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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-K
(Mark One)
ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 27, 201330, 2016, or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from              to             
Commission File Number: 0-30235000-30235
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)
210 East Grand Ave.
South San Francisco, CA 94080
(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 ClassName of Each Exchange on Which Registered
Common Stock $.001 Par Value per ShareThe Nasdaq Stock Market LLC
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ý    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨    No  ý
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ý¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  ý    Accelerated filer  ¨    Non-accelerated filer (Do not check if a smaller reporting company)  ¨    Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  ý
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $820,780,802 (Based$1,361,396,920 (based on the closing sales price of the registrant’s common stock on that date. Excludes an aggregate of 3,315,55463,607,456 shares of the registrant’s common stock held by persons who were directors and/or executive officers of the registrant at June 28, 2013July 1, 2016 on the basis that such persons may be deemed to have been affiliates of the registrant at such date. Exclusion of such shares should not be construed to indicate that any such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant or that such person is controlled by or under common control with the registrant.)
As of February 19, 2014,16, 2017, there were 194,614,305290,866,613 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than April 26, 2014,29, 2017, in connection with the registrant’s 20142017 Annual Meeting of Stockholders are incorporated herein by reference into Part III of this Annual Report on Form 10-K.

Table of Contents

EXELIXIS, INC.
ANNUAL REPORT ON FORM 10-K
INDEX
  Page
PART I
Item 1.
Business
2
Item 1A.
Risk Factors
1830
Item 1B.
Unresolved Staff Comments
3548
Item 2.
Properties
3549
Item 3.
Legal Proceedings
3549
Item 4.
Mine Safety Disclosures
3649
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
3650
Item 6.
Selected Financial Data
3752
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3953
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
5667
Item 8.
Financial Statements and Supplementary Data
5767
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
95107
Item 9A.
Controls and Procedures
95107
Item 9B.
Other Information
97109
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
97109
Item 11.
Executive Compensation
97109
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
98110
Item 13.
Certain Relationships and Related Transactions, and Director Independence
99110
Item 14.
Principal Accounting Fees and Services
99110
PART IV
Item 15.
Exhibits, Financial Statement Schedules
100111
Item 16.
Form 10-K Summary
111
 
SIGNATURES
101112


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PART I
Some of the statements under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and elsewhere in this Annual Report on Form 10-K are forward-looking statements. These statements are based on our 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. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “focus,” “assume,” “goal,” “objective,” “will,” “may,” “would,” “could,” “estimate,” “predict,” “target,” “potential,” “continue,” “encouraging” or the negative of such terms or other similar expressions identify 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 “Item 1A. Risk Factors” as well as those discussed elsewhere in this Annual Report on Form 10-K. 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.
Exelixis hasWe have adopted a 52- or 53-week fiscal year policy that generally ends on the Friday closest to December 31st. Fiscal year 2011,2014, a 53-week year, ended on January 2, 2015; fiscal year 2015, a 52-week year, ended on January 1, 2016; fiscal year 2016, a 52-week year, ended on December 30, 2011, fiscal year 2012, a 52-week year, ended on December 28, 2012, fiscal year 2013, a 52-week year, ended on December 27, 2013,2016; and fiscal year 2014,2017, a 53-week52-week year, will end on January 2, 2015.December 29, 2017. For convenience, references in this report as of and for the fiscal years ended January 2, 2015, January 1, 2016, and December 30, 2011, December 28, 2012 and December 27, 2013,2016 are indicated on a calendar year basis,as being as of and for the years ended December 31, 2011, 20122014, 2015, and 2013,2016, respectively. The quarterly period ended January 2, 2015 is a 14-week fiscal quarter; all other interim periods presented are 13-week fiscal quarters.
ITEM 1.BUSINESS
Overview
Exelixis, Inc. (“Exelixis,” “we,” “our” or “us”) is a biotechnologybiopharmaceutical company committed to developing small molecule therapiesthe discovery, development and commercialization of new medicines to improve care and outcomes for people with cancer. Since its founding in 1994, three products discovered at Exelixis have progressed through clinical development, received regulatory approval, and entered the treatment of cancer. Our two most advanced assets, COMETRIQ® (cabozantinib), our wholly-ownedcommercial marketplace. Two are derived from cabozantinib, an inhibitor of multiple receptor tyrosine kinases including MET, AXL, and VEGF receptors: CABOMETYX™ tablets approved for previously treated advanced kidney cancer and COMETRIQ® capsules approved for progressive, metastatic medullary thyroid cancer. The third product, Cotellic®, is a formulation of cobimetinib, (GDC-0973/XL518), a potent, highly selective inhibitor of MEK, which we out-licensed tomarketed under a collaboration with Genentech Inc. (a wholly-owned member of the Roche Group), or Genentech,and is approved as part of a combination regimen to treat advanced melanoma. Both cabozantinib and cobimetinib have shown potential in a variety of forms of cancer and are currently the subjectsubjects of six ongoing phase 3 pivotal trials. Top-line results from fourbroad clinical development programs.
The following is a summary of these pivotal trials are expected in 2014.important information about our internally-discovered, marketed products:
We are focusing our proprietary resources and development and commercialization efforts primarily on COMETRIQCABOMETYX (cabozantinib), which was approved on November 29, 2012, by the U.S. Food and Drug Administration, or FDA, on April 25, 2016, for the treatment of patients with advanced renal cell carcinoma, or RCC, who have received prior anti-angiogenic therapy. The European Commission, or EC, approved CABOMETYX on September 9, 2016 similarly for the treatment of advanced RCC in adults following prior vascular endothelial growth factor, or VEGF, targeted therapy. Outside the U.S. and Japan, CABOMETYX is being marketed by our collaboration partner Ipsen Pharma SAS, or Ipsen. Should CABOMETYX be approved in Japan, it will be marketed by our collaboration partner Takeda Pharmaceutical Company Limited, or Takeda. In 2016, we generated $93.5 million in net product revenue from sales of CABOMETYX in the United States.
COMETRIQ (cabozantinib),our first marketed product, was approved by the FDA on November 29, 2012 for the treatment of patients with progressive, metastatic medullary thyroid cancer,carcinoma, or MTC, inMTC. In March 2014, the United States, where it became commercially available in late January 2013. In December 2013, the European Committee for Medicinal Products for Human Use, or CHMP, issuedEC granted COMETRIQ a positive opinion on the Marketing Authorization Application, or MAA, submitted to the European Medicines Agency, or EMA, for COMETRIQsimilar, conditional marketing authorization for the proposed indicationtreatment of adult patients with progressive, unresectable locally advanced or metastatic MTC. The CHMP’s positive opinion will be reviewed byCOMETRIQ is now commercialized in the European Commission, which has the authority to approve medicines for the European Union.
Cabozantinib is being evaluatedUnion by Ipsen. In 2016, we generated $39.4 million in a broad development program, including two ongoing phase 3 pivotal trials in metastatic castration-resistant prostate cancer, or CRPC, an ongoing phase 3 pivotal trial in metastatic renal cell cancer, or RCC, and an ongoing phase 3 pivotal trial in advanced hepatocellular cancer, or HCC. We believe cabozantinib has the potential to be a high-quality, broadly-active and differentiated anti-cancer agent that can make a meaningful differencenet product revenue from sales of COMETRIQ in the lives of patients. Our objective is to develop cabozantinib into a major oncology franchise,United States and we believe that the approvalreceived $2.5 million in product revenue from sales of COMETRIQ (cabozantinib) for the treatmentby our former distribution partner, Swedish Orphan Biovitrum, or Sobi. Cabozantinib has shown clinical anti-tumor activity in more than 20 forms of progressive, metastatic MTC provides us with the opportunity to establish a commercial presence in furtherance of this objective. We currently expect top-line data from our two phase 3 pivotal trials of cabozantinib in CRPC and the overall survival analysis of our phase 3 pivotal trial of cabozantinib in progressive, metastatic MTC in 2014.
Cobimetinib is also being evaluated in a broad development program, including a multicenter, randomized, double-blind, placebo-controlled phase 3 clinical trial evaluating the combination of cobimetinib with vemurafenib versus vemurafenib in previously untreated BRAFV600 mutation positive patients with unresectable locally advanced or metastatic melanoma that was initiated on November 1, 2012. Roche and Genentech have provided guidance that they expect top-line data from this trial in 2014.
Under the terms of our co-development agreement with Genentech for cobimetinib, we are entitled to an initial equal share of U.S. profits and losses for cobimetinib, which will decrease as sales increase, and will share equally in the U.S. marketing and commercialization costs. The profit share has multiple tiers—we are entitled to 50% of profits from the first $200 million of U.S. actual sales, decreasing to 30% of profits from U.S. actual sales in excess of $400 million. We are entitled


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cancer, so we are focused on advancing the broad cabozantinib clinical development program in order to low double-digit royaltiesadvance commercial opportunities beyond advanced RCC and MTC. For additional information, see “Cabozantinib Development Program.”
Cotellic(cobimetinib) was approved by the FDA on ex-U.S. net sales. In November 2013, we exercised an option under10, 2015, in combination with vemurafenib for the co-development agreement to co-promotetreatment of patients with BRAF V600E or V600K mutation-positive advanced melanoma in the United States. We will provide upIt has also been approved in combination with vemurafenib in multiple other territories including the European Union, Switzerland, Canada, Australia and Brazil. In 2016, we recognized $2.8 million in collaboration revenue as a result of royalties on ex-U.S. sales of Cotellic and beginning in the fourth quarter of 2016, we also recognized a small net profit for our share of U.S. activities under the collaboration agreement. Genentech has an extensive clinical development program for this compound. For additional information on the cobimetinib development program, see “Cobimetinib Development Program.”
 Our immediate business objective is to 25%maximize the clinical and commercial potential of CABOMETYX, COMETRIQ and Cotellic. Over the total sales forcecourse of 2016, the revenue generated from the sale of these products and from our collaboration agreements, coupled with disciplined expense management and reduced debt on our balance sheet, has created a capital structure upon which we believe Exelixis can grow in a sustainable manner. As a result, we believe we are increasingly well positioned to drive the expansion and depth of our product offerings through the continued development of cabozantinib, the measured resumption of internal drug discovery activities and the evaluation of in-licensing and acquisition opportunities that align with our oncology drug development expertise.
Recent Developments
Commercialization of CABOMETYX for cobimetinibAdvanced RCC
The American Cancer Society’s 2016 statistics cite kidney cancer as among the ten most commonly diagnosed forms of cancer among both men and women in the United States.The second and later-line RCC market is large and growing; published studies suggest that the drug-eligible patient population encompasses approximately 17,000 individuals in the United States if commercialized, and will call37,000 globally.
When the FDA approved our novel tyrosine kinase inhibitor, or TKI, CABOMETYX, in April 2016, we were prepared to engage with the advanced RCC treating community and bring CABOMETYX to market for the benefit of patients. Experienced and professional oncology sales, marketing, market access, and medical affairs teams were in place and our supply chain and distribution arrangements were substantially complete. Our educational efforts began to familiarize physicians with CABOMETYX’s unique product profile, although physicians were already largely familiar with the TKI class.
CABOMETYX is distinct from other approved treatment options for previously treated patients with advanced RCC because it is the first single agent therapy to demonstrate robust and clinically meaningful improvements in all three key efficacy parameters - overall survival, or OS, progression-free survival, or PFS, and objective response rate, or ORR - in that indication. The FDA recognized this during its regulatory review, when it granted CABOMETYX Fast Track and Breakthrough Therapy designations. For additional information about METEOR (Metastatic RCC Phase 3 Study Evaluating Cabozantinib vs. Everolimus), the phase 3 pivotal trial upon which the approval of CABOMETYX was based, see “Cabozantinib Development Program - Exelixis Sponsored Trials - RCC - METEOR.”
A review of the launch to date shows that physicians are rapidly adopting CABOMETYX, demonstrated by increasing demand and patients initiating therapy, despite the large number of competing products approved to treat advanced RCC. The clinical profile and initial success of CABOMETYX in the United States has enabled us to continue to attract top talent and further build commercial and medical affairs organizations of considerable size and experience. As a result, we believe that we are well positioned to support the growth of our development pipeline.
In Europe, Ipsen has made significant progress since September 2016, when the EC approved CABOMETYX tablets for the treatment of advanced RCC in adults following prior VEGF targeted therapy. By the end of 2016, Ipsen recorded its first commercial sales in Europe and is now preparing to potentially market CABOMETYX in all 28 member states of the European Union, Norway, Iceland, and elsewhere.


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Establishment and Expansion of Global Partnerships for Cabozantinib
On February 29, 2016, we entered into a collaboration and license agreement with Ipsen, a specialty pharmaceutical company already engaged in the global distribution of oncology medicines. Our collaboration focuses on customersthe further development of cabozantinib and otherwise engageprovides Ipsen exclusive rights to commercialize current and potential future cabozantinib indications outside of the United States, Canada and Japan. On December 20, 2016, we agreed to add Canada to the Ipsen territories because Ipsen also has substantial business resources in promotional activities using that sales force, consistentcountry. The upfront payments and regulatory milestones we received from Ipsen during 2016 were essential to our commercial success because they provided us with the financial resources to successfully commercialize CABOMETYX in the United States without having to access alternative sources of capital. For additional information on our collaboration with Ipsen, see “Collaborations - Cabozantinib Collaborations - Ipsen Collaboration.”
On January 30, 2017, we continued to advance the global development and commercialization of cabozantinib by entering into a collaboration and license agreement with Takeda for the commercialization and further clinical development of cabozantinib in Japan. Pursuant to the terms of the co-developmentcollaboration agreement, Takeda has exclusive commercialization rights for currently developed and potential future cabozantinib indications in Japan. The parties have also agreed to collaborate on the future clinical development of cabozantinib. For additional information on our collaboration with Takeda, see “Collaborations - Cabozantinib Collaborations - Takeda Collaboration.”
Submission Planning for Supplemental New Drug Application, or sNDA, for Cabozantinib as a co-promotion agreement to be entered intoTreatment for First-Line Advanced RCC

On May 23, 2016, we announced that CABOSUN, a randomized phase 2 trial of cabozantinib in patients with previously untreated advanced RCC being conducted by the parties.
Our Strategy
We believe that the available clinical data demonstrate that cabozantinib has the potential to be a broadly active anti-cancer agent, and our objective is to build cabozantinib into a major oncology franchise. The initial regulatory approvalAlliance for Clinical Trials in Oncology, or The Alliance, as part of COMETRIQ (cabozantinib) to treat progressive, metastatic MTC provides a niche market opportunity that allows us to gain commercialization experience while providing a solid foundation for potential expansion into larger cancer indications.
We are focusing our internal efforts on cancers for which we believe cabozantinib has significant therapeutic and commercial potential in the near term, while utilizing our Cooperative Research and Development Agreement, or CRADA, with the National Cancer Institute’s Cancer Therapy Evaluation Program, or NCI-CTEP, met its primary endpoint, demonstrating a statistically significant and investigator sponsoredclinically meaningful improvement in PFS compared with sunitinib in patients with intermediate- or poor-risk disease. Based on these results, we are working towards the submission of a sNDA in 2017 for cabozantinib as a treatment for first-line advanced RCC. For additional information on the results of CABOSUN, see “Cabozantinib Development Program - Trials Conducted through our CRADA with NCI-CTEP and our IST Program -RCC - CABOSUN.”

Expanded Development and Commercialization of Cotellic
During 2016, our collaboration partner, Genentech, received additional approvals for Cotellic in combination with vemurafenib for the treatment of patients with unresectable or metastatic melanoma with a BRAF V600E mutation in multiple countries, including Australia and Brazil. Genentech also advanced the development program for cobimetinib during 2016, through the initiation and announcement of multiple phase 3 pivotal trials exploring the combination of cobimetinib with other targeted and immuno-oncology agents for the treatment of melanoma and colorectal cancer, or ISTs,CRC. Cobimetinib has the potential to generateprovide us with a meaningful second significant source of revenue. For additional datainformation on the cobimetinib development program, see “Cobimetinib Development Program.”
Extinguishment of Convertible Debt

During 2016, we retired our 4.25% Convertible Senior Subordinated Notes due 2019, or the 2019 Notes. This was accomplished by first entering into privately negotiated exchange transactions pursuant to allow uswhich $239.4 million of the 2019 Notes were exchanged for an aggregate of approximately 45 million shares of our common stock and an aggregate cash payment of approximately $2.4 million. Following completion of these exchange transactions, we issued a redemption notice for the remaining $48.1 million of the outstanding 2019 Notes. As a result of the redemption, $47.5 million of the 2019 Notes were converted into shares of our common stock and the remaining $0.6 million of the 2019 Notes were redeemed in cash for 100% of the principal amount thereof, plus accrued and unpaid interest through the end of the redemption period. As a result of the successful completion of the exchange transactions and redemption of the 2019 Notes, we significantly reduced our outstanding debt and strengthened our capital structure to prioritizesupport potential future late stage trialsgrowth. For additional information on the exchange transactions and redemption of the 2019 Notes, see “Note 7, Debt,” to our Notes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K.


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Evaluation of Cabozantinib in Combination with Immune-oncology Agents in Various Indications, Including a Phase 3 Trial in First Line Advanced RCC
Cabozantinib has demonstrated clinical activity as a single agent in advanced RCC, and we are interested in further examining its potential in combination with immunotherapies to treat this serious disease. Building on the available preclinical and clinical observations that suggest treatment with cabozantinib results in a cost-effective fashion. more immune-permissive tumor environment potentially resulting in cooperative activity of cabozantinib in combination with immune check point inhibitors, in collaboration with Bristol Meyers Squibb Company, or BMS, we intend to evaluate the combination of cabozantinib with nivolumab or nivolumab and ipilimumab in various tumor types, including bladder cancer, hepatocellular carcinoma, or HCC, and a phase 3 trial in first-line advanced RCC. The combination of cabozantinib with nivolumab or nivolumab and ipilimumab is being evaluated in a phase 1b trial that has demonstrated an acceptable safety profile and clinical activity in patients with heavily pre-treated genitourinary malignancies, as reported at the European Society of Medical Oncology, or ESMO, 2016 Congress and, more recently at the 2017 Genitourinary Cancers Symposium. Additionally, we are planning to initiate a phase 1b trial with various expansion cohorts evaluating cabozantinib and atezolizumab, Roche’s PD-L1 targeting antibody, in patients with advanced genitorurinary malignancies, including RCC and bladder cancer. For additional information on our clinical collaboration agreements with BMS and Roche, see “Cabozantinib Development Program.”
Resumption of Discovery Activities
We believehave recently resumed internal drug discovery efforts with the goal of identifying novel and promising therapeutic candidates to advance into clinical trials. From 2000 until 2012, we had an active Discovery group that this staged approachadvanced 22 compounds to building value representsInvestigational New Drug, or IND stage, either independently or with collaboration partners, including cabozantinib and cobimetinib. We built a significant infrastructure, including a library of 4.6 million compounds, and gained extensive experience in the identification and optimization of drug candidates against multiple target classes for oncology, inflammation and metabolic diseases.
Our new discovery organization will leverage that history, but will be more focused and measured. We intend to concentrate our in-house work on the most rationalsensitive and effectivedemanding aspects of lead optimization and use contract research organizations, or CROs, to support more routine activities, thereby minimizing our internal footprint while still maintaining an agile, competitive approach. We intend to be judicious in the selection of targets and focus on those with the most robust preclinical validation datasets. We anticipate that our experience and ability to identify high quality lead compounds through use of our resources.propriety compound library will permit us to prosecute competitive and productive discovery programs in areas of high potential.
Cabozantinib Development Program
COMETRIQ(R) (cabozantinib)
COMETRIQCabozantinib inhibits the activity of multiple tyrosine kinases, including RET, MET, AXL, VEGF receptors, and VEGFR2.RET. These receptor tyrosine kinases are involved in both normal cellular function and in pathologic processes such as oncogenesis, metastasis, tumor angiogenesis, and maintenance of the tumor microenvironment. On November 29, 2012,Objective tumor responses have been observed in patients treated with cabozantinib in more than 20 individual tumor types investigated in phase 1 and 2 clinical trials to date, reflecting the FDA approved COMETRIQ formedicine’s broad clinical potential. We are currently evaluating cabozantinib in a broad development program comprising over 45 ongoing or planned clinical trials across multiple indications. We are the treatmentsponsor of progressive, metastatic MTC in the United States, and we commercially launched COMETRIQ in January 2013.
The recommended dosesome of COMETRIQ in progressive, metastatic MTC is 140 mg orally, once daily (one 80 mg capsule and three 20 mg starting capsules) administered without food. This dose may be withheld in responsethose trials, including CELESTIAL (Cabozantinib Phase 3 Controlled Study In Hepatocellular Carcinoma), our phase 3 pivotal trial comparing cabozantinib to certain adverse reactions, and upon resolutions of adverse reactions may be reduced stepwise to 100 or 60 mg once daily to appropriately adjust the dose to each individual patient’s tolerability. Permanent discontinuation is recommended for certain adverse reactions.
The COMETRIQ label has boxed warnings concerning risk of gastrointestinal perforations and fistulas, and severe hemorrhage. Other warnings and precautions include thrombotic events, wound complications, hypertension, osteonecrosis of the jaw, palmar-plantar erythrodysesthesia, proteinuria, reversible posterior leukoencephalopathy syndrome, caution regarding the potential for drug interactions with strong CYP3A4 inducers or inhibitors, the recommendation against useplacebo in patients with moderateadvanced HCC who had received previous treatment with sorafenib, with the remaining trials being conducted through our CRADA with NCI-CTEP or severe hepatic impairment,our investigator sponsored trial, or IST program. Beginning in February 2017, we also entered into individual clinical collaboration agreements with BMS and Roche, for the potential for embryo-fetal toxicity.purpose of conducting clinical studies combining cabozantinib with BMS’s PD-1 and CTLA-4 immune checkpoint inhibitors and Roche’s anti-PD-L1 immunotherapy compound.


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A select summary of our cabozantinib clinical development activities is below:
IndicationCombination RegimenStatus Update
Progressive, Metastatic Medullary Thyroid Cancer (MTC)
Approved in US and EU
Post-marketing study (EXAMINER)
Renal Cell Carcinoma (RCC)
Second-lineApproved in US and EU
First-line (intermediate- or poor-risk classification)Preparing to file sNDA in 2017 based on results from CABOSUN† trial
First-line+ nivolumab +/- ipilimumabPhase 3 pivotal trial expected to begin in 2017, co-sponsored with Bristol-Myers Squibb
Hepatocellular Carcinoma
Second-linePhase 3 (CELESTIAL), data anticipated in 2017
Non-Small Cell Lung Cancer
EGFR wild-typePhase 2†
Molecular alterations in RET, ROS1, MET, AXL, or NTRK1Phase 2*
Genitourinary Tumors, including Bladder and Urothelial Cancers
Genitourinary tumors+ nivolumab +/- ipilimumabPhase 1†
Advanced solid tumors+ atezolizumabPhase 1B* trial to begin in 2017, planned cohorts in RCC and urothelial carcinoma
Signal Search Opportunities to Inform Potential Development
Pancreatic neuroendocrine and carcinoid tumorsPhase 2*
Endometrial cancerPhase 2†
Differentiated thyroid cancerPhase 2*
Metastatic gastrointestinal stromal tumorPhase 2 (CABOGIST)§
Breast cancer with brain metastases+/- trastuzumabPhase 2*
Metastatic, hormone-receptor-positive breast cancer+ fulvestrantPhase 2*
Metastatic, triple negative breast cancerPhase 2*
Soft-tissue sarcomasPhase 2†
High-grade uterine sarcomasPhase 2§
Relapsed osteosarcoma or Ewing sarcomaPhase 2†
Colorectal cancer+/- panitumumabPhase 1*
* Trial conducted through Exelixis' Investigator-Sponsored Trial program.
† Trial conducted through collaboration with NCI’s Cancer Therapy Evaluation Program.
§ Trial sponsored by the European Organization for Research and Treatment of Cancer (EORTC).


