the highly competitive indications for which it is approved, and possibly for other indications for which cabozantinib has been or is currently being evaluated in potentially label-enabling clinical trials, if warranted by the data generated from these trials. However, we cannot be certain that the clinical trials we and our collaboration partners are currently conducting, or may conduct in the future, will demonstrate adequate safety and efficacy in these additional indications to receive regulatory approval in the major commercial markets where CABOMETYX
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is approved. Even if we and our collaboration partners receive the required regulatory approvals to market cabozantinib for additional indications, we and our collaboration partners may not be able to commercialize CABOMETYX effectively and successfully in these additional indications. In addition, CABOMETYX will only continue to be commercially successful if private third-party and government payers continue to provide coverage and reimbursement. However, as is the case for all innovative pharmaceutical therapies, obtaining and maintaining coverage and reimbursement for CABOMETYX is becoming increasingly difficult, both within the U.S. and in foreign markets, because of growing concerns over healthcare cost containment and corresponding policy initiatives and activities aimed at limiting access to, and restricting the prices of, pharmaceuticals.
Achievement of our 2021 business objectives will also depend on our ability to maintain a competitive position with respect to the shifting landscape of therapeutic strategy for the treatment of cancer, which we may not be able to do. While we have had success in adapting our development strategy for the cabozantinib franchise and other product candidates to address the expanding role of therapies that combine targeted agents with ICIs and/or with other mechanisms of action, it is uncertain whether current and future clinical trials will lead to regulatory approvals, or whether physicians will prescribe regimens containing our products instead of competing product combinations. M