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Exelixis Sponsored Trials

MTC - EXAM Pivotal Trial

COMETRIQ’s safety and efficacy were assessed in an international, multi-center, randomized double-blinded controlled trial of 330 patients with progressive, metastatic MTC, known as EXAM (Efficacy of XL184 (Cabozantinib) in Advanced Medullary Thyroid Cancer). Patients were required to have evidence of actively progressive disease within 14 months prior to study entry. This assessment was performed by an Independent Radiology Review Committee,independent radiology review committee, or IRRC, in 89% of patients and by the treating physicians in 11% of patients. Patients were randomized (2:1)2:1 to receive COMETRIQ 140 mg (n = 219) or placebo (n = 111) orally, once daily until disease progression determined by the treating physician or until intolerable toxicity. Randomization was stratified by age (≤ 65 years vs. > 65 years) and prior use of a tyrosine kinase inhibitor, or TKI. No cross-over was allowed at the time of progression. The primary endpoint was to compare progression-free survival, or PFS in patients receiving COMETRIQ versus patients receiving placebo. Secondary endpoints included objective response rateORR and overall survival.OS. The main efficacy outcome measures of PFS, objective responseORR and response duration were based on IRRC-confirmed events using modified Response Evaluation Criteria in Solid Tumors, (RECIST),or RECIST, which is a widely used set of rules that definedefines when cancer patients improve (“respond”), stay the same (“stabilize”) or worsen (“progress”) during treatments.

EXAM served as the basis for the regulatory approval of COMETRIQ in the United States and European Union. A statistically significant prolongation in PFS was demonstrated among COMETRIQ-treated patients compared to those receiving placebo [HR 0.28 (95% CI: 0.19, 0.40)0.19-0.40); p<0.0001], with median PFS of 11.2 months in the COMETRIQ arm and 4.0 months in the placebo arm. Partial responses, or PRs, were observed only among patients in the COMETRIQ arm (27% vs. 0%; p<0.0001). The median duration of objective response was 14.7 months (95% CI: 11.1, 19.3)11.1-19.3) for patients treated with COMETRIQ. ThereThe most commonly reported adverse drug reactions occurring in at least 25% of patients were diarrhea, stomatitis, palmar-plantar erythrodysesthesia syndrome, or PPES, decreased weight, decreased appetite, nausea, fatigue, oral pain, hair color changes, dysgeusia, hypertension, abdominal pain, and constipation. In November 2014, we announced completion of the OS analysis, the secondary endpoint of the study. Consistent with an earlier interim analysis, there was no statistically significant difference in overall survivalOS between the treatment armsarms. The median OS was 26.6 months for the COMETRIQ arm and 21.1 months for the placebo arm (HR = 0.85; 95% CI 0.64-1.12; p = 0.2409). The subgroup analysis by RET M918T mutation status, a known negative prognostic factor in MTC, revealed a large improvement in OS of 25.4 months for COMETRIQ-treated patients positive for the RET M918T mutation; the median OS was 44.3 months for the COMETRIQ arm and 18.9 months for the placebo arm (HR = 0.60; 95% CI 0.38-0.95; p = 0.026, not adjusted for multiple subgroup testing). We presented the final results at the planned interim analysis.

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TableAmerican Society of ContentsClinical Oncology, or ASCO, 2015 Annual Meeting and submitted the results to regulatory authorities to satisfy post-marketing commitments.

Postmarketing Commitments
In connection with the approval of COMETRIQ for the treatment of progressive, metastatic MTC, we are required to provide the analysis of mature overall survival data from the EXAM trial when the required 217 events (deaths) have occurred. We currently expect the overall survival analysis of EXAM to occur in 2014.
We are alsowere subject to the following postmarketing requirements:
A phase 2post-marketing requirements, all of which have been satisfied, other than a requirement to conduct a clinical study comparing a lower dose of COMETRIQ with the labeled dose of 140 mg. This study will evaluateis evaluating safety and PFS in progressive, metastatic MTC patients.
Two clinical pharmacology studies assessing the pharmacokinetics of COMETRIQ. One will address the effect of administering COMETRIQ in conjunction with agents that increase gastric pH such as proton pump inhibitors, and the other study will assess the pharmacokinetics of COMETRIQ in patients with hepatic impairment.
Four non-clinical studies to further assess the carcinogenicity, mutagenicity and teratogenicity of COMETRIQ.
Commercialization
COMETRIQ became commercially available in the United States in January 2013 and is being marketed in the United States principally through a small internal commercial team with relevant expertise in the promotion, distribution and reimbursement of oncology drugs. Effective October 29, 2013, the wholesale acquisition cost of COMETRIQ is $10,395 for a 28-day supply. COMETRIQ has been flat priced, meaning each dosage strength is priced the same. We currently estimate that there are between 500 and 700first and second line metastatic MTC patients diagnosed in the United States each year who will be eligible for COMETRIQ.ongoing.
We have scaled our commercial organization so that it is commensurate with the size of the market opportunity for progressive, metastatic MTC. We have also designed our commercial organization to maintain flexibility, and to enable us to quickly scale up if additional indications are approved in the future. We believe we have created an efficient commercial organization, taking advantage of outsourcing options where prudent to maximize the effectiveness of our commercial expenditures.
To help ensure that all eligible progressive, metastatic MTC patients have appropriate access to COMETRIQ, we have established a comprehensive reimbursement and support program called Exelixis Access Services. Through Exelixis Access Services, we: provide co-pay assistance to qualified, commercially insured patients to help minimize out-of-pocket costs; provide free drug to uninsured patients who meet certain clinical and financial criteria; and make contributions to an independent co-pay assistance charity to help patients who don’t qualify for our co-pay assistance program. In addition, Exelixis Access Services is designed to provide comprehensive reimbursement support services, such as prior authorization support, benefits investigation, and if needed, appeals support.
COMETRIQ is distributed in the United States exclusively through Diplomat Specialty Pharmacy, an independent specialty pharmacy that allows for efficient delivery of the medication by mail directly to patients.
To further support appropriate utilization of COMETRIQ, our Medical Affairs department is responsible for responding to physician inquiries with appropriate scientific and medical education and information.
EMA Marketing Authorization Application for COMETRIQ
In December 2013, the CHMP issued a positive opinion on the MAA, submitted to the EMA, for COMETRIQ for the proposed indication of progressive, unresectable, locally advanced, or metastatic MTC. The CHMP’s positive opinion will be reviewed by the European Commission, which has the authority to approve medicines for the European Union.
COMETRIQ received orphan drug designation in the European Union from the Committee for Orphan Medicinal Products for the treatment of MTC in February 2009.
During 2013, we entered into an agreement with a term ending on December 31, 2015, with Swedish Orphan Biovitrum, or Sobi, to support the distribution and commercialization of COMETRIQ for the approved MTC indication primarily in the European Union and potentially other countries in the event that COMETRIQ is approved for commercial sale in such jurisdictions. No other indication is covered by this agreement, and we maintain full commercial rights with respect to COMETRIQ in MTC outside the covered territory and for all other indications on a global basis. Under the terms of the agreement, we will continue to be responsible for regulatory approvals in the covered territory. Our payments to Sobi include certain pre-determined fixed fees as well as potential performance-based milestones related to the commercialization of the product in the covered territory. We have the ability to terminate the agreement at will at any time upon payment of certain pre-determined fees.

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Named Patient Use ProgramRCC - METEOR
Through our agreement with Sobi, we have established the infrastructure to make COMETRIQ available under a named patient use, or NPU, program in countries of the European Union and in other regions outside of the United States. An NPU program provides access to drugs unapproved in that country, but approved elsewhere, for a single patient or a group of patients in a particular country. 
Cabozantinib Development Program
We believe that cabozantinib’s broad clinical profile is attractive and will allow commercial differentiation, assuming regulatory approval. The cabozantinib clinical development program is currently comprised of a total of a broad array of trials, including five pivotal studies. A portion of these trials are being conducted through our own internal development efforts and are funded by us, and the remainder are being conducted through our CRADA with NCI-CTEP and our IST program. The most advanced clinical program for cabozantinib beyond progressive, metastatic MTC are focused on the treatment of metastatic CRPC, metastatic RCC and advanced HCC. We expect to expand the cabozantinib development program to other tumor indications based on encouraging interim data that have emerged from our randomized discontinuation trial, or RDT, as well as other clinical trials. Objective tumor responses have been observed in patients treated with cabozantinib in 15 individual tumor types investigated in phase 1 and 2 clinical trials to date, reflecting the broad potential clinical activity and commercial opportunity of this product candidate. In addition to activity against bone and soft tissue lesions in patients with CRPC, we have also observed resolution of metastatic bone lesions on bone scan in patients with metastatic breast cancer and melanoma in the RDT, in patients with RCC and patients with differentiated thyroid cancer in a phase 1 clinical trial, and in patients with bladder cancer in an NCI-CTEP-sponsored phase 2 clinical trial. To support the future development of cabozantinib, our Medical Affairs department is responsible for responsible for responding to physician inquiries with appropriate scientific and medical education and information, preparing scientific presentations and publications, and overseeing the process for ISTs. It is a priority for us to continue to evaluate cabozantinib across a broad range of tumor types, including non-small cell lung cancer, or NSCLC, ovarian cancer, melanoma, breast cancer, differentiated thyroid cancer and others, to support further prioritization of our clinical and commercial options. In addition, postmarketing requirements in connection with the approval of COMETRIQ in progressive, metastatic MTC dictate that we conduct additional studies related to dosing in progressive, metastatic MTC, pharmacokinetics, carcinogenicity, mutagenicity and teratogenicity of COMETRIQ as more fully described above under “--Postmarketing Commitments.”
CRPC
Exelixis has implemented a focused clinical strategy to investigate cabozantinib in a comprehensive development program for CRPC that could potentially lead to a product that can effectively compete in the CRPC marketplace. Interim data from our RDT suggest that cabozantinib has novel activity against bone and soft tissue lesions in patients with CRPC. Updated interim data from docetaxel-pretreated patients with metastatic CRPC and bone metastases treated with cabozantinib in an ongoing non-randomized expansion, or NRE, cohort of the RDT, reported at the American Society of Clinical Oncology Annual Meeting, or ASCO, in June 2013, showed a median overall survival of 10.8 months. A retrospective analysis of the updated interim data also showed that early responses in bone scan, circulating tumor cell levels and pain were associated with longer median overall survival as compared to non-responders.
In addition, interim data demonstrated that CRPC patients with bone metastases and bone pain at baseline experienced alleviation of pain, were able to reduce or discontinue narcotic medication and experienced a reduction in circulating tumor cell count. Lower starting doses of cabozantinib have been evaluated in the NRE cohort of CRPC patients treated at a daily dose of 40 mg, and in a dose-ranging study in CRPC patients conducted through an IST. Interim data from this NRE reported at the European Society for Medical Oncology, or ESMO, Annual Meeting in September 2012 suggest that the 40 mg daily dose has similar clinical activity to the 100 mg daily dose NRE cohort for key parameters, including reduction of metastatic bone and soft tissue disease, and reduction of bone pain and narcotic use, with an apparent improvement in tolerability compared to the 100 mg dose cohort. Interim data from the 40 mg cohort of the dose-ranging IST reported at ASCO in June 2012 had demonstrated similar clinical activity.
COMET Pivotal Trials. Two phase 3 pivotal trials, COMET-1 (CabOzantinib MET Inhibition CRPC Efficacy Trial-1) and COMET-2, were designed to provide an opportunity to clinically and commercially differentiate cabozantinib as an oncology agent with a potentially beneficial impact on overall survival, pain, and narcotic usage. We initiated the COMET-1 trial with an overall survival endpoint in May 2012 andIn July 2015, we initiated the COMET-2 trial with a pain palliation endpoint in December 2011. In September 2013, COMET-1 reached its enrollment targetannounced positive results of 960 patients. We currently believe that the top-line results from the COMET-1 and COMET- 2 trials will be available in 2014.

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COMET-1 is a double-blinded study comparing cabozantinib and prednisone that includes up to 280 international sites. The trial is designed to enroll 960 patients with CRPC that is metastatic to the bone and who have failed prior docetaxel therapy and have also failed prior abiraterone and/or enzalutamide therapies. There is no limit to the number, order or type of prior treatments. Patients are being randomized 2:1 to receive cabozantinib (60 mg daily, N=640) or prednisone (5 mg twice daily, N=320). Each arm is also receiving placebo to account for the once-daily versus twice-daily dosing regimens of cabozantinib and prednisone, respectively. The trial has 90% power to detect a 25% reduction in the risk of death (HR = 0.75). The final analysis will be event driven, with 578 events (deaths) required. A single interim analysis is planned after 387 events. The secondary endpoint is bone scan response as assessed by an independent radiology facility.
COMET-2 is a double-blinded study comparing cabozantinib and mitoxantrone/prednisone designed to enroll 246 patients with CRPC that is metastatic to the bone, who are suffering from moderate to severe bone pain despite optimized narcotic medication, and who have failed prior docetaxel therapy and have also failed prior abiraterone and/or enzalutamide therapies. The trial is being conducted in English-speaking regions, including the United States, Canada, Australia, and the United Kingdom. Patients are being randomized 1:1 to receive either cabozantinib or mitoxantrone/prednisone. Alleviation of bone pain will be determined by comparing the percentage of patients in the two treatment arms who achieve a pain response at Week 6 that is confirmed at Week 12. The trial design assumes that 25% of patients in the cabozantinib arm will have a pain response while 8% of patients in the mitoxantrone/prednisone arm will have a pain response. Prior to randomization, patients will undergo a period during which their pain medication is optimized using one long acting narcotic medication and one immediate release narcotic medication. This optimization follows a standard approach defined in the National Comprehensive Cancer Network guidelines. Patients in the cabozantinib arm will be dosed at 60 mg per day until the patient no longer receives clinical benefit. The definition of a responder with respect to the bone pain endpoint is a greater than or equal to 30% decrease from baseline in the average of the daily worst pain intensity collected over seven days in Week 6 and confirmed in Week 12, with neither a concomitant increase in average daily dose of any narcotic pain medication, nor addition of any new narcotic pain medication. Overall survival will be a secondary endpoint of the COMET-2 trial. The trial will be deemed successful if the primary endpoint of statistically significant pain improvement is met and the overall survival analysis does not show an adverse impact on overall survival in the cabozantinib arm.
Combination Trials. In December 2013 we initiated a phase 2 clinical trial evaluating cabozantinib in combination with abiraterone and prednisone versus abiraterone and prednisone in patients with CRPC that is metastatic to the bone who have not been treated with chemotherapy. The trial will compare abiraterone and prednisone to abiraterone and prednisone in combination with one of the three cabozantinib doses: 40 mg daily, 20 mg daily or 20 mg every other day. The primary endpoint for the randomized, open-label trial is radiographic PFS. The trial is expected to enroll 280 chemotherapy-naïve CRPC patients who have bone metastases and will be conducted at approximately 50 sites in North America. In addition to evaluating radiographic PFS, the trial includes pre-specified outcome measures of safety and tolerability, pharmacokinetics of cabozantinib in combination with abiraterone, overall survival, and bone scan response by computer-aided detection.
We are also planning to initiate a phase 1b clinical trial evaluating cabozantinib in combination with enzalutamide in patients with metastatic CRPC who have not received prior enzalutamide therapy or chemotherapy.
RCC
METEOR, (Metastatic RCC Phase 3 Study Evaluating Cabozantinib vs. Everolimus), a phase 3 pivotal trial comparing cabozantinibCABOMETYX to everolimus in patients with metastaticadvanced RCC who have experienced disease progression following treatment with at least one prior VEGFR TKI,VEGF receptor inhibitor. METEOR was initiated in May 2013. The trial iswas designed to enroll 650 patients at approximately 200 sites. Patients are beingwere stratified based on the number of prior VEGFR-TKI therapiesVEGF receptor inhibitors received, and on commonly applied RCC risk criteria. Patients are beingwere randomized 1:1 to receive 60 mg of cabozantinibCABOMETYX daily or 10 mg of everolimus daily and no cross-over will bewas allowed between the study arms. The METEOR trial was designed to provide adequate power to assess both the primary endpoint for METEOR isof PFS, and the secondary endpointsendpoint of OS. The trial protocol specified that the primary analysis of PFS would be conducted among the first 375 patients randomized while the secondary endpoint of OS would be conducted among all 650 patients randomized. This design was employed to ensure sufficient follow-up and a PFS profile that would not be primarily weighted toward early events. Such disproportionate weighting of events was a potential risk if the entire study population required for the secondary endpoint analysis of OS had also served as the population for the primary analysis of PFS. On September 26, 2015, The New England Journal of Medicine published the complete, detailed positive results from the primary analysis of METEOR, and these results were also presented during the Presidential Session I at the European Cancer Congress 2015. The trial met its primary endpoint, demonstrating a statistically significant increase in PFS for CABOMETYX, as determined by an IRRC among the first 375 patients enrolled. The median PFS was 7.4 months for the CABOMETYX arm versus 3.8 months for the everolimus arm, and the hazard ratio [HR] was


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0.58 (95% confidence interval [CI] 0.45-0.75, p<001), corresponding to a 42% reduction in the rate of disease progression or death for CABOMETYX compared to everolimus. The trial also showed that CABOMETYX significantly improved the ORR. The most commonly reported adverse drug reactions occurring in at least 25% of patients were diarrhea, fatigue, nausea, decreased appetite, PPES, hypertension, vomiting, weight decreased, and constipation.
A review of adverse events, or AEs, demonstrated that the frequency of AEs of any grade regardless of causality was approximately balanced between study arms, and the rate of treatment discontinuation due to adverse events was 9% and 10% for CABOMETYX and everolimus, respectively. With additional follow-up for OS, the study also met its secondary endpoint of OS as presented in June 2016 at the ASCO 2016 Annual Meeting and published in Lancet Oncology. Compared with everolimus, CABOMETYX was associated with a 34% reduction in the rate of death and median OS was 21.4 months for patients receiving CABOMETYX versus 16.5 months for those receiving everolimus (HR=0.66, 95% CI 0.53-0.83, P=0.0003).
In January 2016, an analysis of PFS among all 658 patients enrolled was presented at the 2016 Genitourinary Cancers Symposium, and revealed consistent results with the primary analysis showing a median PFS of 7.4 months for the CABOMETYX arm versus 3.9 months for the everolimus arm, and a HR of 0.52 (95% CI 0.43-0.64, p<0.001), corresponding to a 48% reduction in the rate of disease progression or death for CABOMETYX as compared to everolimus. In addition, subgroup analyses for PFS showed consistent beneficial effect of CABOMETYX versus everolimus; subgroups included: ECOG performance status; commonly applied RCC risk groups as described by Motzer et al.; organ involvement, including bone and visceral metastases and overall tumor burden; extent and type of prior VEGF receptor inhibitor therapy; and prior PD-1/PD-L1 therapy. For patients without prior PD-1/PD-L1 therapy, median PFS was 7.4 months for CABOMETYX and 3.9 months for everolimus (HR = 0.54, 95% CI 0.44-0.66). For patients who had received prior PD-1/PD-L1 therapy, the median PFS for CABOMETYX was not reached, and the median PFS for everolimus was 4.1 months (HR = 0.22, 95% CI 0.07-0.65). Subgroup analyses for ORR also showed consistent benefit for CABOMETYX as compared to everolimus.
On the basis of the data from the METEOR trial, CABOMETYX was approved by the FDA for the treatment of patients with advanced RCC following prior antiangiogenic therapy, and by the EC for the treatment of advanced RCC in adults following prior VEGF targeted therapy.
HCC - CELESTIAL
Published studies indicate that an estimated 700,000 new cases of HCC present each year worldwide, with 39,000 of these cases in the United States. While patients with localized disease may be candidates for surgery or other therapies such as embolization, treatment options for advanced disease are overall survivallimited. Currently, sorafenib is the only approved agent for the first line treatment of advanced, unresectable HCC. However, patients typically progress despite sorafenib treatment, at which point there is no approved therapy available to them. While a number of VEGF receptor targeting agents have been tested in phase 2/3 trials in the post-sorafenib setting, only one phase 3 trial has shown positive results. In 2016 results from a study comparing regorafenib and objective response rate.placebo in the second line treatment of HCC has reported positive results and data are currently under review by regulatory agencies. Thus, second-line advanced HCC still represents an area of substantial unmet medical need.
MET is the tyrosine kinase receptor for hepatocyte growth factor, and plays a crucial role in liver development and regeneration. Expression of MET is elevated in HCC, particularly in metastatic HCC, and high MET levels are associated with reduced OS and resistance to sorafenib treatment. In preclinical models, upregulation of MET has been shown to drive escape from VEGF receptor inhibition, and to promote an increase in invasion and metastasis. Consistent with this, treatment of HCC patients with sorafenib can result in increases in tumor MET expression. These findings provide a strong parallel with the RCC setting, where high levels of MET expression and activation are also associated with poor prognosis and resistance to and escape from first-line treatment with VEGF receptor inhibitors.

We believe that targeting both MET and VEGF receptors with cabozantinib in HCC may provide benefit in second-line HCC by maintaining VEGF receptor inhibition while also inhibiting MET-driven oncogenic and resistance pathways. In an initial test of this hypothesis, a cohort of HCC patients, including a subset whose disease had progressed despite prior sorafenib treatment, was enrolled in our phase 2 randomized discontinuation trial. Based on the encouraging data that emerged from this trial, we launched CELESTIAL, (Cabozantinib Phase 3 Controlled Study In Hepatocellular Carcinoma), aour phase 3 pivotal trial comparing cabozantinib withto placebo in patients with advanced HCC who have previously been treatedhad received previous treatment with sorafenib was initiated in September 2013.sorafenib. The trial is designed to enroll 760 patients at approximatelyup to 200 sites. Patients are being randomized 2:1 to receive 60 mg of cabozantinib daily or placebo. The primary endpoint for CELESTIAL is overall survival,OS, and the secondary endpoints include objective response rateORR and PFS. In September 2016, following the first planned

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NSCLC
interim analysis for CELESTIAL, the trial’s Independent Data Monitoring Committee, or IDMC, determined that the study should continue without modifications per the study protocol. We are planninganticipate top-line results from CELESTIAL in 2017.

Trials Conducted Under our Clinical Collaboration Agreements

Bladder Cancer, HCC and First-Line Advanced RCC - Combination Studies with BMS

Building on the available preclinical and clinical observations that cabozantinib results in a more immune-permissive tumor environment potentially resulting in cooperative activity of cabozantinib in combination with immune check point inhibitors, in February 2017, we entered into a clinical trial collaboration agreement with BMS for the purpose of evaluating the combination of cabozantinib with nivolumab or cabozantinib with nivolumab and ipilimumab in various tumor types, including, in a planned phase 3 trial in first-line advanced RCC, and in potential additional trials in bladder cancer and HCC. Pursuant to the terms of the collaboration agreement, each party will grant to the other a non-exclusive, worldwide (within the collaboration territory as defined in the collaboration agreement), non-transferable, royalty-free license to use the other party’s compounds in the conduct of each clinical trial. The parties’ efforts will be governed through a joint development committee established to guide and oversee the collaboration’s operation. Each trial will be conducted under a combination IND application, unless otherwise required by a regulatory authority. Each party will be responsible for supplying drug product for the applicable clinical trial and costs for each such trial will be shared equally between the parties, unless two BMS compounds will be utilized in such trial, in which case BMS will bear two-thirds of the costs for such study treatment arms and we will bear one-third of the costs. Unless earlier terminated, the collaboration agreement shall remain in effect until the completion of all clinical trials under the collaboration, all related trial data has been delivered to both parties and the completion of any then agreed upon analysis. The collaboration agreement may be terminated for cause by either party based on uncured material breach by the other party, bankruptcy of the other party or for safety reasons. Upon termination by either party, the licenses granted to each party to conduct a single arm trial in patients with NSCLC who are positive for a RET fusion gene. Thecombined therapy trial will enroll approximately 100 patients, and objective response rate will be the primary endpoint. Additionally, we will include exploratory cohorts of patientsterminate.
Locally Advanced or Metastatic Solid Tumors - Combination Study with other relevant molecular alterations targeted by cabozantinib.
Other Cancer IndicationsRoche
We are also evaluatingplanning to initiate a phase 1b dose escalation study that will evaluate the safety and tolerability of cabozantinib in combination with Roche’s atezolizumab in patients with locally advanced or metastatic solid tumors. Based on the dose-escalation results, the trial has the potential initiationto enroll up to four expansion cohorts, including a cohort of pivotal trials in other tumor types.patients with previously untreated advanced clear cell RCC and three cohorts of urothelial carcinoma, namely platinum eligible first-line patients, first or second-line platinum ineligible patients and patients previously treated with platinum-containing chemotherapy. Enrollment for this trial is scheduled to begin mid-year 2017. We believewill be the potential initiation of pivotal trials in other tumor types may increase the valuesponsor of the cabozantinib franchise, accelerate potential revenues,trial, and spread the development and commercialization risk for cabozantinib across multiple opportunities. We have launched two initiatives to expand the cabozantinib development program beyond our internal development efforts:Roche will provide atezolizumab.

Trials Conducted through our CRADA with NCI-CTEP and our IST program.Program
We
In October 2011, we entered into a CRADA with NCI-CTEP for the clinical development of cabozantinib. Through our CRADA with NCI-CTEP and our IST program we have been able to expand the cabozantinib development program dramatically while avoiding over-burdening our internal development resources. Our CRADA reflects a major commitment by NCI-CTEP to support the broad exploration of cabozantinib’s potential in a wide variety of cancers, each representing a substantial unmet medical need. Through this mechanism, NCI-CTEP provides funding for as many as 20 active clinical trials of cabozantinib each year for a five-year period. The term of the CRADA was extended in October 2016 for an additional five-year period through October 2021, provided, that both parties maintain the right to terminate the CRADA for any reason upon sixty days’ notice, an uncured material breach upon thirty days’ notice and immediately for safety concerns. IND applications for trials under the CRADA are held by NCI-CTEP. NCI-CTEP also retains rights to any inventions made in whole or in part by NCI-CTEP investigators. However, for inventions that claim the use and/or the composition of cabozantinib, we have an automatic option to elect a worldwide, non-exclusive license to cabozantinib inventions for commercial purposes, with the right to sublicense to affiliates or collaborators working on our behalf, as well as an additional, separate option to negotiate an exclusive license to cabozantinib inventions. Further, before any trial proposed under the CRADA may commence, the protocol is subject to our review and approval, and the satisfaction of certain other conditions. We believe our CRADA with NCI-CTEP has and will enable us to continue to expand the cabozantinib development program broadly in a cost-efficient manner.



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RCC - CABOSUN
In October 2016, we announced detailed results from CABOSUN, a randomized phase 2 trial of cabozantinib in patients with previously untreated advanced RCC with intermediate- or poor-risk disease conducted by The Alliance under our CRADA with NCI-CTEP. CABOSUN was a randomized, open-label, active-controlled phase 2 trial that enrolled 157 patients with advanced RCC. Patients were randomized 1:1 to receive cabozantinib (60 mg once daily) or sunitinib (50 mg once daily, 4 weeks on followed by 2 weeks off). The primary endpoint was PFS. Secondary endpoints included OS and ORR. Eligible patients were required to have locally advanced or metastatic clear-cell RCC, ECOG performance status 0-2, and had to be intermediate or poor risk per the International Metastatic Renal Cell Carcinoma Database Consortium, or IMDC, criteria (Heng, Journal of Clinical Oncology, 2009).
CABOSUN met its primary endpoint, demonstrating a statistically significant and clinically meaningful improvement in PFS compared with sunitinib. With a median follow-up of 21.4 months, cabozantinib demonstrated a 34 percent reduction in the rate of disease progression or death [HR 0.66, 95% CI (0.46-0.95), one-sided P=0.012]. The median PFS for cabozantinib was 8.2 months versus 5.6 months for sunitinib, corresponding to a 2.6 months (46 percent) improvement favoring cabozantinib over sunitinib. PFS benefits were independent of the IMDC risk group (intermediate or poor risk) and presence or absence of bone metastases at baseline. The results for sunitinib were in line with a previously published retrospective analysis of 1,174 intermediate- and poor-risk RCC patients from the IMDC database, which documented a median PFS of 5.6 months with a first-line targeted therapy, mainly sunitinib, in this patient population.ORR was also significantly improved, at 46 percent (95% CI 34% - 57%) for cabozantinib versus 18 percent (95% CI 10% to 28%) for sunitinib. With a median follow-up of 22.8 months, median OS was 30.3 months for cabozantinib versus 21.8 months for sunitinib [HR 0.80, 95% CI (0.50 - 1.26)]. The most common grade 3 or 4 adverse events with cabozantinib were hypertension (28%), diarrhea (10%), palmar-plantar erythrodysesthesia (8%), and fatigue (6%); with sunitinib, they were hypertension (22%), fatigue (15%), diarrhea (11%), and thrombocytopenia (11%). Grade 5 adverse events occurred in four patients (5%) in the cabozantinib group and five patients (7%) in the sunitinib group. Treatment-related grade 5 events occurred in three patients in the cabozantinib group (acute kidney injury, sepsis, and jejunal perforation) and three patients in the sunitinib group (sepsis, respiratory failure, and vascular disorders). The rate of treatment discontinuation because of adverse events was 20% (n = 16) and 21% (n = 16) in the cabozantinib and sunitinib groups, respectively.
Based on these results, we plan to submit a sNDA for cabozantinib as a treatment of first-line advanced RCC, and are working with The Alliance so that we can develop the appropriate regulatory filings.
Advanced Genitourinary Tumors
Results from a phase 1 trial of cabozantinib in combination with nivolumab in patients with previously treated genitourinary tumors being conducted under our CRADA with NCI-CTEP were first presented at the ESMO 2016 Congress in October 2016 and recently updated at the 2017 Genitourinary Cancers Symposium in February 2017.
Between July 22, 2015 and December 31, 2016, 48 patients were accrued with previously treated metastatic urothelial carcinoma, or mUC, (n=19), urachal adenocarcinoma (n=4), squamous cell carcinoma of the bladder or urethra (n=2), germ cell tumor (n=4), castration-resistant prostate cancer (n=9), RCC (n=4), trophoblastic tumor (n=1), sertoli cell tumor (n=1) or penile squamous cell carcinoma (n=4) and treated in two parts. In Part I, 30 patients were treated with the doublet combination of cabozantinib and nivolumab at four dose levels. In Part II, 18 patients were treated with the triplet combination of cabozantinib, nivolumab and ipilimumab at three dose levels.
Among the 43 patients who were evaluable for response, the ORR for all tumor types was 30% (38% for the doublet dosing schedule and 18% for the triplet dosing schedule) with a 7% complete response, or CR, rate and a 23% PR rate. Stable disease, or SD, was reported in 56% of patients. The ORR for patients with mUC was 38%, and 2 of 16 patients achieved a CR, while 2 patients with squamous cell carcinoma of the bladder had objective responses (1 CR and 1 PR). In the mUC cohort, 15 of 16 patients had a CR, PR or SD as their best response.
Grade 3 adverse events (>5% of patients) observed in the doublet combination included neutropenia (17%), hypophosphatemia (13%), hypertension (10%), lipase increase (7%), fatigue (7%), diarrhea (7%) and dehydration (7%). Grade 3 adverse events (>5% of patients) observed in the triplet combination included hypertension (17%), hypophosphatemia (17%), fatigue (13%), hyponatremia (13%), lipase increase (13%), nausea (13%) and rash (6%). There were limited numbers of grade 4 adverse events (10% including thrombocytopenia and lipase increase in the doublet combination, and 6% (lipase increase) in the triplet combination), and no grade 5 adverse events observed in either part of the trial.


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The recommended doses for the ongoing expansion cohorts were determined to be cabozantinib 40 mg daily plus nivolumab 3 mg/kg once every 2 weeks for the doublet and cabozantinib 40 mg daily, nivolumab 3 mg/kg plus ipilimumab 1 mg/kg every 3 weeks for 4 doses, then nivolumab 3 mg/kg every 2 weeks for the triplet.
We believe these promising early stage clinical findings support further investigation of cabozantinib in combination with nivolumab and other immune checkpoint inhibitors in a number of genitourinary tumors.
Non-Small Cell Lung Cancer (NSCLC)
In November 2011. 2014, we announced positive top-line results from a randomized phase 2 trial of cabozantinib and erlotinib alone or in combination as second- or third-line therapy in patients with stage IV EGFR wild-type NSCLC. This trial (Study E1512) was sponsored through our CRADA with NCI-CTEP and was conducted by the ECOG-ACRIN Cancer Research Group. It enrolled 125 patients with EGFR wild-type metastatic NSCLC who had received at least one or two prior chemotherapy regimens; of these, 111 patients were evaluable for efficacy and 118 patients were evaluable for safety. Patients were randomized 1:1:1 to receive erlotinib (150 mg daily), cabozantinib (60 mg daily), or the combination of erlotinib plus cabozantinib (150 mg plus 40 mg daily).
The proposedpositive results from this trial were reported at the ASCO 2015 Annual Meeting on May 31, 2015, and subsequently published online in Lancet Oncology on November 4, 2016. The study met its primary endpoint, demonstrating significant increases in PFS for cabozantinib and the combination of cabozantinib plus erlotinib when individually compared to the erlotinib arm. The median PFS for the combination of cabozantinib and erlotinib was 4.7 months versus 1.8 months for erlotinib alone, a more than two-fold increase. The HR was 0.37 (80% CI 0.25-0.53, p=0.0003), which corresponds to a 63% reduction in the rate of disease worsening. The median PFS for cabozantinib monotherapy was 4.3 months versus 1.8 months for erlotinib alone, and the HR was 0.39 (80% CI 0.27-0.55, p=0.0003), corresponding to a 61% reduction in the rate of disease worsening. OS was a secondary endpoint of the trial. Median OS was 13.3 months for the combination of cabozantinib and erlotinib, and 9.2 months for cabozantinib alone, as compared to 5.1 months for erlotinib alone. When individually compared to the erlotinib arm, HR for OS was 0.51 (p=0.011), corresponding to a 49% reduction in the rate of death for the combination of cabozantinib plus erlotinib, and 0.68 (p=0.071), corresponding to a 32% reduction in the rate of death for the cabozantinib monotherapy arm. ORR, another secondary endpoint, was 3% for the combination arm (1 PR), 11% (4 PRs) for the cabozantinib monotherapy arm, and 3% (1 PR) for the erlotinib arm. SD as a best response was observed in 46% of patients in the combination arm and 50% in the cabozantinib monotherapy arm, compared with 16% in the erlotinib arm. One hundred and nineteen patients were evaluable for safety. The most common treatment-related adverse events, or AEs, grade 3 or higher, for the combination arm (n=39) were: diarrhea (28%), fatigue (15%), and anorexia (8%). For the cabozantinib monotherapy arm, the most common AEs, grade 3 or higher, were: hypertension (25%), fatigue (15%), mucositis (10%), diarrhea (8%), and thromboembolic events (8%). The most common AEs, grade 3 or higher, for the erlotinib arm were fatigue (13%) and diarrhea (8%). Overall, the rate of grade 3 or higher adverse events was 72% in the combination arm, 70% in the cabozantinib monotherapy arm, and 33% in the erlotinib arm.
Informed by these clinical results, we are working with clinical collaborators to explore cabozantinib’s further development in NSCLC, including potential combination approaches with immuno-oncology agents.

Other Cancer Indications
Other clinical trials approved to date under the CRADA include the following:
Phase 2 or phase 1/2 clinical trials to help prioritize future pivotal trials of cabozantinib in disease settings where there is substantial unmet medical need and in which cabozantinib has previously demonstrated clinical activity, consisting of randomized phase 2 clinical trials in first line renal cell carcinoma, platinum-resistant or -refractory ovarian cancer, ocular melanoma, prostate cancer and second line/second/third line NSCLC.EGFR-wt NSCLC;
Additional phase 2 or phase 1/2 clinical trials to explore cabozantinib’s potential utility in other tumor types, including endometrial cancer, bladder cancer, sarcomas, second line NSCLC and second line(EGFR-activating mutation positive), differentiated thyroid cancer.cancer, triple-negative breast cancer, hormone-receptor-positive breast cancer, cutaneous melanoma (molecularly selected patients), pancreatic neuroendocrine and carcinoid tumors. Positive results in these indications could lead to further study in randomized phase 2 or phase 3 clinical trials.trials; and
Additional phase 1 clinical trials to further evaluate cabozantinib, consisting of a combination trial evaluatingof cabozantinib and immuno-oncology agents (nivolumab with or without ipilumumab) in combination with docetaxel in CRPC patients, a trial exploring the utilitygenitourinary tumors,


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a trial to evaluate the safety and pharmacokinetics of cabozantinib in pediatric patients, and a trial of cabozantinib in patients with advanced solid tumors and human immunodeficiency virus.
CommencementIn addition to supporting the further development of each ofcabozantinib, our medical affairs department receives and responds to unsolicited physician inquiries with appropriate scientific and medical information, supports scientific presentations and publications, and oversees the proposed trials approved under the CRADA is subject to protocol development and satisfaction of certain other conditions. The proposed trials approved under the CRADA will be conducted under an investigational new drug application held by NCI-CTEP. We believeIST process. Like our CRADA reflectswith NCI-CTEP, our IST program helps us to continue to evaluate cabozantinib across a major commitment by NCI-CTEPbroad range of tumor types, including NSCLC, bladder cancer, melanoma, breast cancer, differentiated thyroid cancer and others, to support further prioritization of our clinical and commercial options. Currently there are 25 active IST or CTEP trials and 16 trials are in advanced planning stage.
Cobimetinib Development Program
In addition to the broad exploration of cabozantinib’s potential in a wide variety of cancers that have substantial unmet medical needs. NCI-CTEP provides funding for as many as 20 active clinical trials each year for a five-year period. We believe the agreement will enable us to broadly expand theadvances made under our cabozantinib development program, in a cost-efficient manner.
We launchedsignificant progress continues to be made with respect to the IST program in October 2010,clinical development, regulatory status and it has already provided important interim data through the dose-ranging study in CRPC patients described above. These data were important for dose selection in the COMET pivotal trial program. Cabozantinib is being evaluated in a variety of ISTs. Currently there is one completed IST, 18 ongoing ISTs, 11 studies undergoing activation, and we expect to continue to consider additional IST proposals for the foreseeable future.
Cobimetinib Collaboration
In December 2006, we entered into a worldwide co-development agreement with Genentech for the development and commercializationcommercial potential of cobimetinib. Cobimetinib is a potent, highly selective inhibitor of MEK, a serine/threonine kinase that is a component of the RAS/RAF/MEK/ERK pathway. This pathway mediates signaling downstream of growth factor receptors, and is prominently activated in a wide variety of human tumors.  Cobimetinib is being evaluated in a broad development program by Genentech.
A select summary of Genentech’s ongoing cobimetinib development activities, all of which are sponsored by Roche/Genentech, is provided below:
IndicationCombination RegimenStatus Update
Metastatic or Unresectable Locally Advanced Melanoma
BRAF mutation-positive+ vemurafenibApproved in US, EU and other territories
First-line BRAF mutation-positive+ atezolizumab + vemurafenibPhase 3 (IMspire150 TRILOGY)
First-line BRAF wild-type+ atezolizumabPhase 3 (IMspire170) planned for 2017
Colorectal Cancer
Third-line advanced or metastatic disease+ atezolizumabPhase 3 (IMblaze370)
Second/third-line metastatic disease+ atezolizumab + bevacizumabPhase 1
Breast Cancer
First-line metastatic triple negative disease+ taxane +/- atezolizumab
Phase 1/2(COLET)

Melanoma - coBRIM

In preclinical studies, oral dosingJuly 2014, we announced positive top-line results from coBRIM, the phase 3 pivotal trial conducted by Genentech evaluating cobimetinib in combination with vemurafenib in previously untreated patients with unresectable locally advanced or metastatic melanoma harboring a BRAF V600E or V600K mutation. Data were subsequently presented at European Society for Medical Oncology in September 2014. The trial met its primary endpoint of demonstrating a statistically significant increase in investigator-determined PFS. The median PFS was 9.9 months for the combination of cobimetinib resultedand vemurafenib versus 6.2 months for vemurafenib alone (HR=0.51, 95 percent CI 0.39-0.68; p<0.0001), demonstrating the combination reduced the risk of the disease worsening by half (49 percent). The median PFS as established by an IRRC, a secondary endpoint, was 11.3 months for the combination arm compared to 6.0 months for the control arm (HR=0.60, 95 percent CI 0.45-0.79; p=0.0003). ORR, another secondary endpoint, was 68% for the combination versus 45% for vemurafenib alone (p<0.0001). Updated results for PFS and ORR from coBRIM were presented at the ASCO 2015 Annual Meeting and showed a median PFS of 12.3 months for vemurafenib plus cobimetinib versus 7.2 months for vemurafenib alone (HR=0.58, 95 percent CI 0.46-0.72) and an ORR of 70% for the combination of vemurafenib and cobimetinib versus 50% for vemurafenib alone. In November 2015, we announced that the coBRIM trial also met its OS secondary endpoint, demonstrating a statistically significant increase in OS for the combination of cobimetinib and vemurafenib compared to vemurafenib monotherapy. The median OS was 22.3 months for the combination of cobimetinib and vemurafenib versus 17.4 months for vemurafenib alone, corresponding to a 30% reduction in the rate of death for the combination as compared to vemurafenib alone (HR=0.70, 95 percent CI 0.55-0.90, p= 0.005). The safety profile of the


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combination was consistent with that observed in a previous study. The most common adverse drug reactions for COTELLIC occurring in at least 20% of patients were diarrhea, photosensitivity reaction, nausea, pyrexia, and vomiting.

CoBRIM served as the basis for the regulatory approval of Cotellic in combination with Zelboraf as a treatment for patients with BRAF V600E or V600K mutation-positive advanced melanoma in the United States, Switzerland, the European Union, Canada, Australia, Brazil and other countries.

CRC - IMblaze370
In June 2016, Genentech initiated IMblaze370, a phase 3 pivotal trial evaluating the combination of cobimetinib and atezolizumab, an anti-PD-L1 antibody, or atezolizumab alone versus regorafenib, in unresectable locally advanced or metastatic CRC patients who have received at least two lines of prior cytotoxic chemotherapy. IMblaze370 was informed by results from Genentech’s ongoing phase 1b trial of the same combination in advanced CRC.
The trial is designed to enroll 360 patients who have received at least two prior chemotherapies in the metastatic disease setting. The primary endpoint of the trial is OS.
Melanoma - IMspire150TRILOGY and IMspire170

In January 2017, Genentech initiated IMspire150TRILOGY, a phase 3 pivotal trial evaluating the combination of cobimetinib, vemurafenib and atezolizumab vs. cobimetinib plus vemurafenib in previously untreated BRAF V600 mutation positive patients with metastatic or unresectable locally advanced melanoma. This trial was based on the results of Genentech’s ongoing phase 1b trial in the same patient population. The trial is designed to enroll 500 patients, and the primary endpoint is PFS.

Genentech has also plans to initiate IMspire170, a phase 3 trial comparing cobimetinib plus atezolizumab to pembrolizumab in previously untreated BRAF WT patients with metastatic or unresectable locally advanced melanoma in the second quarter of 2017. IMspire170 was based on the results of Genentech’s ongoing phase 1b trial in the same patient population. The trial is designed to enroll 500 patients with primary endpoints of PFS and OS.

Other Cancer Indications

In addition to coBRIM, IMblaze370 and TRILOGY, additional clinical trials are ongoing studying the combination of cobimetinib with a variety of agents in multiple tumor types. These include:
The combination of cobimetinib and vemuarfenib in additional melanoma patient populations and settings;
A phase 2 trial of cobimetinib in combination with taxanes, with or without atezolizumab in first line triple negative breast cancer (COLET);
Phase 1 studies of cobimetinib in combination with atezolizumab in melanoma and NSCLC, in combination with vemurafenib and atezolizumab in melanoma, and in combination with venetoclax in relapsed or refractory acute myeloid leukemia; and
A phase 1b study evaluating the safety, tolerability and pharmacokinetics of cobimetinib in combination with atezolizumab and bevacizumab in patients with metastatic CRC.

A complete listing of all ongoing cobimetinib trials can be found at www.ClinicalTrials.gov.

XL888
XL888 is an Exelixis-discovered highly potent small molecule oral inhibitor of Heat Shock Protein 90 (HSP90), a molecular chaperone protein that affects the activity and sustained inhibitionstability of MEKa range of key regulatory proteins, including kinases such as BRAF, MET and VEGFR2, which are implicated in RAS- or BRAF-mutant tumor models. Exelixis discovered cobimetinib internallycancer cell proliferation and advancedsurvival. After completing phase 1 testing of the compound, we deprioritized XL888 and our other pipeline assets to investigational new drug,focus our limited resources on our lead compound, cabozantinib. Investigators at the H. Lee Moffitt Cancer Center went on to conduct additional preclinical work showing activity of XL888 in vemurafenib-resistant melanoma models, the results of which provided the rationale for the initiation of an investigator-sponsored phase 1 trial conducted by investigators at the Moffitt Cancer Center.
In November 2014, we announced positive preliminary results from this phase 1 trial, which evaluated the safety and activity of XL888 in combination with vemurafenib in patients with unresectable stage III/IV BRAF V600 mutation-


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positive melanoma. The primary endpoint of the trial was to determine the safety and tolerability of the combination, including determination of a maximum tolerated dose, or IND, status.MTD, for XL888. Secondary endpoints included ORR (RECIST-1 criteria), estimates of PFS and OS, and analysis of pharmacodynamic biomarkers. The trial had enrolled fifteen subjects, and at the time of data cut-off, objective tumor regression was observed in 11 of 12 response-evaluable patients (two CRs and nine PRs), for an ORR of 92%. Safety data for the combination identified tolerable dose levels of XL888 with full dose vemurafenib.
Based on these results, as well as findings from coBRIM, the phase 3 pivotal trial of cobimetinib, an Exelixis-discovered MEK inhibitor, and vemurafenib in previously untreated metastatic melanoma patients with a BRAF V600E or V600K mutation, investigators at the Moffitt Cancer Center initiated a phase 1b IST of the triple combination of vemurafenib, cobimetinib, and XL888 in a similar patient population during the second quarter of 2016.

Collaborations

We have established collaborations with Ipsen and Takeda for cabozantinib, Genentech for cobimetinib, and other collaborations with leading pharmaceutical companies including, Daiichi Sankyo Company Limited, or Daiichi Sankyo, Merck (known as MSD outside of the United States and Canada), BMS, and Sanofi for compounds and programs in our portfolio. Under each of our collaborations, we are entitled to receive milestones and royalties or, in the case of cobimetinib, a share of profits (or losses) from commercialization.
Cabozantinib Collaborations
Ipsen Collaboration
In February 2016, we entered into a collaboration and license agreement with Ipsen for the commercialization and further development of cabozantinib. Pursuant to the terms of the collaboration agreement, Ipsen received exclusive commercialization rights for current and potential future cabozantinib indications outside of the United States, Canada and Japan. The collaboration agreement was subsequently amended in December 2016 to include commercialization rights in Canada. 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.
    In consideration for the exclusive license and other rights contained in the collaboration agreement, Ipsen paid us an upfront payment of $200.0 million in March 2016. Additionally, as a result of the amendment to the collaboration agreement, we received a $10.0 million upfront payment from Ipsen in December 2016. As a result of the approval of cabozantinib in second-line RCC by the EC in September 2016, we received a $60.0 million milestone payment in November 2016. We are also eligible to receive additional development and regulatory milestone payments, totaling up to $254.0 million, including, milestone payments of $10.0 million and $40.0 million upon the filing and the approval of cabozantinib in second-line HCC with the European Medicines Agency, or EMA, and additional milestone payments for other future indications and/or jurisdictions. In the fourth quarter of 2016 we earned two $10.0 million milestone payments for the first commercial sales of CABOMETYX in Germany and the United Kingdom. The collaboration agreement also provides that we will be eligible to receive contingent payments of up to $544.7 million associated with the achievement of specified levels of Ipsen sales to end users. We will also receive royalties on net sales of cabozantinib outside of the United States and Japan. We will receive a 2% royalty on the initial $50.0 million of net sales, and a 12% royalty on the next $100.0 million of net sales. After the initial $150.0 million of sales, we will receive a tiered royalty of 22% to 26% on annual net sales; these tiers will reset each calendar year. We are primarily responsible for funding cabozantinib related development costs for existing trials; global development costs for potential future trials are shared between the parties, provided Ipsen opts in to participate in such trials, with Ipsen to reimburse us for 35% of such costs. Ipsen has opted to participate in and co-fund in accordance with our collaboration agreement the future first line RCC phase 3 study evaluating cabozantinib in combination with the immune checkpoint inhibitors nivolumab and ipilimumab that we are planning in collaboration with BMS, as well as the phase 1b trial evaluating cabozantinib in combination with atezolizumab in genitorurinary malignancies that we are planning to initiate mid-year. We remain responsible for the manufacture and supply of cabozantinib for all development and commercialization activities under the collaboration agreement. As part of the collaboration agreement, we entered into a supply agreement that provides that through the end of the second quarter of 2018, we will supply finished, labeled product to Ipsen for distribution in the territories outside of the United States and Japan. From the end of the second quarter of 2018 forward, we will continue to manufacture cabozantinib tablets and capsules while Ipsen will be responsible for packaging and labeling the products in territories where they have been approved outside of the United States and Japan, as applicable.


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Unless terminated earlier, the collaboration agreement has a term that continues, on a product-by-product and country-by-country basis, until the latter of (i) the expiration of patent claims related to cabozantinib, (ii) the expiration of regulatory exclusivity covering cabozantinib or (iii) ten years after the first commercial sale of cabozantinib, other than COMETRIQ. The collaboration agreement may be terminated for cause by either party based on uncured material breach by the other party, bankruptcy of the other party or for safety reasons. We may terminate the collaboration agreement if Ipsen challenges or opposes any patent covered by the collaboration agreement. Ipsen may terminate the collaboration agreement if the FDA or EMA orders or requires substantially all cabozantinib clinical trials to be terminated or if the EMA refuses to approve our marketing authorization application, or MAA, for cabozantinib in advanced RCC in such region. Ipsen also has the right to terminate the collaboration agreement on a region-by-region basis after the first commercial sale of cabozantinib in advanced RCC in the given region. Upon termination by either party, all licenses granted by us to Ipsen will automatically terminate, and, except in the event of a termination by Ipsen for our material breach, the licenses granted by Ipsen to us shall survive such termination and shall automatically become worldwide, or, if Ipsen terminated only for a particular region, then for the terminated region. Following termination by us for Ipsen’s material breach, or termination by Ipsen without cause or because we undergo a change of control by a party engaged in a competing program, Ipsen is prohibited from competing with us for a period of time.
Takeda Collaboration
In January 2017, we entered into a collaboration and license agreement with Takeda for the commercialization and further clinical development of cabozantinib in Japan. Pursuant to the terms of the collaboration agreement, Takeda has exclusive commercialization rights for currently developed and potential future cabozantinib indications in Japan. The parties have also agreed to collaborate on the future clinical development of cabozantinib in Japan. The parties’ efforts are governed through a joint executive committee and appropriate subcommittees established to guide and oversee the collaboration’s operation and strategic direction.
In consideration for the exclusive license and other rights contained in the collaboration agreement, we received a $50.0 million upfront payment from Takeda in February 2017. We are eligible to receive development, regulatory and first-sales milestone payments of up to $95.0 million related to second-line RCC, first-line RCC and second-line HCC, as well as additional development, regulatory and first-sales milestones payments for potential future indications. The collaboration agreement also provides that we are eligible to receive pre-specified payments of up to $83.0 million associated with potential sales milestones. We will also receive royalties on net sales of cabozantinib in Japan at an initial tiered rate of 15% to 24% on net sales for the first $300.0 million of cumulative net sales. Thereafter, the royalty rate will be adjusted to 20% to 30% on annual net sales.
Takeda is responsible for 20% of the costs associated with the global cabozantinib development plan, provided Takeda opts in to participate in such trials, and 100% of costs associated with the cabozantinib development activities that are exclusively for the benefit of Japan. Pursuant to the terms of the collaboration agreement, we remain responsible for the manufacture and supply of cabozantinib for all development and commercialization activities under the collaboration. As part of the collaboration, the parties intend to enter into a supply agreement covering the manufacture and supply of cabozantinib to Takeda and a quality agreement setting forth in detail the quality assurance arrangements and procedures for our manufacture of cabozantinib.
Unless earlier terminated, the collaboration agreement has a term that continues, on a product-by-product basis, until the earlier of (i) two years after first generic entry with respect to such product in Japan or (ii) the later of (A) the expiration of patent claims related to cabozantinib and (B) the expiration of regulatory exclusivity covering cabozantinib in Japan. The collaboration agreement may be terminated for cause by either party based on uncured material breach by the other party, bankruptcy of the other party or for safety reasons. For clarity, Takeda’s failure to achieve specified levels of commercial performance, based upon sales volume and/or promotional effort, during the first six years of the collaboration shall constitute a material breach of the collaboration agreement. We may terminate the agreement if Takeda challenges or opposes any patent covered by the collaboration agreement. At any time prior to August 1, 2023, the parties may mutually agree to terminate the collaboration agreement if Japan’s Pharmaceuticals and Medical Devices Agency is unlikely to grant approval of the MAA in any cancer indication in Japan. After the commercial launch of cabozantinib in Japan, Takeda may terminate the collaboration agreement upon twelve months’ prior written notice following the third anniversary of the first commercial sale of cabozantinib in Japan. Upon termination by either party, all licenses granted by us to Takeda will automatically terminate, and the licenses granted by Takeda to us shall survive such termination and shall automatically become worldwide.


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Cobimetinib Collaboration
In December 2006, we out-licensed the development and commercialization of cobimetinib to Genentech pursuant to a worldwide collaboration agreement. Genentech paid upfront and milestone payments of $25.0 million in December 2006 and $15.0 million in January 2007 upon signing of the co-developmentcollaboration agreement and with the submission of the IND application for cobimetinib. Under the terms of the collaboration agreement, we were responsible for developing cobimetinib through the enddetermination of the maximum-tolerated dose, or MTD in a phase 1 clinical trial, and Genentech had the option to co-develop cobimetinib, which Genentech could exercise after receipt of certain phase 1 data from us. In March 2008, Genentech exercised its option to co-develop cobimetinib, triggering a payment to us of $3.0 million, which we received in April 2008. We were responsible for the phase 1 clinical trial until the point that a maximum tolerated dose, or MTD, was determined. After MTD was determined,million. In March 2009, we granted to Genentech an exclusive worldwide revenue-bearing license to cobimetinib, in March 2009, at which point Genentech became responsible for completing the phase 1 clinical trial and subsequent clinical development. We received an additional $7.0 million payment in March 2010.

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Preliminary results from BRIM7, an ongoing phase 1b dose escalation study conducted by Roche2010 and Genentech of the BRAF inhibitor vemurafenib in combination with cobimetinib in patients with locally advanced/unresectable or metastatic melanoma carrying a BRAFV600 mutation were presented at the 2012 ESMO Annual Meeting. Updated data from BRIM7 reported at the European Cancer Congress 2013 suggest that the preliminary safety profile and activity of the investigational combination of cobimetinib and vemurafenib are encouraging in BRAF inhibitor-naïve patients. Although the phase 1b dose escalation study was designed to evaluate the safety and tolerability of cobimetinib in combination with vemurafenib, objective responses (comprising complete or partial responses) were observed in 85% of the patients who had not been previously treated with a BRAF inhibitor.
As disclosed on ClinicalTrials.gov (NCT01689519), a multicenter, randomized, double-blind, placebo-controlled phase 3 clinical trial evaluating the combination of cobimetinib with vemurafenib versus vemurafenib in previously untreated BRAFV600 mutation positive patients with unresectable locally advanced or metastatic melanoma was initiated on November 1, 2012. On January 14, 2013, we received notice from Genentech that the first patient was dosed in this phase 3 pivotal trial. Roche and Genentech have provided guidance that they expect top-line data from this trial in 2014.
In addition, as disclosed on ClinicalTrials.gov, on the basis of strong scientific rationale and encouraging preclinical data, Genentech is initiating the following new clinical trials of cobimetinib in combination with other agents under the agreement:
A Phase 1b, Open-Label, Dose-Escalation Study of the Safety, Tolerability, and Pharmacokinetics of MEHD7945A and Cobimetinib in Patients with Locally Advanced or Metastatic Solid Tumors with Mutant KRAS (NCT01986166);
A Phase 1b, Open-Label Study Evaluating the Safety, Tolerability, and Pharmacokinetics of Onartuzumab in Combination with Vemurafenib and/or Cobimetinib in Patients with Advanced Solid Malignancies (NCT01974258); and
A Phase 1b Study of the Safety and Pharmacology of MPDL3280A Administered with Cobimetinib in Patients with Locally Advanced or Metastatic Solid Tumors (NCT01988896).eligible for any additional milestone payments.
Under the terms of our collaboration agreement with Genentech for cobimetinib, we are entitled to an initial equala share of U.S. profits and losses for cobimetinib, which will decrease as sales increase, and will share equallyreceived in the U.S. marketing andconnection with commercialization costs.of cobimetinib. The profit share has multiple tiers—tiers: we are entitled to 50% of profits and losses from the first $200$200.0 million of U.S. actual sales, decreasing to 30% of profits and losses from U.S. actual sales in excess of $400$400.0 million. WeIn addition, we are entitled to low double-digit royalties on ex-U.S. net sales. In November 2013, we exercised ouran option under the collaboration agreement to co-promote in the U.S. We will provide up to 25% of the total sales force forThe FDA approved cobimetinib in the U.S. if commercialized,under the brand name Cotellic on November 10, 2015. Cotellic is indicated in combination with Zelboraf as a treatment for patients with BRAF V600E or V600K mutation-positive advanced melanoma. Following FDA approval of Cotellic in November 2015, we began fielding 25% of that product sales force. Cotellic in combination with Zelboraf has also been approved in Switzerland, the European Union, Canada, Australia, Brazil and will callmultiple additional countries for use in the same indication.
We believe that cobimetinib has the potential to provide us with a second significant source of revenue. Our objective, therefore, is and has been to work with Genentech on customersthe execution of the U.S. Cotellic commercial plan in order to maximize the product’s revenue potential. However, we believe Genentech’s pricing of, and otherwise engage in promotional activities using that sales force, consistent withcost and revenue allocations for, Cotellic, as determined exclusively by Genentech, have been contrary to the applicable terms of the co-developmentcollaboration agreement. We raised this concern with Genentech, along with other material concerns regarding Genentech’s performance under the collaboration agreement, but were unable to come to resolution on any of these issues. Accordingly, on June 3, 2016, following a 30 day dispute resolution period, we filed a demand for arbitration asserting claims against Genentech related to its clinical development, pricing and commercialization of Cotellic, and cost and revenue allocations in connection with Cotellic’s commercialization in the United States. On July 13, 2016, Genentech asserted a co-promotion agreementcounterclaim for breach of contract seeking monetary damages and interest related to be entered into bythe cost allocations under the collaboration agreement. On December 29, 2016, Genentech withdrew its counterclaim against us and stated that it would unilaterally change its approach to allocation of promotional expenses arising from commercialization of the Cotellic plus Zelboraf combination therapy, both retrospectively and prospectively. We believe this revised allocation approach substantially reduced our exposure to costs associated with promotion of the Cotellic plus Zelboraf combination in the United States. Notwithstanding Genentech’s change of approach, other significant issues remain in dispute between the parties. Genentech’s action does not address the claims in our demand for arbitration related to Genentech’s clinical development of cobimetinib, or pricing and promotional costs for Cotellic in the United States, nor does it fully resolve claims over revenue allocation. And, Genentech has not clarified how it intends to allocate promotional costs incurred with respect to the promotion of other combination therapies that include cobimetinib for other indications that will be developed or are in development and may be approved. As a result, we will continue to press our position for the arbitral panel to obtain a just resolution of these claims. The ultimate outcome of the arbitration is difficult to predict.
Unless earlier terminated, the collaboration agreement has a term that continues until the expiration of the last payment obligation with respect to the licensed products under the collaboration. Genentech has the right to terminate the collaboration agreement without cause at any time. If Genentech terminates the co-developmentcollaboration agreement without cause, all licenses that were granted to Genentech under the agreement terminate and revert to us. Additionally, if Genentech terminates the collaboration agreement without cause, or we terminate the collaboration agreement for cause, we would receive, subject to certain conditions, licenses from Genentech to research, develop and commercialize reverted product candidates. The collaboration agreement may be terminated for cause by either party based on uncured material breach by the other party.
Other Collaborations
We have established collaborations with other leadingPrior to the commercialization of our first product, COMETRIQ, our primary business strategy was focused on the development and out-license of compounds to pharmaceutical and biotechnology companies including GlaxoSmithKline, Bristol-Myers Squibb Company, or Bristol-Myers Squibb, Sanofi, Merck (known as MSD outsideunder collaboration agreements


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that allowed us to retain economic participation in compounds and Canada) andsupport additional development of our proprietary products. Our collaboration agreements with Daiichi Sankyo, Company Limited, or Daiichi Sankyo, for various compoundsMerck, BMS and programsSanofi are representative of this historical strategy. We have since evolved and are now a fully-integrated biopharmaceutical company focused on maximizing the clinical and commercial potential of CABOMETYX, COMETRIQ and Cotellic. While our historical collaboration agreements described below have the potential to provide meaningful future revenue in our portfolio. Pursuant to these collaborations,the aggregate, we have out-licensed compounds or programs to a partner for further development and commercialization, have no further development cost obligations related to such compounds or programs and may be entitleddo not expect to receive contingentsubstantial revenues from these historical collaboration agreements unless and until our partnered compounds enter late-stage clinical development and/or receive marketing approval from the FDA, if ever, when the milestone payments, and royalties or a share of profits from commercialization. Several of these out-licensed compounds are in multiple phase 2 studies. These partnered compounds could potentially be of significant valueother rights and benefits under our historical collaboration agreements become more substantial and material to us if their development progresses successfully.our business.
With respect to theseour partnered compounds, other than cabozantinib and cobimetinib, we are eligible to receive potential contingent payments under our collaborations totaling approximately $2.4$2.2 billion in the aggregate on a non-risk adjusted basis, of which approximately 10%9% are related to clinical development milestones, approximately 41%42% are related to regulatory milestones and approximately 49% are related to commercial milestones, all to be achieved by the various licensees.
GlaxoSmithKline
collaborators, which may not be paid, if at all, until certain conditions are met. Since we do not control the research, development or commercialization of any of our other partnered compounds that would generate these milestones, we are not able to reasonably estimate when, if at all, any milestone payments or royalties may be payable by our collaborators. In October 2002, we established a collaboration with GlaxoSmithKline to discover and develop novel therapeutics inaddition, most of the areascollaborations for our other partnered compounds are at early stages of vascular biology, inflammatory disease and oncology. The collaboration involved three agreements: (1)development. Successfully developing a product candidate, obtaining regulatory approval and ultimately commercializing it is a significantly lengthy and highly uncertain process which entails a significant risk of failure. In addition, business combinations, changes in a collaborator’s business strategy and financial difficulties or other factors could result in a collaborator abandoning or delaying development of a partnered compound. As such, the remaining potential contingent payments associated with our historical collaboration agreements involve a substantial degree of risk to achieve and commercialization agreement, (2) a stock purchasemay never be received. Accordingly, we do not expect, and stock issuance agreement and (3) a loan and security agreement. During the term of the collaboration,investors should not assume, that we received $65.0 million in upfront and milestone payments, $85.0 million in

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research and development funding and loans in the principal amount of $85.0 million. In connection with the collaboration, GlaxoSmithKline purchased a total of three million shares of our common stock.
In October 2008, the development term under the collaboration concluded as scheduled. Under the terms of the collaboration, GlaxoSmithKline had the right to select up to two of the compounds in the collaboration for further development and commercialization. GlaxoSmithKline selected foretinib (XL880), an inhibitor of MET and VEGFR2, and had the right to choose one additional compound from a pool of compounds, which consisted of cabozantinib, XL281, XL228, XL820 and XL844 as of the end of the development term.
In July 2008, we achieved proof-of-concept for cabozantinib and submitted the corresponding data report to GlaxoSmithKline. In October 2008, GlaxoSmithKline notified us in writing that it decided not to select cabozantinib for further development and commercialization and that it waived its right to select XL281, XL228, XL820 and XL844 for further development and commercialization. As a result, we retained the rights to develop, commercialize, and/or licensewill receive all of the compounds, subject to payment to GlaxoSmithKline of a 3% royalty on net sales ofpotential contingent payments described above and it is possible that we may never receive any product incorporating cabozantinib. We have discontinued development of XL820, XL228 and XL844.additional significant milestone or other payments under these historical collaboration agreements.
GlaxoSmithKline continues to develop foretinib (XL880), and as disclosed on ClinicalTrials.gov, is currently recruiting patients into phase 1/2 trials studying the activity of foretinib in metastatic breast cancer both as a single agent (NCT01147484) and in combination with lapatinib (NCT01138384), and in NSCLC as a single agent and in combination with erlotinib (NCT02034097).
The $85.0 million loan we received from GlaxoSmithKline was repayable in three annual installments. We paid the final installment of principal and accrued interest under the loan in shares of our common stock on October 27, 2011, and GlaxoSmithKline subsequently released its related security interest in certain of our patents.
Bristol-Myers Squibb
ROR Collaboration AgreementDaiichi Sankyo
In October 2010, we entered into a worldwide collaboration with Bristol-Myers Squibb pursuant to which each party granted to the other certain intellectual property licenses to enable the parties to discover, optimize and characterize ROR antagonists that may subsequently be developed and commercialized by Bristol-Myers Squibb. In November 2010, we received a nonrefundable upfront cash payment of $5.0 million from Bristol-Myers Squibb. Additionally, for each product developed by Bristol-Myers Squibb under the collaboration, we will be eligible to receive payments upon the achievement by Bristol-Myers Squibb of development and regulatory milestones of up to $255.0 million in the aggregate and commercialization milestones of up to $150.0 million in the aggregate, as well as royalties on commercial sales of any such products. The collaboration agreement was amended and restated in April 2011 in connection with an assignment of patents to a wholly-owned subsidiary.
Under the terms of the collaboration agreement, we were responsible for activities related to the discovery, optimization and characterization of the ROR antagonists during the collaborative research period. In July 2011, we earned a $2.5 million milestone payment for achieving certain lead optimization criteria. The collaborative research period began on October 8, 2010 and ended on July 8, 2013. Since the end of the collaborative research period, Bristol-Myers Squibb has and will continue to have sole responsibility for any further research, development, manufacture and commercialization of products developed under the collaboration and will bear all costs and expenses associated with those activities.
Bristol-Myers Squibb may, at any time, terminate the collaboration agreement upon certain prior notice to us on a product-by-product and country-by-country basis. In addition, either party may terminate the agreement for the other party’s uncured material breach. In the event of termination by Bristol-Myers Squibb at will or by us for Bristol-Myers Squibb’s uncured material breach, the license granted to Bristol-Myers Squibb would terminate, the right to such product would revert to us and we would receive a royalty-bearing license for late-stage reverted compounds and a royalty-free license for early-stage reverted compounds from Bristol-Myers Squibb to develop and commercialize such product in the related country. In the event of termination by Bristol-Myers Squibb for our uncured material breach, Bristol-Myers Squibb would retain the right to such product, subject to continued payment of milestones and royalties.
LXR Collaboration
In December 2005,March 2006, we entered into a collaboration agreement with Bristol-Myers SquibbDaiichi Sankyo for the discovery, development and commercialization of novel therapies targeted against LXR,the mineralocorticoid receptor, or MR, a nuclear hormone receptor implicated in a variety of cardiovascular and metabolic disorders. Thisdiseases. Under the terms of the agreement, became effective in January 2006, at which time we granted Bristol-Myers Squibbto Daiichi Sankyo an exclusive, worldwide license with respect to certain intellectual property primarily relating to compounds that modulate LXR,MR, including BMS-852927 (XL041)CS-3150/esaxerenone (a specific rotational isomer of XL550). During the research term, we jointly identified drug

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candidates with Bristol-Myers Squibb that were ready for IND-enabling studies. After the selection of a drug candidate for further clinical development by Bristol-Myers Squibb, Bristol-Myers Squibb agreed to be solelyDaiichi Sankyo is responsible for all further preclinical development as well asand clinical development, regulatory, manufacturing and sales/marketingcommercialization activities for the selected drug candidate. Wecompounds and we do not have rights to reacquire such compounds, except as described below.
During the research term, which concluded in November 2007, we jointly identified drug candidates selected by Bristol-Myers Squibb. The research term expired in January 2010with Daiichi Sankyo for further development. For each product from the collaboration, we are entitled to receive payments upon attainment of pre-specified development, regulatory and we transferred the technology to Bristol-Myers Squibb in 2011 to enable it to continue the LXR program. BMS has terminated development of XL041 andcommercialization milestones. To date, we have been advised that BMS is continuing additional preclinical research on the program. The collaboration agreement was amended and restatedreceived an aggregate of $25.5 million in April 2011development milestone payments related to CS-3150, an oral, non-steroidal, selective mineralocorticoid receptor antagonist, including a $15.0 million milestone payment in October 2016 in connection with an assignmentthe initiation of patentsa phase 3 pivotal trial to evaluate CS-3150 as a wholly-owned subsidiary.
Under the collaboration agreement, Bristol-Myers Squibb paid us a nonrefundable upfront cash paymenttreatment for essential hypertension in the amount of $17.5 millionJapanese patients. We are eligible to receive additional development, regulatory and was obligated to provide research and development funding of $10.0 million per year for an initial research period of two years. In September 2007, the collaboration was extended at Bristol-Myers Squibb’s request through January 12, 2009, and in November 2008, the collaboration was further extended at Bristol-Myers Squibb’s request through January 12, 2010. Under the collaboration agreement, Bristol-Myers Squibb is required to pay us contingent amounts associated with development and regulatory milestonescommercialization milestone payments of up to $138.0 million per product for up to two products from the collaboration.$130.0 million. In addition, we are also entitled to receive payments associated with sales milestones of up to $225.0 million and royalties on any sales of anycertain products commercialized under the collaboration. In connection with the extension of the collaboration through January 2009 and subsequently through January 2010, Bristol-Myers Squibb paid us additional research funding of approximately $7.7 million and approximately $5.8 million, respectively. In December 2007, we received $5.0 million in connection with the achievement by Bristol-Myers Squibb of a development milestone with respect to BMS-852927 (XL041).
Sanofi
In May 2009, we entered into a global license agreement with Sanofi for SAR245408 (XL147) and SAR245409 (XL765), leading inhibitors of phosphoinositide-3 kinase, or PI3K, and a broad collaboration for the discovery of inhibitors of PI3K for the treatment of cancer. The license agreement and collaboration agreement became effective on July 7, 2009. In connection with the effectiveness of the license and collaboration, on July 20, 2009, we received upfront payments of $140.0 million ($120.0 million for the license and $20.0 million for the collaboration), less applicable withholding taxes of $7.0 million, for a net receipt of $133.0 million. We received a refund payment in December 2011 with respect to the withholding taxes previously withheld.
Under the license agreement, Sanofi received a worldwide exclusive license to SAR245408 (XL147) and SAR245409 (XL765), which are in phase 1, phase 1b/2 and phase 2 clinical trials, and has sole responsibility for all subsequent clinical, regulatory, commercial and manufacturing activities. Sanofi is responsible for funding all development activities with respect to SAR245408 (XL147) and SAR245409 (XL765), including our activities. Following the effectiveness of the license agreement, we conducted the majority of the clinical trials for SAR245408 (XL147) and SAR245409 (XL765) at the expense of Sanofi. As provided for under the license agreement, however, the parties transitioned all development activities for these compounds to Sanofi in 2011. As disclosed on ClinicalTrials.gov, SAR245408 (XL147) is currently being studied in a clinical trial evaluating pharmacokinetics of a tablet formulation in patients with solid tumors or lymphoma (NCT01943838). As disclosed on ClinicalTrials.gov, SAR245409 (XL765) is currently being studied in clinical trials in patients with lymphoma either as a single agent (NCT01403636) or in combination with bendamustine and/or rituximab (NCT01410513). In addition SAR245409 (XL765) is being studied in combination with a MEK inhibitor in patients with locally advanced or metastatic solid tumors (NCT01390818).
We will be eligible to receive contingent payments associated with development, regulatory and commercial milestones under the license agreement of $745.0 million in the aggregate, as well as royalties on sales of any products commercialized under the license.
SanofiDaiichi Sankyo may upon certain prior notice to us, terminate the license as to products containing SAR245408 (XL147) and SAR245409 (XL765). In the event of such termination election, Sanofi’sagreement upon ninety days’ written notice in which case Daiichi Sankyo’s payment obligations would cease, its license relating to such productcompounds that modulate MR would terminate and revert to us and we would receive, subject to certain terms conditions and potential payment obligations,conditions, licenses from SanofiDaiichi Sankyo to research, develop and commercialize such products.
In December 2011, we and Sanofi entered into an agreement pursuant to which the parties terminated the discovery collaboration agreement and released each other from any potential liabilities arisingcompounds that were discovered under the collaboration agreement prior to effectiveness of the termination in December 2011. Each party retains ownership of the intellectual property that it generated under the collaboration agreement, and we granted Sanofi covenants not-to-enforce with respect to certain of our intellectual property rights. The termination agreement also provided that Sanofi would make a payment to us of $15.3 million, which we received in January 2012. If either party or its affiliate or licensee develops and commercializes a therapeutic product containing an isoform-selective PI3K inhibitor that arose from such party’s work (or was derived from such work) under the

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collaboration agreement, then such party will be obligated to pay royalties to the other party based upon the net sales of such products. The termination agreement provides that Sanofi will make a one-time payment to us upon the first receipt by Sanofi or its affiliate or licensee of marketing approval for the first therapeutic product containing an isoform-selective PI3K inhibitor that arose from Sanofi’s work (or was derived from such work) under the collaboration agreement.collaboration.
Merck
In December 2011, we entered into an agreement with Merck pursuant to which we granted Merck an exclusive worldwide license to our PI3K-delta,phosphoinositide-3 kinase-delta, or PI3K-d, program, including XL499 and other related compounds. Pursuant to the terms of the agreement, Merck has sole responsibility to research, develop, and commercialize compounds from our PI3K-d program. The agreement became effectiveIn July 2015 we received a $3.0 million milestone payment from Merck in December 2011.
Merck paid us an upfront cashconnection with Merck’s selection of a compound from our PI3K-d program to advance into clinical trials and in April 2016, we received a milestone payment of $12.0$5.0 million in January 2012 in connection with the agreement.initiation of a phase 1 clinical trial for the compound. We will be eligible to receive additional payments associated with the successful achievement of potential development and regulatory


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milestones for multiple indications of up to $239.0$231.0 million. We will also be eligible to receive payments for combined sales performance milestones of up to $375.0 million and royalties on net-sales of products emerging from the agreement. Contingent payments associated with milestones achieved by Merck and royalties are payable on compounds emerging from our PI3K-d program or from certain compounds that arise from Merck’s internal discovery efforts targeting PI3K-d during a certain period.
Merck may at any time, upon specified prior notice to us, terminate the license. In addition, either party may terminate the agreement for the other party’s uncured material breach. In the event of termination by Merck at will or by us for Merck’s uncured material breach, the license granted to Merck would terminate. In the event of a termination by us for Merck’s uncured material breach, we would receive a royalty-free license from Merck to develop and commercialize certain joint products. In the event of termination by Merck for our uncured material breach, Merck would retain the licenses from us, and we would receive reduced royalties from Merck on commercial sales of products.
Daiichi SankyoBristol-Myers Squibb - ROR Collaboration Agreement
In March 2006,October 2010, we entered into a worldwide collaboration with BMS pursuant to which each party granted to the other certain intellectual property licenses to enable the parties to discover, optimize and characterize ROR antagonists that may subsequently be developed and commercialized by BMS. Under the terms of the collaboration agreement, we were responsible for activities related to the discovery, optimization and characterization of the ROR antagonists during the collaborative research period which began on October 8, 2010 and ended on July 8, 2013. Since the end of the collaborative research period, BMS has and will continue to have sole responsibility for any further research, development, manufacture and commercialization of products developed under the collaboration and will bear all costs and expenses associated with those activities.
For each product developed by BMS under the collaboration, we will be eligible to receive payments upon the achievement by BMS of development and regulatory milestones. In February 2017, we received a $2.5 million development milestone payment in connection with the achievement of certain preclinical milestones set forth in the collaboration agreement. We are eligible for additional development and regulatory milestone payment of up to $250.0 million in the aggregate and commercialization milestones of up to $150.0 million in the aggregate, as well as royalties on commercial sales of any such products.
The collaboration agreement was amended and restated in April 2011 in connection with an assignment of patents to a wholly-owned subsidiary. BMS may, at any time, terminate the collaboration agreement upon certain prior notice to us on a product-by-product and country-by-country basis. In addition, either party may terminate the agreement for the other party’s uncured material breach. In the event of termination by BMS at will or by us for BMS’s uncured material breach, the license granted to BMS would terminate, the right to such product would revert to us and we would receive a royalty-bearing license for late-stage reverted compounds and a royalty-free license for early-stage reverted compounds from BMS to develop and commercialize such product in the related country. In the event of termination by BMS for our uncured material breach, BMS would retain the right to such product, subject to continued payment of milestones and royalties.
Bristol-Myers Squibb - LXR Collaboration
In December 2005, we entered into a collaboration agreement with Daiichi SankyoBMS for the discovery, development and commercialization of novel therapies targeted against the mineralocorticoid receptor, or MR,LXR, a nuclear hormone receptor implicated in a variety of cardiovascular and metabolic diseases. Under the terms of thedisorders. The collaboration agreement became effective in January 2006, at which time we granted to Daiichi SankyoBMS an exclusive worldwide license with respect to certain intellectual property primarily relating to compounds that modulate MR,LXR, including CS-3150 (XL550)BMS-852927 (XL041). Daiichi Sankyo isDuring the research term, we jointly identified drug candidates with BMS that were ready for IND-enabling studies. After the selection of a drug candidate for further clinical development by BMS, BMS agreed to be solely responsible for all further preclinical anddevelopment as well as clinical development, regulatory, manufacturing and commercializationsales/marketing activities for the compounds and weselected drug candidate. We do not have rights to reacquire such compounds, except as described below.
Daiichi Sankyo paid us a nonrefundable upfront paymentthe drug candidates selected by BMS. The research term expired in January 2010 and we transferred the amounttechnology to BMS in 2011 to enable it to continue the LXR program. BMS has terminated development of $20.0 millionXL041 and was obligated to providewe have been advised that BMS is continuing additional preclinical research and development funding of $3.8 million over a 15-month research term. In June 2007, ouron the program. The collaboration agreement with Daiichi Sankyo was amended to extend the research term by six months over which Daiichi Sankyo was required to provide $1.5 millionand restated in research and development funding. In November 2007, the parties decided not to further extend the research term. For each product from the collaboration, we are also entitled to receive payments upon attainment of pre-specified development, regulatory and commercialization milestones. In December 2010, we received a milestone payment of $5.0 millionApril 2011 in connection with an IND filing made by Daiichi Sankyo for CS-3150 (XL550)assignment of patents to a wholly-owned subsidiary.
Under the collaboration agreement, BMS is required to pay us contingent amounts associated with development and in August 2012, we received a milestone of $5.5 million in connection with the initiation of a phase 2 clinical trial for CS-3150 (XL550). We are eligible to receive additional development, regulatory and commercialization milestones of up to $145.0 million.$53.0 million per product for up to two products from the collaboration. In addition, we are also entitled to receive payments associated with sales milestones of up to $310.0 million and royalties on any sales of certainany products commercialized under the collaboration. Daiichi Sankyo


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Sanofi
In May 2009, we entered into a global license agreement with Sanofi for SAR245408 (XL147) and SAR245409 (XL765), leading inhibitors of phosphoinositide-3 kinase, or PI3K, and a broad collaboration for the discovery of inhibitors of PI3K for the treatment of cancer. The license agreement and collaboration agreement became effective on July 7, 2009. Under the license agreement, Sanofi received a worldwide exclusive license to SAR245408 (XL147) and SAR245409 (XL765), which entered into a series of phase 1, phase 1b/2 or phase 2 clinical trials, and has sole responsibility, including funding, for all subsequent clinical, regulatory, commercial and manufacturing activities. We were notified by Sanofi that the initial clinical trials involving XL147 or XL765 have been terminated or are in the process of concluding, and that Sanofi is still considering whether to initiate any further trials. We will be eligible to receive contingent payments associated with development, regulatory and commercial milestones under the license agreement of $745.0 million in the aggregate, as well as royalties on sales of any products commercialized under the license. Sanofi may, upon certain prior notice to us, terminate the agreement upon 90 days’ written notice in which case Daiichi Sankyo’s payment obligations would cease, itslicense as to products containing SAR245408 (XL147) and SAR245409 (XL765). In the event of such termination election, Sanofi’s license relating to compounds that modulate MRsuch product would terminate and revert to us, and we would receive, subject to certain terms, conditions and conditions,potential payment obligations, licenses from Daiichi SankyoSanofi to research, develop and commercialize compounds, that were discoveredsuch products.
In December 2011, we entered into an agreement with Sanofi pursuant to which the parties terminated the discovery collaboration agreement and released each other from any potential liabilities arising under the collaboration.collaboration agreement prior to effectiveness of the termination in December 2011. Each party retains ownership of the intellectual property that it generated under the collaboration agreement, and we granted Sanofi covenants not-to-enforce with respect to certain of our intellectual property rights. If either party or its affiliate or licensee develops and commercializes a therapeutic product containing an isoform-selective PI3K inhibitor that arose from such party’s work (or was derived from such work) under the collaboration agreement, then such party will be obligated to pay royalties to the other party based upon the net sales of such products. The termination agreement provides that Sanofi will make a one-time payment to us upon the first receipt by Sanofi or its affiliate or licensee of marketing approval for the first therapeutic product containing an isoform-selective PI3K inhibitor that arose from Sanofi’s work (or was derived from such work) under the collaboration agreement.
Manufacturing and DistributionProduct Supply
We contract with third parties to manufacture the raw materials, the active pharmaceutical ingredient, or API, and finished solid dose COMETRIQ products for clinical and commercial uses. We currently do not own or operate manufacturing or distribution facilities or resources for clinical or commercial production and distribution of CABOMETYX and COMETRIQ. In addition,Instead, we expecthave multiple contractual agreements in place with third party contract manufacturing organizations, or CMOs, who, on our behalf, manufacture clinical and commercial supplies of CABOMETYX and COMETRIQ, and will continue to do so for the foreseeable futurefuture. We have selected well-established and reputable global CMOs for our drug substance and drug product manufacturing that have good regulatory standing, large manufacturing capacities, and multiple manufacturing sites within their business footprint. We also have contracted with a third party logistics provider, with two distribution locations, to continueprovide shipping and warehousing services for our commercial supply of both CABOMETYX and COMETRIQ in the United States. We employ highly skilled personnel with both technical and manufacturing experience to relydiligently manage the activities at our CMOs. Our quality department audits these suppliers on a periodic basis. Our commercial suppliers are subject to routine inspections by regulatory agencies. We work closely with our third parties forparty manufacturers to ensure compliance with current good manufacturing practices, or cGMP, and other stringent regulatory requirements enforced by the manufacture of theFDA or foreign regulatory agencies in other territories, as applicable.
We source raw materials APIthat are used to manufacture our drug substance from multiple third-party suppliers in Asia and Europe. We stock sufficient quantities of these materials and provide them to our third party drug substance contract manufacturers to ensure they can manufacture adequate drug substance quantities per our requirements, for both clinical and commercial purposes. We store drug substance at third party facilities, and provide appropriate amounts to our third party drug product contract manufacturers who then manufacture, package and label our specified quantities of finished goods for COMETRIQ and CABOMETYX, respectively. Our third-party contract manufacturers also need to obtain materials such as excipients, components and reagents to manufacture our drug substance and finished drug product for COMETRIQ. In this manner, we continue to build and maintainproducts.
Within our supply chain.
Our multi-step supply chain, we have established safety stock amounts for the manufactureboth our drug substance and distribution of COMETRIQ consists of several suppliers locateddrug products, and store these quantities in multiple countries. Raw materials requiredlocations. The quantities that we store are based on our business needs and take into account scenarios for market demand, production lead times, potential supply interruptions and shelf life for our drug substance and drug products. In parallel, for business continuity reasons, we are in the productionprocess of evaluating and expect to establish additional suppliers for our drug substance and drug product manufacturers in the API are generally sourced from multiple third-partynear future. We believe that our current manufacturing network has the appropriate capacity to produce sufficient commercial quantities of CABOMETYX to

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suppliers. Contract manufacturerssupport the current approved indication of advanced RCC, as well as potential indications of first-line RCC and second line HCC, if those indications prove to be successful and gain regulatory approval in Europethe future.
Marketing, Sales and North America convert these raw materials into API for clinicalDistribution
We have a fully integrated commercial team consisting of sales, marketing, market access, and commercial purposes, respectively. We use a single third party to manufacture drug product for clinical purposes. We use a different third party to manufacture drug productoperations functions. Our sales team promotes CABOMETYX and package and to label the finished product for commercial purposes. We use a single third party logistics provider to handle shipping and warehousing of our commercial supply of COMETRIQ in the United States, and we co-promote Cotellic in association with Genentech. We use customary pharmaceutical company practices to market our products and concentrate our efforts on oncologists, oncology nurses and pharmacists. While we have expanded our U.S. distribution and pharmacy channels in connection with the approval of CABOMETYX by the FDA, we still rely on a single specialty pharmacyrelatively limited distribution network to dispense COMETRIQ to patients in fulfillment of prescriptions. We will alsoprescriptions in the United States. Furthermore, we rely on a third party, Sobi, to distributeIpsen and commercialize COMETRIQTakeda for the treatmentcommercialization and distribution of metastatic MTCCABOMETYX and COMETRIQ in the European Union in the event that COMETRIQ is approved for commercial sale in such jurisdictions. Sobi is currently supporting access to cabozantinib under an NPU program in the European Union and other regionsterritories outside of the United States.States, as well as for access and distribution activities for the approved products under our named patient use, or NPU, program. We also rely on Genentech, as our collaboration partner for Cotellic, for all commercialization and marketing activities, with the exception of the limited co-promotion activities highlighted above.
We may not be ableTo help ensure that all eligible patients in the United States have appropriate access to obtain sufficient quantities ofCABOMETYX and COMETRIQ, if our designated manufacturers do notwe have the capacityestablished a comprehensive reimbursement and support program called Exelixis Access Services, or capabilityEASE. Through EASE, we provide co-pay assistance to manufacture the product accordingqualified, commercially insured patients to our schedulehelp minimize out-of-pocket costs and specifications. If any of these suppliers wereprovide free drug to become unableuninsured or unwilling to supply us with API or finished product that complies with applicable regulatory requirements, we could incur significant delays in ourunder-insured patients who meet certain clinical trials or interruption of commercial supply which could have a material adverse effect on our business.
Our third-party manufacturers are independent entities, under contract with us, who are subject to their own unique operational and financial risks which are out of our control. If we or any of our third-party manufacturers fail to perform as required, this could impair our ability to deliver COMETRIQ on a timely basis or cause delays in our clinical trials and commercial activities. To the extent these risks materialize and affect their performance obligations to us, our financial results may be adversely affected.
We believe the processes used to manufacture our products are proprietary. For products manufactured by our third-party contract manufacturers, we have licensed the necessary aspects of these processes that we believe are proprietary to us to enable them to manufacture the products for us. We have agreements with these third-party manufacturers that are intended to restrict these manufacturers from using or revealing our processes, but we cannot be certain that these third-party manufacturers will comply with these restrictions.
While we believe there are multiple third parties capable of providing most of the materials and services we need to manufacture and distribute COMETRIQ, and that supply of materials that cannot be second-sourced can be managed with inventory planning, there is always a risk that we may underestimate demand, and that our manufacturing capacity through third-party manufacturers may not be sufficient.criteria. In addition, because of the significant lead times involved in our supply chain for COMETRIQ, we may have less flexibility to adjust our supply in response to changes in demand than if we had shorter lead times.
Government Regulation
The following section contains some general background information regarding the regulatory environment and processes affecting our industry andEASE is designed to illustrate in general terms the natureprovide comprehensive reimbursement support services, such as prior authorization support, benefits investigation and, if needed, appeals support.
Seasonal Operations and Backlog
Sales of our business and the potential impactmarketed products do not reflect any significant degree of government regulations on our business. It is not intended to be comprehensive or complete. Depending on specific circumstances, the information below may or may not apply to us or any of our product candidates. In addition, the information is not necessarily a description of activities that we have undertaken in the past or will undertake in the future. seasonality.
The regulatory contextmarkets in which we operate are characterized by short lead times and the absence of significant backlogs. We do not believe that backlog information is complexmaterial to our business as a whole.
Environment, Health and constantly changing.Safety
In support of the development and expansion of our product pipeline, we have resumed discovery activities. Our research and development processes involve the controlled use of certain hazardous materials and chemicals. We are subject to federal, state and local environmental, health and workplace safety laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste products. While we have incurred, and may continue to incur, expenditures to ensure we are in compliance with these laws and regulations, we do not expect the cost of complying with these laws and regulations to be material.
Government Regulation
The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical products. These agencies and other federal, state and local entities regulate, among other things, research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, distribution, export, import, record keeping, approval, advertising and promotion of our products.


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The process required by the FDA before product candidates may be marketed in the United States generally involves the following:
preclinical laboratory and animal tests that must be conducted in accordance with Good Laboratory Practices;
submission of an IND, which must become effective before clinical trials may begin;
adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug candidate for its intended use;
submission of a New Drug Application, or NDA, to FDA for commercial marketing, or of a sNDA, for approval of a new indication if the product is already approved for another indication;
pre-approval inspection of manufacturing facilities and selected clinical investigators for their compliance with Good Manufacturing Practices, or GMP, and Good Clinical Practices;Practices, or GCP;
if FDA convenes an advisory committee, satisfactory completion of the advisory committee review; and
FDA approval of a New Drug Application,the NDA or NDA, for commercial marketing, or NDA supplement, for an approval of a new indication if the product is already approved for another indication.sNDA.

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The testing and approval process requires substantial time, effort and financial resources. Prior to commencing the first clinical trial with a product candidate, we must submit an IND to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the clinical trial. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Submission of an IND may not result in FDA authorization to commence a clinical trial. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development. Further, an independent institutional review board for each medical center proposing to conduct the clinical trial must review and approve the plan for any clinical trial and provide its informed consent form before the trial commences at that center. Regulatory authorities or an institutional review board or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.
For purposes of NDA approval, human clinical trials are typically conducted in three sequential phases that may overlap.
Phase 1 –- Studies, which involve the initial introduction of an IND into humans, are initially conducted in a limited patient populationnumber of subjects to test the product candidate for safety, dosage tolerance, absorption, metabolism, distribution and excretion in healthy humans or patients.
Phase 2 –- Studies are conducted with groups of patients afflicted with a specified disease in order to provide enough data to evaluate the preliminary efficacy, optimal dosages and expanded evidence of safety. Multiple phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive phase 3 clinical trials. Phase 2 studies are typically well controlled, closely monitored, and conducted in a relatively small number of patients, usually involving no more than several hundred subjects. In some cases, a sponsor may decide to run what is referred to as a “phase 2b” evaluation, which is a second, confirmatory phase 2 trial that could, if positive, serve as a pivotal trial in the approval of a product candidate.
Phase 3 –- When phase 2 evaluations demonstrate that a dosage range of the product is effective and has an acceptable safety profile, phase 3 trials are performed to gather the additional information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the drug and to provide an adequate basis for physician labeling. Phase 3 trials are undertaken in large patient populations to further evaluate dosage, to provide replicate statistically significant evidence of clinical efficacy and to further test for safety in an expanded patient population at multiple clinical trial sites.
The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These so-called phase 4 studies may be made a condition to be satisfied after a drug receives approval. Failure to satisfy such postmarketingpost-marketing commitments can result in FDA enforcement action, up to and to including withdrawal of NDA approval. The results of phase 4 studies can confirm the effectiveness of a product candidate and can provide important safety information to augment the FDA’s adverse drug reaction reporting system. The results of product development, preclinical studies and clinical trials are submitted to the FDA as part of an NDA, or as part of an NDA supplement.sNDA. The submission of an NDA or NDA supplementsNDA requires payment of a substantial User Feeuser fee to the FDA. The FDA may convene an advisory committee to provide clinical insight on NDA review questions. Although the FDA is not required to follow the recommendations of an advisory committee, the agency usually does so. The FDA may deny approval of an NDA or NDA supplementsNDA by way of a Complete Response letter if the applicable regulatory criteria are not satisfied, or it may require additional clinical data and/or an additional pivotal phase 3 clinical trial. Even if such data are submitted, the FDA may ultimately decide that the NDA or NDA supplementsNDA does not satisfy the criteria for approval. An NDA may be approved with significant restrictions on its labeling, marketing and


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distribution under a Risk Evaluation and Mitigation Strategy. Once issued, the FDA may withdraw product approval if ongoing regulatory standards are not met or if safety problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these postmarketingpost-marketing programs.
Satisfaction of FDA requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease. Government regulation may delay or prevent marketing of product candidates or new diseases for a considerable period of time and impose costly procedures upon our activities. The FDA or any other regulatory agency may not grant approvals for new indications for our product candidates on a timely basis, if at all. Success in early stage clinical trials does not ensure success in later stage clinical trials. Targets and pathways identified in vitro may be determined to be less relevant in clinical studies and results in animal model studies may not be predictive of human clinical results. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Even if a product candidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations and dosages. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market.
Any products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with GMP, which impose certain procedural

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and documentation requirements upon us and our third-party manufacturers. We cannot be certain that we or our present or future suppliers will be able to comply with the GMP regulations and other FDA regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, require us to recall a drug from distribution, or withdraw approval of the NDA for that drug.
The FDA closely regulates the marketing and promotion of drugs. Adrugs, including restricting the promotion of uses for which a drug is not approved by the agency. Not only must a company have appropriate substantiation to support claims made about a drug, under the FDA’s current interpretation of the relevant laws, a company can make only those claims relating to safety and efficacy that are for indications for which FDA has approved by the FDA.drug and that are otherwise consistent with the FDA-approved label for the drug. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may, in their independent medical judgment, prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’smanufacturers’ communications on the subject of off-label use. Additionally, a significant number of pharmaceutical companies have been the target of inquiries and investigations by various U.S. federal and state regulatory, investigative, prosecutorial and administrative entities in connection with the promotion of products for off-label uses and other sales practices. These investigations have alleged violations of various U.S. federal and state laws and regulations, including claims asserting antitrust violations, violations of the Food, Drug and Cosmetic Act, false claims laws, the Prescription Drug Marketing Act, anti-kickback laws, and other alleged violations in connection with the promotion of products for unapproved uses, pricing and Medicare and/or Medicaid reimbursement.
The FDA’s policies may change and additional government regulations may be enacted which could prevent or delay regulatory approval of our product candidates or approval of new diseases for our product candidates. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either inIn the United States, or abroad.
The United Statesthe Orphan Drug Act promotesof 1983, as amended, is intended to incentivize the development of drugs and biological products that demonstrate promise for the diagnosis and treatment ofrare diseases or conditions that affect fewer than 200,000 people in the United States.U.S. (or that affects more than 200,000 persons in the U.S. and for which there is no reasonable expectation that the cost of developing and making available the drug in the U.S. for such disease or condition will be recovered from sales of the drug in the U.S.). If a drug is being developed for a rare disease of condition, to be eligible for designation as an orphan drug, the FDA must not have previously approved a drug considered the “same drug” for the same orphan indication. If the FDA has previously approved another same drug for the same indication, to obtain orphan drug designation, the sponsor of the subsequent drug would be required to provide a plausible hypothesis of clinical superiority over the previously approved drug to obtain an orphan designation. Upon FDA receipt of Orphan Drug Designation, the sponsor is eligible for tax credits of up to 50% for qualified clinical trial expenses, the ability to apply for annual grant funding, and waiver of the Prescription Drug User Fee Act application fee, andfee. In addition, upon marketing approval, the potentialan orphan-designated drug could be eligible for seven years of market exclusivity for the approved orphan-designated indication. Such orphan drug exclusivity, if awarded, would only block the approval of any drug considered the same drug for the same orphan indication. Moreover, a subsequent same drug could break a previously approved drug’s orphan exclusivity through a demonstration of clinical superiority over the previously approved drug.


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The FDA has various programs, including Fast Track, priority review and accelerated approval, which are intended to expedite or simplify the process for developing and reviewing promising drugs, or to provide for the approval of a drug on the basis of a surrogate endpoint. Generally, drugs that are eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs and those that offer meaningful benefits over existing treatments. For example, Fast Track is a process designed to facilitate the development and expedite the review of drugs to treat serious or life-threatening diseases or conditions and fill unmet medical needs. Priority review is designed to give drugs that treat serious conditions and that offer major advances in treatment or provide a treatment where no adequate therapy exists an initial review within six months of NDA filing as compared to a standard review time of 10 months from NDA filing. Certain other types of drug applications are also eligible for priority review. Although Fast Track and priority review do not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated drug and expedite review of the application for a drug designated for priority review. Accelerated approval provides for an earlier approval for a new drug that is intended to treat a serious or life-threatening disease or condition and that fills an unmet medical need based on a surrogate endpoint. As a condition of approval, the FDA may require that a sponsor of a product candidate receiving accelerated approval perform post-marketing clinical trials to confirm the clinically meaningful outcome as predicted by the surrogate marker trial. In addition to the Fast Track, accelerated approval and priority review programs, the FDA also designates Breakthrough Therapy status to drugs that are intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated approval. The FDA will seek to ensure the sponsor of a breakthrough therapy product candidate receives: intensive guidance on an efficient drug development program; intensive involvement of senior managers and experienced staff on a proactive, collaborative and cross-disciplinary review; and rolling review.
Additional programs intended to expedite the development of drug products were included in the recently enacted 21st Century Cures Act, or the Cures Act. Signed into law on December 13, 2016, the Cures Act includes various provisions to accelerate the development and delivery of new treatments, such as those intended to expand the types of evidence manufacturers may bring to the FDA to support drug approval, to encourage patient-centered drug development, to liberalize the communication of healthcare economic information, or HCEI, to payers, and to create greater transparency with regard to manufacturer expanded access programs. Central to the Cures Act are provisions that enhance and accelerate the FDA’s processes for reviewing and approving new drugs and supplements to approved NDAs, including provisions that:
require the FDA to establish a program to evaluate the potential use of real world evidence to help to support the approval of a new indication for an approved drug and to help to support or satisfy post-approval study requirements;
provide that the FDA may rely upon qualified data summaries to support the approval of a supplemental application with respect to a qualified indication for an already approved drug;
require FDA to issue guidance for purposes of assisting sponsors in incorporating complex adaptive and other novel trial designs into proposed clinical protocols and applications for new drugs; and
require FDA to establish a process for the qualification of drug development tools for use in supporting or obtaining FDA approval for or investigational use of a drug.
As to dissemination of HCEI, the Cures Act amends Section 114 of the Food and Drug Administration Modernization Act of 1997 to help clarify and facilitate the dissemination of HCEI, including by broadening the definition of HCEI, expressly extending the dissemination of HCEI to payors, and clarifying that HCEI must only “relate” to an FDA-approved indication rather than “directly” relate to the indication.
The Hatch-Waxman Act
The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, established two approval pathways for drug products in which potential competitors may rely upon the FDA’s prior approval of the same or similar drug product.
ANDA. An abbreviated new drug application, or ANDA, may be approved by the FDA if the applicant demonstrates that the proposed product is the same as the approved drug, which is referred to as the “reference listed drug,” or RLD. Generally, an ANDA must contain data and information showing that the proposed generic product and RLD (1) have the same active ingredient, in the same strength and dosage form, to be delivered via the same route of administration, (2) are


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intended for the same uses, and (3) are bioequivalent. This is instead of independently demonstrating the proposed product’s safety and effectiveness, which are inferred from the fact that the product is the same as the RLD, which the FDA previously found to be safe and effective. Furthermore, conducting bioequivalence testing is generally less time consuming and costly than conducting a full set of clinical trials in humans.
505(b)(2) NDAs. A 505(b)(2) application is one for which one or more of the investigations relied upon by the applicant for approval were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. Under Section 505(b)(2) of the Food, Drug, and Cosmetic Act, or FDCA, an applicant may rely, in part, on the FDA’s previous approval of a similar product, or published literature, in support of its application. If the 505(b)(2) applicant establishes that reliance on FDA’s prior findings of safety and efficacy for an approved product is scientifically appropriate, it may eliminate the need to conduct certain preclinical or clinical studies. The FDA may require additional studies or measurements, including comparability studies.
Unlike a full NDA for which the sponsor has conducted or obtained a right of reference to all the data essential to approval, the filing of both an ANDA application and a 505(b)(2) application may be delayed due to patent or exclusivity protections covering an approved product. The Hatch-Waxman Act provides five years of data exclusivity for the first approval of a new chemical entity, and three years of data exclusivity for supplemental applications containing clinical studies essential to the approval of the sNDA.
Orange Book Listing. An NDA sponsor must identify to the FDA patents that claim the drug substance or drug product or approved method of using the drug. When the drug is approved, those patents are among the information about the product that is listed in the FDA publication, Approved Drug Products with Therapeutic Equivalence Evaluations, which is referred to as the Orange Book. Any applicant who files an ANDA or a 505(b)(2) NDA must certify, for each patent listed in the Orange Book for the RLD that (1) no patent information on the drug product that is the subject of the application has been submitted to the FDA, (2) such patent has expired, (3) the listed patent will expire on a particular date and approval is sought after patent expiration, or (4) such patent is invalid or will not be infringed upon by the manufacture, use or sale of the drug product for which the orphan-designated indication.application is submitted. The fourth certification described above is known as a Paragraph IV certification. A notice of the Paragraph IV certification must be provided to each owner of the patent that is the subject of the certification and to the reference NDA holder. The reference NDA holder and patent owners may initiate a patent infringement lawsuit in response to the Paragraph IV notice. Filing such a lawsuit within 45 days of the receipt of the Paragraph IV certification notice prevents the FDA from approving the ANDA or 505(b)(2) NDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA or 505(b)(2) applicant. The ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the RLD has expired.
Regulation Outside of the United States
In addition to regulations in the United States, we will beare subject to regulations of other countries governing clinical trials and the manufacturing, commercial sales and distribution of our products.products outside of the United States. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of countries outside of the United States before we can commence clinical trials in such countries and approval of the regulators of such countries or economic areas, such as the European Union, before we may market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.
Under European Union regulatory systems, a company may submit marketing authorization applicationsMAAs either under a centralized or decentralized procedure. TheUnder the centralized procedure, providesMAAs are submitted to the EMA whose Committee for Medicinal Products for Human Use reviews the grant ofapplication and issues an opinion on it. The opinion is considered by the EC which is responsible for deciding applications. If the application is approved, the EC grants a single marketing authorization that is valid for all European Union member states.states as well as Iceland, Liechtenstein and Norway, or the EEA. The national authorization procedures, the decentralized and mutual recognition procedures, as well as national applications, are available for products for which the centralized procedure is not compulsory. The mutual recognition procedure provides for the European Union member states selected by the applicant to mutually recognize a national marketing authorization that has already been granted by the competent authority of another member state, referred to as the Reference Member State, or RMS. The decentralized procedure provides for mutual recognition of national approval decisions.is used when the product in question has yet to be granted a marketing authorization in any member state. Under this procedure the holderapplicant can select the member state that will act as the RMS. In both the mutual recognition and decentralized procedures, the RMS reviews the application and submits its assessment of a national marketing authorization may submit anthe application to the remaining member states.states where marketing authorizations are being sought, referred to as Concerned Member States or CMS. Within


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90 days of receiving the applicationsapplication and assessmentsassessment report, each member stateCMS must decide whether to recognize approval.the RMS assessment. If a member state does not recognizeagree with the marketing authorization,assessment, and the disputed points arecannot be resolved the matter is eventually referred to the European Commission,EC, whose decision is binding on all member states. If the application is successful national marketing authorizations will be granted by the competent authorities in each of the member states chosen by the applicant.
Conditional marketing authorizations may be granted for a limited number of medicinal products for human use referenced in European Union law applicable to conditional marketing authorizations where the clinical dataset is not comprehensive, if (1) the risk-benefit balance of the product is positive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) unmet medical needs will be fulfilled and (4) the benefit to public health of the immediate availability on the market of the medicinal product outweighs the risk inherent in the fact that additional data are still required. Specific obligations, such as the completion of ongoing or new studies and obligations relating to the collection of pharmacovigilance data, may be amongst the conditions stipulated in the marketing authorization.
As in the United States, we may apply for designation of a product as an Orphan Drugdrug for the treatment of a specific indication in the European Union before the application for marketing authorization is made. In the European Union orphan designation is available for products in development which are either: (a) intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in the European Union, or (b) intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition in the Community and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the medicinal product. Additionally, the sponsor of an application for orphan drug designation must establish that there exists no satisfactory authorized method of diagnosis, prevention, or treatment of the condition or even if such treatment exists, the product will be of significant benefit to those affected by that condition.
Orphan Drugsdrugs in Europethe European Union enjoy economic and marketing benefits, including up to ten years of market exclusivity for the approved indication unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan-designated product. The period of market exclusivity may be reduced to six years if at the end of the fifth year it is established that the criteria for orphan designation are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.
Healthcare Regulation
Federal and state healthcare laws, including fraud and abuse and health information privacy and security laws, are also applicableapply to our business. If we fail to comply with those laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected. The laws that may affect our ability to operate include:include, but are not limited to: the federal Anti‑Kickback Statute, which prohibitsprohibits. among other things, soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; and federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third‑party payers that are false or fraudulent. StateAdditionally, we are subject to state law equivalents of each of the above federal laws, which may be broader in scope and apply regardless of whether the payer is a federal healthcare program, and many of which differ from each other in significant ways and may not have the same effect, further complicate compliance efforts.

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Numerous federal and state laws, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use and disclosure of personal information. Other countries also have, or are developing, laws governing the collection, use and transmission of personal information. In addition, most healthcare providers who are expected to prescribe our products and from whom we obtain patient health information, are subject to privacy and security requirements under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology and Clinical Health Act, or HIPPA.HIPAA. Although we are not directly subject to HIPPA,HIPAA, we could be subject to criminal penalties if we knowingly obtain and/or disclose individually identifiable health information from a HIPAA-covered entity, including healthcare providers, in a manner that is not authorized or permitted by HIPAA. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to affect our business, including recently enacted laws in a majority of states requiring security breach notification. These laws could create liability for us or increase our cost of doing business. International laws, such as the EU Data Privacy Directive (95/46/EC) and Swiss Federal Act on Data Protection, regulate the processing of personal data within Europethe European Union and between countries in the European Union and countries andoutside of the European Union, including the United States. Failure to provide adequate privacy


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protections and maintain compliance with safe harbor mechanisms could jeopardize business transactions across borders and result in significant penalties.
ThereIn addition, the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, or the PPACA, created a federal requirement under the federal Open Payments program, that requires certain manufacturers to track and report to the Centers for Medicare and Medicaid Services, or CMS, annually certain payments and other transfers of value provided to physicians and teaching hospitals made in the previous calendar year. In addition, there are also an increasing number of state laws that require manufacturers to make reports to states on pricing and marketing information. In addition, beginning in 2014, a similar federal requirement will require manufacturers to track and report to the federal government certain payments made to physicians and teaching hospitals made in the previous calendar year. These laws may affect our sales, marketing, and other promotional activities by imposing administrative and compliance burdens on us. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state and soon federal authorities.
For those marketed products which are covered in the United States by the Medicaid programs, we have various obligations, including government price reporting and rebate requirements, which generally require products be offered at substantial rebates/discounts to Medicaid and certain purchasers (including “covered entities” purchasing under the 340B Drug Discount Program). We are also required to discount such products to authorized users of the Federal Supply Schedule of the General Services Administration, under which additional laws and requirements apply. These programs require submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulations, and the guidance governing such calculations is not always clear. Compliance with such requirements can require significant investment in personnel, systems and resources, but failure to properly calculate prices, or offer required discounts or rebates could subject us to substantial penalties.Subject to the application in the European Union of the Transparency Directive 89/105/EEC, which aims to ensure the transparency of measures adopted to control pricing and reimbursement, pricing and reimbursement in the EU/EEA is governed by national rules and policy and may vary from Member State to Member State.
Reimbursement
Sales of COMETRIQour approved products and any future products of ours will depend, in part, on the extent to which their costs will be covered by third-party payors,payers, such as government health programs, commercial insurance and managed healthcare organizations. ThesePatients may be less likely to use our products if coverage is not provided and reimbursement is inadequate to cover a significant portion of the cost of our products. Third-party payers may limit coverage to specific drug products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. Moreover, a third-party payorspayer’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Additionally, a third-party payer’s decision to cover a particular drug product does not ensure that other payers will also provide coverage for the drug product, or will provide coverage at an adequate reimbursement rate.
In the United States and other potentially significant markets for our products, government authorities and third-party payers are increasingly challengingattempting to limit or regulate the prices charged forprice of medical products and services. Additionally,services, particularly for new and innovativeproducts and therapies, which has resulted in lower average selling prices. Further, the containment ofincreased emphasis on managed healthcare costs has become a priority of federalin the United States and state governmentson country-specific and national pricing and reimbursement controls in the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictionsEuropean Union will put additional pressure on product pricing, reimbursement and requirements for substitutionusage, which may adversely affect our future product sales and results of generic products, when available.operations. These pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in general. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing coverage and/or reimbursement controls and measures, could further limithave a material adverse impact on our net product revenuerevenues and results. If these third-party payors do not considerresults of operations.
The United States and some foreign jurisdictions are considering proposals or have enacted legislative and regulatory changes the healthcare system that could affect our products to be cost-effective compared to other therapies, they may not cover our products or, if they do, the level of payment may not be sufficient to allow usability to sell our products profitably. Among policy makers and payers in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. There has been particular and increasing legislative and enforcement interest in the United States with respect to drug pricing practices, particularly with respect to drugs that have been subject to relatively large price increases over relatively short time periods. There have been several U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. In the United States, the pharmaceutical industry has already been significantly affected by major legislative initiatives, including, for example, the PPACA. In January 2017, Congress voted to adopt a


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budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of PPACA. The Budget Resolution is not a law, however, it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of PPACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under PPACA to waive, defer, grant exemptions from, or delay the implementation of any provision of PPACA that would impose a profitable basis.fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also could consider subsequent legislation to replace elements of PPACA that are repealed. We cannot predict what healthcare reform initiatives may be adopted in the future. Further federal, state and foreign legislative and regulatory developments are likely, and we expect ongoing initiatives to increase pressure on drug pricing, which could have a negative impact on our revenue or sales of any products or future approved products.
The Medicare Prescription Drug, Improvement,Other legislative changes have also been proposed and Modernizationadopted since the PPACA was enacted. For example, the Budget Control Act of 2003, or2011 resulted in aggregate reductions in Medicare payments to providers of up to 2% per fiscal year, starting in 2013, and the MMA, imposed new requirementsAmerican Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the distributiongovernment to recover overpayments to providers from three to five years. Such laws, and pricingothers that may affect our business that have been recently enacted or may in the future be enacted, may result in additional reductions in Medicare and other healthcare funding. In the future, there will likely continue to be additional proposals relating to the reform of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment forUnited States healthcare system, some of the costswhich could further limit coverage and reimbursement of prescription drugs may increase demand fordrug products, including our approved products for which we receive marketing approval. However,and any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates.future approved products. Any reduction in payment that resultsreimbursement from the MMAMedicare or other government programs may result in a similar reduction in payments from non-governmental payors.
private payers. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Actimplementation of 2010, collectively referredcost containment measures or other healthcare reforms may prevent us from being able to as the PPACA, enacted in March 2010, is expected to have a significant impact on the health care industry. The PPACA is expected to expand coverage for the uninsured while at the same time containing overall healthcare costs. With regard to pharmaceutical products, the PPACA is expected to, among other things, expand and increase industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare Part D program. We cannot predict the full impact of the PPACA ongenerate revenue, attain profitability or commercialize our operations, as many of PPACA’s reforms require the promulgation of detailed regulations implementing the statutory provisions, which has not yet

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occurred. In June 2012, the U.S. Supreme Court upheld the constitutionality of the PPACA, except that the Court held unconstitutional the provision of PPACA authorizing the Secretary of the U.S. Department of Health and Human Services to withdraw all of a state’s Medicaid funding if the state declines to participate in the PPACA’s expansion of Medicaid eligibility. Yet, some states have indicated that they intend to not implement certain sections of the PPACA, and some members of the U.S. Congress are still working to repeal the PPACA. As a result, the PPACA and/or certain of its provisions may be modified or eliminated by future legislation or litigation.products.
In addition, in some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before itits cost may be lawfully marketed.funded within the respective national healthcare system. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states tomay restrict the range of medicinal products for which their national health insurancehealthcare systems provide reimbursement and tomay control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability ofprofits the medicinal product generates for the company placing the medicinal productit on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products.products on cost-effectiveness grounds. Historically, products launched in countries in the European Union do not follow the price structures of the United States and they generally tend to be priced significantly lower.
Competition
There are many companies focused on the development of small molecules and antibodies for cancer. Our competitors and potential competitors include major pharmaceutical and biotechnology companies, as well as academic research institutions, clinical reference laboratories and government agencies that are pursuing research activities similar to ours. Many of our competitors and potential competitors have significantly more financial, technical and other resources than we do, which may allow them to have a competitive advantage.
Competition for Cabozantinib
We believe that our ability to successfully compete will depend on, among other things:
efficacy, safety and reliability of COMETRIQ (cabozantinib);cabozantinib;
timing and scope of regulatory approval;
the speed at which we develop cabozantinib for the treatment of additional tumor types beyond progressive, metastatic MTC;its approved indications;
our ability to complete preclinical testing and clinical development and obtain regulatory approvals for cabozantinib;
our ability to manufacture and sell commercial quantities of COMETRIQ (cabozantinib)cabozantinib product to the market;
our ability to successfully commercialize COMETRIQ (cabozantinib)cabozantinib and secure coverage and adequate reimbursement in approved indications;
product acceptance by physicians and other health care providers;
quality and breadth

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the level of our technology;collaboration partners’ investments in the resources necessary to successfully commercialize cabozantinib in territories where it is approved outside of the United States; 
skills of our employees and our ability to recruit and retain skilled employees;
protection of our intellectual property; and
the availability of substantial capital resources to fund development and commercialization activities.
We believe that the quality and breadth of activity observed with cabozantinib, the skill of our employees and our ability to recruit and retain skilled employees, our patent portfolio and our capabilities for research and drug development are competitive strengths. However, many large pharmaceutical and biotechnology companies have significantly larger intellectual property estates than we do, more substantial capital resources than we have, and greater capabilities and experience than we do in preclinical and clinical development, sales, marketing, manufacturing and regulatory affairs.
The markets for which we intend to pursue regulatory approval of cabozantinib are highly competitive. We are aware of products in research or development by our competitors that are intended to treat all of the tumor types we are targeting, and should they demonstrate suitable clinical evidence, any of these products may compete with cabozantinib. Our competitorsfuture success will depend upon our ability to maintain a competitive position with respect to technological advances and the shifting landscape of therapeutic strategy following the advent of immunotherapy. Our products may succeed in developing their products before we do, obtaining approvals from the FDA or other regulatory agencies for their products more rapidly than we do, or developing products that are more effective than cabozantinib. These products or technologies might render our technology obsolete or noncompetitive. There may also be drug candidates of whichbecome less marketable if we are not aware atunable to successfully adapt our development strategy to address the likelihood that this new approach to treating cancer with immuno-oncoloy agents will become prevalent in indications for which our products are approved, most notably advanced RCC, and in additional indications where we may seek regulatory approval.
CABOMETYX: We believe the principal competition for CABOMETYX in advanced RCC includes: BMS’s nivolumab and ipilimumab; Pfizer’s axitinib, sunitinib and temsirolimus; Novartis’ everolimus and pazopanib; Bayer’s and Onyx Pharmaceuticals’ (a wholly-owned subsidiary of Amgen) sorafenib; Genentech’s bevacizumab and atezolizumab; and Eisai’s lenvatinib. The competition we currently face from BMS’s nivolumab is particularly significant. Nivolumab was approved for the treatment of advanced RCC on November 23, 2015, following a rapid review by the FDA. That approval was based in large part on the results of BMS’s phase 3 trial comparing nivolumab to everolimus in patients who had received previous antiangiogenic therapy for advanced RCC (Checkmate 025), in which nivolumab met its primary endpoint of showing a statistically-significant improvement in OS over everolimus, a current standard of care for the treatment of second line RCC patients. Nivolumab failed to demonstrate a statistically-significant PFS benefit over everolimus. Nivolumab also demonstrated an earlier stageacceptable safety profile. Additionally, there are a variety of development that may compete with cabozantinib. In addition, cabozantinib may compete with existingcombination therapies that have long histories of use, such as chemotherapybeing developed for RCC, including, Roche’s bevacizumab and radiation treatments in cancer indications.atezolizumab, BMS’s ipilimumab and nivolumab, Merck’s pembrolizumab and Eisai’s lenvatinib, Merck’s pembrolizumab and Pfizer’s axitinib, Pfizer’s avelumab and axitinib, and Merck’s pembrolizumab and Roche’s bevacizumab.
COMETRIQ:We believe that the principal competing anti-cancer therapy to COMETRIQ in progressive, metastatic MTC is AstraZeneca’sGenzyme’s RET, VEGFR and EGFR inhibitor vandetanib, which has been approved by the FDA and the EMAEC for the

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treatment of symptomatic or progressive MTC in patients with unresectable, locally advanced, or metastatic disease. In addition, we believe that COMETRIQ also faces competition as a treatment for progressive, metastatic MTC from off-label use of Bayer’s and Onyx Pharmaceuticals’ (a wholly-owned subsidiary of Amgen) multikinase inhibitor sorafenib, Pfizer’s multikinase inhibitor sunitinib, and Ariad Pharmaceutical’s multikinase inhibitor ponatinib.ponatinib, Novartis’ multikinase inhibitor pazopanib, and Eisai’s multikinase inhibitor lenvatinib.
We believe that ifPotential Cabozantinib Indications Beyond RCC and MTC: Should cabozantinib isbe approved for the treatment of the indications for whichHCC, we currently have ongoing phase 3 pivotal trials,believe its potential principal competition in such indications may include the following:

CRPC: Bayer’s alpha-pharmaceutical (radium 223); Janssen Biotech’s CYP17 inhibitor abiraterone; Medivation’s androgen receptor inhibitor enzalutamide; and chemotherapeutic agents, including Sanofi’s cabazitaxel and generic docetaxel;
RCC: Pfizer’s axitinib, sunitinib and temsirolimus; Novartis’ everolimus; Bayer’s and Onyx Pharmaceuticals’ sorafenib; GlaxoSmithKline’s pazopanib;sorafenib, Bayer’s regorafenib, Eisai’s lenvatinib, BMS’s nivolumab, Merck’s pembrolizumab and Genentech’s bevacizumab; and
HCC: Bayer’s and Onyx Pharmaceuticals’ sorafenib; Bayer’s regorafenib; ImClone System’s ramucirumab; and ArQule’s tivantinib.

Lilly’s ramucirumab. In particular, Bayer recently announced positive results from a Phase 3 trial that compared regorafenib to placebo in the same HCC patient population that is being enrolled in our Phase 3 trial. Examples of potential competition for cabozantinib in other cancer indications include: other VEGF pathway inhibitors, including Genentech’s bevacizumab; other RET inhibitors including Eisai’s lenvatinib;lenvatinib and Ariad’s ponatinib; and other MET inhibitors, including Amgen’s AMG 208, Pfizer’s crizotinib, ArQule’s tivantinib, GlaxoSmithKline’s foretinib (XL880) and Genentech’s onartuzumab.
ResearchMirati’s glesatinib; and Development Expenses
Researchimmunotherapies such as BMS’s ipilimumab and development expenses consist primarily of personnel expenses, laboratory supplies, consultingnivolumab, Merck’s pembrolizumab and facilities costs. Research and development expenses were $178.8 million for the year ended December 31, 2013, compared to $128.9 million for the year ended December 31, 2012 and $156.8 million for the year ended December 31, 2011.Roche’s atezolizumab.
RevenuesCompetition for Cobimetinib
In 2013, we derived 52%We believe that cobimetinib’s principal competition amongst targeted agents includes Novartis’ trametinib and 45%dabrafenib, and Array’s encorafenib and binimetinib; and within the class of our revenues from Bristol-Myers Squibbimmunotherapies, BMS’s ipilimumab and Diplomat Specialty Pharmacy, respectively.


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nivolumab and Merck’s pembrolizumab. The second category, immunotherapies, are of particular competitive importance vis-a-vis cobimetinib in advanced melanoma as they are already FDA approved in melanoma patient populations that overlap with those that may be eligible for cobimetinib, they have been rapidly incorporated into the National Comprehensive Cancer Network treatment guidelines, and they are viewed with a high degree of enthusiasm by physicians and key opinion leaders. Ongoing and future trials incorporating immuno-oncology agents, including combination trials, may further impact usage of cobimetinib in melanoma and potentially in additional tumor types in which cobimetinib may ultimately gain approval.
Financial Information and Significant Customers
We operate as a single business segment and have operations solely in the United States. During the year ended December 31, 2016, we derived 33% of our revenues from Diplomat Specialty Pharmacy, which is located in the United States and 17% of our revenues in connection with our collaboration with Ipsen which is located in the European Union. Information regarding total revenues, including geographic regions in which they are earned, net loss and total assets for the years ended December 31, 2016, 2015 and 2014 is set forth in “Note 14. Concentrations of Credit Risk” in our financial statements“Consolidated Financial Statements” included in Item 8 of this Annual Report on Form 10-K.
Research and development expenses were $96.0 million or the year ended December 31, 2016, compared to $96.4 million for the year ended December 31, 2015 and $189.1 million for the year ended December 31, 2014. Additional information about our research and development expenses in each of the last three fiscal years is set forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Patents and Proprietary Rights
We actively seek patent protection in the United States, the European Union, and selected other foreign countries to cover our drug candidates and related technologies. Patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country. We have numerous patents and pending patent applications that relate to methods of screening drug targets, compounds that modulate drug targets, as well as methods of making and using such compounds.
While many patent applications have been filed relating to the drug candidates that we have developed, the majority of these are not yet issued or allowed.
Cabozantinib is covered by ansix issued patentpatents in the United States, (U.S.including U.S. Pat. No. 7,579,473)7,579,473, for the composition-of-matter of cabozantinib and pharmaceutical compositions thereof. U.S. Pat. No. 7,579,473 would normally expire in September 2024, but we have been granted a patent term extension to extend the term to August 2026. The additional issued U.S. patents will expire between 2024 and 2032. We own the rights to the six issued U.S. patents. Cabozantinib is also covered by an additional issued patent in the United States (covering certain methods of use) and also by an issued patent in Europe (covering cabozantinib’s composition-of-matter and certain methods of use) and an issued patent in Japan (covering cabozantinib composition-of-matter). These issued patents willwould normally expire in September 2024, subjectbut we have applied for Supplementary Protection Certificates in Europe to any available extensions.extend the term to 2029. We intend to apply for patent term extension in Japan to extend the term to 2029. Foreign counterparts of the issued U.S.United States and European patents are pendingissued in Australia Japan and Canada, which if issued, are anticipated to expire in 2024. We have patent applications pending in the United States, the European Union, Australia, Japan and Canada covering certain synthetic methods related to making cabozantinib, which, if issued, are anticipated to expire in 2024. We have filed patent applications in the United States and other selected countries covering certain salts, polymorphs and formulations of cabozantinib which,that, if issued, are anticipated to expire in approximately 2030. We have filed several patent applications in the United States and other selected countries relating to combinations of cabozantinib with certain other anti-cancer agents that, if issued, are anticipated to expire in approximately 2030.
Cobimetinib is covered by three issued patents in the United States, including U.S. Pat. No 7,803,839 for the composition of matter of cobimetinib and pharmaceutical compositions thereof. U.S. Pat. No 7,803,839 would normally expire in February 2027, but we have applied for a patent term extension to extend the term to November 2029. We own the rights to the three issued patents. Cobimetinib is also covered an issued patent in Europe (covering cobimetinib’s composition-of-matter and certain methods of use), which would normally expire in October 2026, but we have applied for Supplementary Protection Certificates to extend the term to November 2030. Foreign counterparts of the issued United States and European patents are issued or pending in Australia, Brazil, Canada, China, Colombia, the Eurasian Patent Organization, Georgia, Hong Kong, India, Indonesia, Israel, Japan, Mexico, Malaysia, New Zealand, Philippines, Singapore, South Africa, South Korea, and Ukraine. We have filed patent applications in the United States and other selected countries covering


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certain salts and polymorphs of cobimetinib that, if issued, are anticipated to expire in approximately 2036. We have filed patent applications in the United States and other selected countries covering certain synthetic methods related to making cobimetinib, which if, issued, are anticipated to expire in approximately 2030.2033. Cobimetinib is licensed to Genentech in the United States and to Roche outside of the United States.
We have pending patent applications in the United States and European Union covering the composition-of-matter of our other drug candidates in clinical or preclinical development which,that, if issued, are anticipated to expire between 2023 and 2030.

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We have obtained licenses from various parties that give us rights to technologies that we deem to be necessary or desirable for our research and development. These licenses (both exclusive and non-exclusive) may require us to pay royalties as well as upfront and milestone payments.
While trade secret protection is an essential element of our business and we have taken security measures to protect our proprietary information and trade secrets, we cannot give assurance that our unpatented proprietary technology will afford us significant commercial protection. We seek to protect our trade secrets by entering into confidentiality agreements with third parties, employees and consultants. Our employees and consultants are also required to sign agreements obligating them to assign to us their interests in intellectual property arising from their work for us. All employees sign an agreement not to engage in any conflicting employment or activity during their employment with us and not to disclose or misuse our confidential information. However, it is possible that these agreements may be breached or invalidated, and if so, there may not be an adequate corrective remedy available. Accordingly, we cannot ensure that employees, consultants or third parties will not breach the confidentiality provisions in our contracts, infringe or misappropriate our trade secrets and other proprietary rights or that measures we are taking to protect our proprietary rights will be adequate.
In the future, third parties may file claims asserting that our technologies or products infringe on their intellectual property. We cannot predict whether third parties will assert such claims against us or against the licensors of technology licensed to us, or whether those claims will harm our business. If we are forced to defend ourselves against such claims, whether they are with or without merit and whether they are resolved in favor of, or against, our licensors or us, we may face costly litigation and the diversion of management’s attention and resources. As a result of such disputes, we may have to develop costly non-infringing technology or enter into licensing agreements. These agreements, if necessary, may be unavailable on terms acceptable to us, or at all.
Employees
As of December 31, 2013,2016, we had 227287 full-time equivalent employees, worldwide, 61all of whom held Ph.D. and/or M.D. degrees, most of whom were engagedwhich are located in full-time research and development activities.the U.S. None of our employees are represented by a labor union, and we consider our employee relations to be good.
AvailableCorporate Information
We were incorporated in Delaware in November 1994 as Exelixis Pharmaceuticals, Inc., and we changed our name to Exelixis, Inc. in February 2000.
Our principal executive offices are located at 210 East Grand Ave., South San Francisco, California 94080. Our telephone number is (650) 837-7000. We maintain a site on the worldwide web at www.exelixis.com; however, information found on our website is not incorporated by reference into this report.
We make available free of charge on or through our website our Securities and Exchange Commission, or SEC, filings, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Further, copies of our filings with the SEC are available at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a site on the worldwide web that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov.
ITEM 1A.RISK FACTORS
In addition to the factors discussed elsewhere in this report and our other reports filed with the SEC, the following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statements made by us or on our behalf. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we deem immaterial also may impair our business operations. If any of the following risks or such other risks actually occurs, our business could be harmed.
Risks Related to Our Need for Additional Financing and Our Financial Results
If additional capital is not available to us, we may be forced to delay, reduce or eliminate our product development programs or commercialization efforts and we may breach our financial covenants.
We may need to raise additional capital to:
fund our operations and clinical trials;
continue our research and development efforts; and

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commercialize cabozantinib or any other future product candidates, if any such candidates receive regulatory approval for commercial sale; and
fund the U.S. marketing and commercialization costs for cobimetinib (GDC-0973/XL518) we are obligated to share under our collaboration with Genentech or any similar costs we are obligated to fund under collaborations we may enter into in the future.
As of December 31, 2013, we had $415.9 million in cash and investments, which included short- and long-term restricted cash and investments of $12.2 million and $16.9 million, respectively, and short- and long-term unrestricted investments of $138.5 million and $144.3 million, respectively. We are required to maintain on deposit with Silicon Valley Bank or one of its affiliates short- and long-term unrestricted investments of $1.8 million and $81.9 million, respectively, pursuant to covenants in our loan and security agreement with Silicon Valley Bank. We anticipate that our current cash and cash equivalents, short- and long-term investments and product revenues will enable us to maintain our operations for a period of at least 12 months following the end of 2013. However, our future capital requirements will be substantial, and we may need to raise additional capital in the future. Our capital requirements will depend on many factors, and we may need to use available capital resources and raise additional capital significantly earlier than we currently anticipate. These factors include:
•
the progress and scope of the development and commercialization activities with respect to COMETRIQ® (cabozantinib);
repayment of our $287.5 million aggregate principal amount of the 4.25% convertible senior subordinated notes due 2019, or the 2019 Notes, that mature on August 15, 2019, unless earlier converted, redeemed or repurchased;
repayment of the $104.0 million principal amount outstanding as of the filing date of this report ($114.0 million principal amount was outstanding at December 31, 2013) of our secured convertible notes, or the Deerfield Notes, issued to entities affiliated with Deerfield Management Company, L.P., or Deerfield, for which will be required to make a mandatory prepayment on the Deerfield Notes in 2015 equal to 15% of certain revenues from collaborative arrangements (other than intercompany arrangements) received during the prior fiscal year, subject to a maximum prepayment amount of $27.5 million, and if we exercise our extension option for the Deerfield Notes, for which we may be subject to similar mandatory prepayment obligations in 2016, 2017 and 2018, in each case unless we are able to repay the Deerfield Notes with our common stock, which we are only able to do under specified conditions
repayment of our term loan and line of credit from Silicon Valley Bank, which had an outstanding balance at December 31, 2013, of $82.1 million;
the commercial success of COMETRIQ and the revenues we generate;
the level of payments received under existing collaboration agreements, licensing agreements and other arrangements;
the degree to which we conduct funded development activity on behalf of partners to whom we have out-licensed compounds or programs;
whether we enter into new collaboration agreements, licensing agreements or other arrangements (including, in particular, with respect to COMETRIQ (cabozantinib)) that provide additional capital;
our ability to control costs;
our ability to remain in compliance with, or amend or cause to be waived, financial covenants contained in agreements with third parties;
the amount of our cash and cash equivalents, short- and long-term investments that serve as collateral for bank lines of credit;
future clinical trial results;
our need to expand our product and clinical development efforts;
the cost and timing of regulatory approvals;
the cost of clinical and research supplies of our product candidates;
our obligation to share U.S. marketing and commercialization costs for cobimetinib under our collaboration with Genentech;
our ability to share the costs of our clinical development efforts with third parties;
the effect of competing technological and market developments;
the filing, maintenance, prosecution, defense and enforcement of patent claims and other intellectual property rights; and
the cost of any acquisitions of or investments in businesses, products and technologies.


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We may seek to raise funds through the sale of equity or debt securities or through external borrowings. In addition, we may enter into additional strategic partnerships, collaborative arrangements or other strategic transactions. It is unclear whether any such partnership, arrangement or transaction will occur, on satisfactory terms or at all, or what the timing and nature of such a partnership, arrangement or transaction may be. The sale of equity or convertible debt securities in the future may be dilutive to our stockholders, and debt-financing arrangements may require us to pledge certain assets and enter into covenants that would restrict certain business activities or our ability to incur further indebtedness, and may contain other terms that are not favorable to our stockholders or us. If we are unable to obtain adequate funds on reasonable terms, we may be required to curtail operations significantly or obtain funds by entering into financing, supply or collaboration agreements on unattractive terms or we may be required to relinquish rights to technology or product candidates or to grant licenses on terms that are unfavorable to us.

We may need to obtain additional funding in order to stay in compliance with financial covenants contained in our loan and security agreement with Silicon Valley Bank. This agreement contains covenants or events of default requiring us to maintain specified collateral balances. The failure to comply with these covenants could result in an acceleration of the underlying debt obligations. If we are unable to remain in compliance with such covenants or if we are unable to renegotiate such covenants and the lender exercises its remedies under the agreement, we would not be able to operate under our current operating plan.
We have a history of net losses. We expect to continue to incur net losses, and we may not achieve or maintain profitability.
We have incurred annual net losses since inception through the year ended December 31, 2013, with the exception of the fiscal year ended December 31, 2011. In 2011, we had net income primarily as a result of the acceleration of revenue recognized under our 2008 collaboration agreement with Bristol-Myers Squibb that terminated in October 2011 and under our 2009 discovery collaboration agreement with Sanofi that terminated in December 2011. We anticipate net losses and negative operating cash flow for the foreseeable future. For the year endedDecember 31, 2013, we had a net loss of $244.8 million; as of December 31, 2013, we had an accumulated deficit of $1.5 billion. We commercially launched COMETRIQ for the treatment of progressive, metastatic MTC in the United States in late January 2013. From the commercial launch through December 31, 2013, we have generated $15.0 million in net revenues from the sale of COMETRIQ. We have derived substantially all of our revenues since inception from collaborative research and development agreements. Revenues from research and development collaborations depend on research funding, the achievement of milestones, and royalties we earn from any future products developed from the collaborative research. If we are unable to successfully achieve milestones or our collaborators fail to develop successful products, we will not earn the revenues contemplated under such collaborative agreements. The amount of our net losses will depend, in part, on the rate of growth, if any, in our sales of COMETRIQ for progressive, metastatic MTC, license and contract revenues and on the level of our expenses. These losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Our research and development expenditures and general and administrative expenses have exceeded our revenues for each year other than 2011, and we expect to spend significant additional amounts to fund the continued development of cabozantinib. As a result, we expect to continue to incur substantial operating expenses, and, consequently, we will need to generate significant additional revenues to achieve future profitability. Because of the numerous risks and uncertainties associated with developing drugs, we are unable to predict the extent of any future losses or whether or when we will become profitable, if at all.
Our significant level of indebtednesscould limit cash flow available for our operations and expose us to risks that could adversely affect our business, financial condition and results of operations.
We incurred significant additional indebtedness and substantial debt service requirements as a result of our offering of the 2019 Notes in August 2012. As of December 31, 2013, our total consolidated indebtedness through maturity was $483.6 million (excluding trade payables). We may also incur additional indebtedness to meet future financing needs. If we incur additional indebtedness, it would increase our interest expense, leverage and operating and financial costs.
Our indebtedness could have significant negative consequences for our business, results of operations and financial condition, including:
making it more difficult for us to meet our payment and other obligations under the 2019 Notes, the Deerfield Notes, our loan and security agreement with Silicon Valley Bank or our other indebtedness;
resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements, which event of default could result in all of our debt becoming immediately due and payable;
increasing our vulnerability to adverse economic and industry conditions;
subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates, including borrowings under our loan and security agreement with Silicon Valley Bank;

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limiting our ability to obtain additional financing;
requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our cash flow available for other purposes, including clinical trials, research and development, capital expenditures, working capital and other general corporate purposes;
limiting our flexibility in planning for, or reacting to, changes in our business;
preventing us from raising funds necessary to purchase the 2019 Notes in the event we are required to do so following a “Fundamental Change” as specified in the indenture governing the 2019 Notes, or to settle conversions of the 2019 Notes in cash;
dilution experienced by our existing stockholders as a result of the conversion of the 2019 Notes or the Deerfield Notes into shares of common stock; and
placing us at a possible competitive disadvantage with less leveraged competitors and competitors that may have better access to capital resources.
We cannot assure you that we will continue to maintain sufficient cash reserves or that our business will continue to generate cash flow from operations at levels sufficient to permit us to pay principal, premium, if any, and interest on our indebtedness, or that our cash needs will not increase. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments, or if we fail to comply with the various requirements of the 2019 Notes, the Deerfield Notes, our loan and security agreement with Silicon Valley Bank, or any indebtedness which we have incurred or may incur in the future, we would be in default, which would permit the holders or the Trustee of the 2019 Notes or other indebtedness to accelerate the maturity of such notes or other indebtedness and could cause defaults under the 2019 Notes, the Deerfield Notes, our loan and security agreement with Silicon Valley Bank or our other indebtedness. Any default under the 2019 Notes, the Deerfield Notes, our loan and security agreement with Silicon Valley Bank, or any indebtedness that we have incurred or may incur in the future could have a material adverse effect on our business, results of operations and financial condition.
If a Fundamental Change occurs, holders of the 2019 Notes may require us to purchase for cash all or any portion of their 2019 Notes at a purchase price equal to 100% of the principal amount of the Notes to be purchased plus accrued and unpaid interest, if any, to, but excluding, the Fundamental Change purchase date. We may not have sufficient funds to purchase the notes upon a Fundamental Change. In addition, the terms of any borrowing agreements which we may enter into from time to time may require early repayment of borrowings under circumstances similar to those constituting a Fundamental Change. Furthermore, any repurchase of 2019 Notes by us may be considered an event of default under such borrowing agreements.
We may not realize the expected benefits of our initiatives to control costs.
Managing costs is a key element of our business strategy. Consistent with this element of our strategy, and as a consequence of our decision to focus our proprietary resources and development efforts on the late-stage development and commercialization of cabozantinib, between March 2010 and May 2013 we implemented five restructurings, which resulted in an aggregate reduction in headcount of 429 employees. We have recorded aggregate restructuring charges of $53.3 million from inception through December 31, 2013 in connection with the restructurings and anticipate that we will incur additional restructuring charges related to the exit of all or portions of certain of our buildings in South San Francisco, California. These charges will be recorded through the end of the building lease terms, the last of which ends in 2017.
As part of these restructurings, we have entered into sublease agreements for certain of our facilities in South San Francisco. We are still assessing our ability to sublease portions of our facilities in light of the workforce reductions as well as the potential for sublease income. Estimates for sublease income would require significant assumptions regarding the time required to contract with subtenants, the amount of idle space we would be able to sublease and potential future sublease rates. If we are able to vacate portions of our facilities, we would need to continue to update our estimate of the lease exit costs in our financial statements until we were able to negotiate an exit to the lease or negotiate a sublease for the remaining term of the lease.
If we experience excessive unanticipated inefficiencies or incremental costs in connection with restructuring activities, such as unanticipated inefficiencies caused by reducing headcount, we may be unable to meaningfully realize cost savings and we may incur expenses in excess of what we anticipate. Either of these outcomes could prevent us from meeting our strategic objectives and could adversely impact our results of operations and financial condition.
We are exposed to risks related to foreign currency exchange rates.
Most of our foreign expenses incurred are associated with establishing and conducting clinical trials for cabozantinib. The amount of expenses incurred will be impacted by fluctuations in the currencies of those countries in which we conduct

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clinical trials. Our agreements with the foreign sites that conduct such clinical trials generally provide that payments for the services provided will be calculated in the currency of that country, and converted into U.S. dollars using various exchange rates based upon when services are rendered or the timing of invoices. When the U.S. dollar weakens against foreign currencies, the U.S. dollar value of the foreign-currency denominated expense increases, and when the U.S. dollar strengthens against these currencies, the U.S. dollar value of the foreign-currency denominated expense decreases. Consequently, changes in exchange rates may affect our financial position and results of operations.
Global credit and financial market conditions could negatively impact the value of our current portfolio of cash equivalents, short-term investments or long-term investments and our ability to meet our financing objectives.
Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. Our short-term and long-term investments consist primarily of readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase. While as of the date of this report we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents, short-term investments or long-term investments since December 31, 2013, no assurance can be given that a deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or investments or our ability to meet our financing objectives.

We may not achieve expected benefits as a result of changes to our corporate structure.
During 2013, we engaged in intercompany transactions with a newly established wholly-owned foreign subsidiary pursuant to which such subsidiary acquired the existing and future intellectual property rights to exploit cabozantinib in jurisdictions outside of the United States, and we may establish additional wholly-owned foreign subsidiaries in the future. We established this structure in anticipation of an increase in the international nature of our business activities and to reduce our overall effective tax rate through changes in how we develop and use our intellectual property and the structure of our international procurement and sales, including by entering into transfer-pricing arrangements that establish transfer prices for our intercompany transactions. One of our objectives is to achieve a reduction in our overall effective tax rate in the future as a result. There can be no assurance that the taxing authorities of the jurisdictions in which we determine to operate or to which we will otherwise be deemed to have sufficient tax nexus will not challenge the tax benefits that we expect to realize as a result of the new structure. In addition, future changes to U.S. or non-U.S. tax laws, including proposed legislation to reform U.S. taxation of international business activities, would negatively impact the anticipated tax benefits of the new structure. Any benefits to our tax rate will also depend on our ability to operate our business in a manner consistent with the new structure of our corporate organization and applicable taxing provisions, including by eliminating the amount of cash distributed to us by our subsidiaries. If the intended tax treatment is not accepted by the applicable taxing authorities, changes in tax law negatively impact the structure or we do not operate our business consistent with the new structure and applicable tax provisions, we may fail to achieve the financial efficiencies that we anticipate as a result of the changes to our corporate structure, and our future operating results and financial condition may be negatively impacted.
Risks Related to COMETRIQ(R) (cabozantinib)
We are dependent on the successful development and commercialization of COMETRIQ.
The success of our business is dependent upon the successful development and commercialization of COMETRIQ. As part of our strategy, we are dedicating substantially all of our proprietary resources to advance COMETRIQ as aggressively as possible. On November 29, 2012, the FDA approved COMETRIQ for the treatment of progressive, metastatic MTC in the United States and we commercially launched COMETRIQ in late January 2013. In December 2013, CHMP issued a positive opinion of the MAA, submitted to the EMA, for COMETRIQ for the proposed indication of progressive, unresectable, locally advanced, or metastatic MTC. The CHMP’s positive opinion will be reviewed by the European Commission, which has the authority to approve medicines for the European Union. We view the approval of COMETRIQ by the FDA for the treatment of progressive, metastatic MTC as a transitional event towards our objective of developing COMETRIQ into a major oncology franchise. Our ability to realize this objective or the value of our investment is contingent on, among other things, successful clinical development, regulatory approval and market acceptance of COMETRIQ. If we encounter difficulties in the development of COMETRIQ in other indications beyond progressive, metastatic MTC due to any of the factors discussed in this “Risk Factors” section or otherwise, or we do not receive regulatory approval in such indications or are unable to successfully commercialize COMETRIQ in progressive, metastatic MTC or such other indications if approved, we will not have the resources necessary to continue our business in its current form.
The commercial success of COMETRIQ will depend upon the degree of market acceptance of COMETRIQ among physicians, patients, health care payors, and the medical community.
Our ability to commercialize COMETRIQ for the treatment of progressive, metastatic MTC and potentially other

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indications, if approved, will be highly dependent upon the extent to which COMETRIQ gains market acceptance among physicians, patients, health care payors such as Medicare and Medicaid, and the medical community. If COMETRIQ does not achieve an adequate level of acceptance, we may not generate significant future product revenues, and we may not become profitable. The degree of market acceptance of COMETRIQ will depend upon a number of factors, including:
the effectiveness, or perceived effectiveness, of COMETRIQ in comparison to competing products;
the existence of any significant side effects of COMETRIQ, as well as their severity in comparison to those of any competing products;
potential advantages or disadvantages in relation to alternative treatments;
the timing of market entry relative to competitive treatments;
indications for which COMETRIQ is approved;
the ability to offer COMETRIQ for sale at competitive prices;
relative convenience and ease of administration;
the strength of sales, marketing and distribution support; and
sufficient third-party coverage or reimbursement.
If we are unable to establish and maintain adequate sales, marketing and distribution capabilities or enter into or maintain agreements with third parties to do so, we may be unable to successfully commercialize COMETRIQ.
We have established a small internal commercial organization that we believe is commensurate with the size of the market opportunity for progressive, metastatic MTC. We have also designed our commercial organization to maintain flexibility, and to enable us to quickly scale up if additional indications are approved in the future. We believe we have created an efficient commercial organization, taking advantage of outsourcing options where prudent to maximize the effectiveness of our commercial expenditures. However, we may not be able to correctly judge the size and experience of the sales and marketing force and the scale of distribution necessary to successfully market and sell COMETRIQ. Establishing and maintaining sales, marketing and distribution capabilities are expensive and time-consuming. Such expenses may be disproportional compared to the revenues we may be able to generate on sales of COMETRIQ and have an adverse impact on our results of operations. If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, independently or with others, we may not be able to generate product revenues and our business may be adversely affected.
We currently rely on a single third party logistics provider to handle shipping and warehousing of our commercial supply of COMETRIQ and a single specialty pharmacy to dispense COMETRIQ to patients in fulfillment of prescriptions in the United States. We will also rely on a third party, Sobi, to distribute and commercialize COMETRIQ for the treatment of metastatic MTC primarily in the European Union and potentially other countries in the event that COMETRIQ is approved for commercial sale in those jurisdictions. Sobi is currently supporting access to cabozantinib under a NPU program in the European Union and other regions outside of the United States. Our current and anticipated future dependence upon these or other third parties may adversely affect our future profit margins and our ability to supply COMETRIQ to the marketplace on a timely and competitive basis. For example, if our third party logistics provider’s warehouse suffers a fire or damage from another type of disaster, the commercial supply of COMETRIQ could be destroyed, resulting in a disruption in our commercialization efforts. These or other third parties may not be able to provide services in the time we require to meet our commercial timelines and objectives or to meet regulatory requirements. We may not be able to maintain or renew our arrangements with third parties, or enter into new arrangements, on acceptable terms, or at all. Third parties could terminate or decline to renew our arrangements based on their own business priorities, at a time that is costly or inconvenient for us. If we are unable to contract for logistics services or distribution of COMETRIQ on acceptable terms, our commercialization efforts may be delayed or otherwise adversely affected.
We are subject to certain healthcare laws, regulation and enforcement; our failure to comply with those laws could have a material adverse effect on our results of operations and financial condition.
We are subject to certain healthcare laws and regulations and enforcement by the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include, without limitation:
the federal healthcare programs’ Anti-Kickback Law, which constrains our marketing practices, educational programs, pricing policies, and relationships with healthcare providers or other entities, by prohibiting, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;

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federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;
federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts;
the Foreign Corrupt Practices Act, a U.S. law which regulates certain financial relationships with foreign government officials (which could include, for example, certain medical professionals);
federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;
state and federal government price reporting laws that require us to calculate and report complex pricing metrics to government programs, where such reported priced may be used in the calculation of reimbursement and/or discounts on our marketed drugs (participation in these programs and compliance with the applicable requirements may subject us to potentially significant discounts on our products, increased infrastructure costs, and potentially limit our ability to offer certain marketplace discounts); and
state and federal marketing expenditure tracking and reporting laws, which generally require certain types of expenditures in the United States to be tracked and reported (compliance with such requirements may require investment in infrastructure to ensure that tracking is performed properly, and some of these laws result in the public disclosure of various types of payments and relationships, which could potentially have a negative effect on our business and/or increase enforcement scrutiny of our activities).
In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we, or our officers or employees, may be subject to penalties, including civil and criminal penalties, damages, fines, withdrawal of regulatory approval, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to sell COMETRIQ or operate our business and also adversely affect our financial results.
Numerous federal and state laws, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use and disclosure of personal information. Other countries also have, or are developing, laws governing the collection, use and transmission of personal information. In addition, most healthcare providers who are expected to prescribe our products and from whom we obtain patient health information are subject to privacy and security requirements under the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA. Although we are not directly subject to HIPAA, we could be subject to criminal penalties if we knowingly obtain individually identifiable health information from a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to affect our business, including recently enacted laws in a majority of states requiring security breach notification. These laws could create liability for us or increase our cost of doing business. International laws, such as the EU Data Privacy Directive (95/46/EC) and Swiss Federal Act on Data Protection, regulate the processing of personal data within Europe and between European countries and the United States. Failure to provide adequate privacy protections and maintain compliance with safe harbor mechanisms could jeopardize business transactions across borders and result in significant penalties.
If we are unable to obtain adequate coverage and reimbursement from third-party payors for COMETRIQ, our revenues and prospects for profitability will suffer.
Our ability to successfully commercialize COMETRIQ will be highly dependent on the extent to which coverage and reimbursement for it is, and will be, available from third-party payors, including governmental payors, such as Medicare and Medicaid, and private health insurers. Many patients will not be capable of paying for COMETRIQ themselves and will rely on third-party payors to pay for, or subsidize, their medical needs. If third-party payors do not provide coverage or reimbursement for COMETRIQ, our revenues and prospects for profitability will suffer. In addition, even if third-party payors provide some coverage or reimbursement for COMETRIQ, the availability of such coverage or reimbursement for prescription drugs under private health insurance and managed care plans often varies based on the type of contract or plan purchased.

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In addition, in some foreign countries, particularly the countries in the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, price negotiations with governmental authorities can take six to twelve months or longer after the receipt of regulatory marketing approval for a product. To obtain reimbursement and/or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of COMETRIQ to other available therapies. The conduct of such a clinical trial could be expensive and result in delays in the commercialization of COMETRIQ. Third-party payors are challenging the prices charged for medical products and services, and many third-party payors limit reimbursement for newly-approved health care products. In particular, third-party payors may limit the indications for which they will reimburse patients who use COMETRIQ. Cost-control initiatives could decrease the price we might establish for COMETRIQ, which would result in lower product revenues to us.
Current healthcare laws and regulations and future legislative or regulatory reforms to the healthcare system may affect our ability to sell COMETRIQ profitably.
The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell COMETRIQ profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.
For example, under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, collectively referred to as the PPACA, enacted in March 2010, substantial changes may be made to the way healthcare is financed by both governmental and private insurers, and those changes may significantly affect the pharmaceutical industry. Among other things, the PPACA creates a new system of health insurance “exchanges,” designed to make health policies available to individuals and certain groups though state- or federally-administered marketplaces, beginning in 2014. In connection with such exchanges, certain “essential health benefits” are intended to be made more consistent across plans, setting basically a baseline coverage level. While prescription drugs are broadly considered “essential,” there is some discretion to the plans as to what categories of prescription drug products will be covered (and the scope of coverage in each category). We cannot predict at this time whether COMETRIQ would be covered by the health plans offered in any or all of the exchanges. Failure to be covered by plans offered in the exchanges could have a material adverse impact on our business. We anticipate that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and an additional downward pressure on the price that we receive for COMETRIQ and any subsequently approved product, and could seriously harm our business. Under the Budget Control Act of 2011, as amended, federal budget “sequestration” became effective in March 2013, automatically reducing payments under various government programs, including, for example, certain Medicare provider and supplier reimbursement payments. Sequestration may have a material adverse effect on our customers and accordingly, our financial operations. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. Insurers may also refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse for newly-approved drugs, which in turn will put pressure on the pricing of drugs.
We also cannot be certain that COMETRIQ will successfully be placed on the list of drugs covered by particular commercial or government health plan formularies, nor can we predict the negotiated price for COMETRIQ, which will be determined by market factors. Many states have also created preferred drug lists for their Medicaid programs, and include drugs on those lists only when the manufacturers agree to pay a supplemental rebate. If COMETRIQ is not included on these preferred drug lists, physicians may not be inclined to prescribe it to their Medicaid patients, thereby diminishing the potential market for COMETRIQ.
As a result of the overall trend towards cost-effectiveness criteria and managed healthcare in the United States, third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new drugs. They may use tiered reimbursement and may adversely affect demand for COMETRIQ by placing it in an expensive tier. They may also refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse for newly approved drugs, which in turn will put pressure on the pricing of drugs. Further, we do not have experience in ensuring approval by applicable third-party payors outside of the United States for coverage and reimbursement of COMETRIQ. We also anticipate pricing pressures in connection with the sale of COMETRIQ due to the increasing influence of health maintenance organizations and additional legislative proposals.

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Our competitors may develop products and technologies that make cabozantinib obsolete.
The biotechnology industry is highly fragmented and is characterized by rapid technological change. In particular, the area of kinase-targeted therapies is a rapidly evolving and competitive field. We face, and will continue to face, intense competition from biotechnology and pharmaceutical companies, as well as academic research institutions, clinical reference laboratories and government agencies that are pursuing research activities similar to ours. Some of our competitors have entered into collaborations with leading companies within our target markets, including some of our existing collaborators. Some of our competitors are further along in the development of their products than we are. In addition, delays in the development of cabozantinib for the treatment of additional tumor types beyond progressive, metastatic MTC could allow our competitors to bring products to market before us, which would impair our ability to commercialize cabozantinib in such tumor types. Our future success will depend upon our ability to maintain a competitive position with respect to technological advances. The markets for which we intend to pursue regulatory approval of cabozantinib are highly competitive. Further, our competitors may be more effective at using their technologies to develop commercial products. Many of the organizations competing with us have greater capital resources, larger research and development staff and facilities, more experience in obtaining regulatory approvals and more extensive product manufacturing and commercial capabilities than we do. As a result, our competitors may be able to more easily develop technologies and products that would render our technologies and products, and those of our collaborators, obsolete and noncompetitive. There may also be drug candidates of which we are not aware at an earlier stage of development that may compete with cabozantinib. In addition, cabozantinib may compete with existing therapies that have long histories of use, such as chemotherapy and radiation treatments in cancer indications.
We believe that the principal competing anti-cancer therapy to COMETRIQ in progressive, metastatic MTC is AstraZeneca’s RET, VEGFR and EGFR inhibitor vandetanib, which has been approved by the FDA and the EMA for the treatment of symptomatic or progressive MTC in patients with unresectable, locally advanced, or metastatic disease. In addition, we believe that COMETRIQ also faces competition as a treatment for progressive, metastatic MTC from off-label use of Bayer’s and Onyx Pharmaceuticals’ (a wholly-owned subsidiary of Amgen) multikinase inhibitor sorafenib, Pfizer’s multikinase inhibitor sunitinib, and Ariad Pharmaceutical’s multikinase inhibitor ponatinib.
We believe that if cabozantinib is approved for the treatment of the indications for which we currently have ongoing phase 3 pivotal trials, its potential principal competition in such indications may include the following:

CRPC (castration-resistant prostate cancer): Bayer’s and Algeta’s alpha-pharmaceutical alpharadin (radium 223); Janssen Biotech’s CYP17 inhibitor abiraterone; Medivation’s androgen receptor inhibitor enzalutamide; and chemotherapeutic agents, including Sanofi’s cabazitaxel and generic docetaxel;
RCC (renal cell cancer): Pfizer’s axitinib, sunitinib and temsirolimus; Novartis’ everolimus; Bayer’s and Onyx Pharmaceuticals’ sorafenib; GlaxoSmithKline’s pazopanib; and Genentech’s bevacizumab; and
HCC (hepatocellular): Bayer’s and Onyx Pharmaceuticals’ sorafenib; Bayer’s regorafenib; ImClone System’s ramucirumab; and ArQule’s tivantinib.
Examples of potential competition for cabozantinib in other cancer indications include: other VEGF pathway inhibitors, including Genentech’s bevacizumab; other RET inhibitors including Eisai’s lenvatinib; and other MET inhibitors, including Amgen’s AMG 208, Pfizer’s crizotinib, ArQule’s tivantinib, GlaxoSmithKline’s foretinib (XL880), and Genentech’s onartuzumab.
We lack the manufacturing capabilities and experience necessary to enable us to produce COMETRIQ for clinical development or for commercial sale and rely on third parties to do so, which subjects us to various risks.
We do not have the manufacturing capabilities or experience necessary to enable us to produce materials for our clinical trials or for commercial sale of COMETRIQ and rely on third party contractors to do so. These third parties must comply with applicable regulatory requirements, including the FDA’s current GMP. Our current and anticipated future dependence upon these third parties may adversely affect our future profit margins and our ability to develop and commercialize COMETRIQ on a timely and competitive basis. These third parties may not be able to produce material on a timely basis or manufacture material at the quality or in the quantity required to meet our development and commercial timelines and applicable regulatory requirements. We may not be able to maintain or renew our existing third party manufacturing and supply arrangements, or enter into new arrangements, on acceptable terms, or at all. Our third party manufacturers and suppliers could terminate or decline to renew our manufacturing and supply arrangements based on their own business priorities, at a time that is costly or inconvenient for us. If we are unable to contract for the production of materials in sufficient quantity and of sufficient quality on acceptable terms, our clinical trials and commercialization efforts may be delayed or otherwise adversely affected.

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Our third-party manufacturers may not be able to comply with the GMP regulations, other applicable FDA regulatory requirements or similar regulations applicable outside of the United States. Additionally, if we are required to enter into new manufacturing or supply arrangements, we may not be able to obtain approval from the FDA of any alternate manufacturer or supplier in a timely manner, or at all, which could delay or prevent the clinical development and commercialization of COMETRIQ. Failure of our third party manufacturers or suppliers or us to obtain approval from the FDA or to comply with applicable regulations could result in sanctions being imposed on us, including fines, civil penalties, delays in or failure to grant marketing approval of COMETRIQ, injunctions, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products and compounds, operating restrictions and criminal prosecutions, any of which could have a significant adverse effect on our business. In addition, COMETRIQ requires precise, high-quality manufacturing. The failure to achieve and maintain these high manufacturing standards, including the incidence of manufacturing errors, could result in patient injury or death, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could have also a significant adverse effect on our business.
Clinical testing of cabozantinib is a lengthy, costly, complex and uncertain process and may fail to demonstrate safety and efficacy.
Cabozantinib is being evaluated in a comprehensive development program for the treatment of CRPC, RCC, HCC and a variety of other indications beyond progressive, metastatic MTC. Clinical trials are inherently risky and may reveal that cabozantinib is ineffective or has unacceptable toxicity or other side effects that may significantly decrease the likelihood of regulatory approval in such indications.
The results of preliminary studies do not necessarily predict clinical or commercial success, and later-stage clinical trials may fail to confirm the results observed in earlier-stage trials or preliminary studies. Although we have established timelines for manufacturing and clinical development of cabozantinib based on existing knowledge of our compounds in development and industry metrics, we may not be able to meet those timelines.
We may experience numerous unforeseen events during, or as a result of, clinical testing that could delay or prevent commercialization of cabozantinib for the treatment of CRPC, RCC, HCC and other indications, including:
cabozantinib may not prove to be efficacious or may cause, or potentially cause, harmful side effects;
negative or inconclusive clinical trial results may require us to conduct further testing or to abandon projects that we had expected to be promising;
our competitors may discover or commercialize other compounds or therapies that show significantly improved safety or efficacy compared to cabozantinib;
patient registration or enrollment in our clinical testing may be lower than we anticipate, resulting in the delay or cancellation of clinical testing; and
regulators or institutional review boards may withhold authorization of cabozantinib, or delay, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their determination that participating patients are being exposed to unacceptable health risks.
If we were to have significant delays in or termination of our clinical testing of cabozantinib as a result of any of the events described above or otherwise, our expenses could increase and our ability to generate revenues could be impaired, either of which could adversely impact our financial results.
We have limited experience in conducting clinical trials and may not be able to rapidly or effectively continue the further development of cabozantinib or meet current or future requirements of the FDA or regulatory authorities in other jurisdictions, including those identified based on our discussions with the FDA or such other regulatory authorities. Our planned clinical trials may not begin on time, or at all, may not be completed on schedule, or at all, may not be sufficient for registration of cabozantinib or may not result in an approvable product.
Completion of clinical trials may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of cabozantinib. The duration and the cost of clinical trials may vary significantly over the life of a project as a result of factors relating to the clinical trial, including, among others:
the number of patients who ultimately participate in the clinical trial;
the duration of patient follow-up that is appropriate in view of the results or required by regulatory authorities;
the number of clinical sites included in the trials; and
the length of time required to enroll suitable patient subjects.
Any delay could limit our ability to generate revenues, cause us to incur additional expense and cause the market price of our common stock to decline significantly. Our partners under our collaboration agreements may experience similar risks

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with respect to the compounds we have out-licensed to them. If any of the events described above were to occur with such programs or compounds, the likelihood of receipt of milestones and royalties under such collaboration agreements could decrease.
If third parties upon which we rely do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or commercialize cabozantinib for the treatment of additional indications beyond progressive, metastatic MTC.
We do not have the ability to independently conduct clinical trials for cabozantinib, including our postmarketing commitments for COMETRIQ for the treatment of progressive, metastatic MTC, and we rely on third parties we do not control such as the federal government (including NCI-CTEP, with whom we have our CRADA), third-party contract research organizations, or CROs, medical institutions, clinical investigators and contract laboratories to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for or commercialize cabozantinib for additional indications beyond progressive, metastatic MTC.
Cabozantinib is subject to a lengthy and uncertain regulatory process that may not result in the necessary regulatory approvals, which could adversely affect our ability to commercialize cabozantinib.
Cabozantinib, as well as the activities associated with its research, development and commercialization, are subject to extensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain regulatory approval for cabozantinib would prevent us from promoting its use. We have only limited experience in preparing and filing the applications necessary to gain regulatory approvals. The process of obtaining regulatory approvals in the United States and other foreign jurisdictions is expensive, and often takes many years, if approval is obtained at all, and can vary substantially based upon the type, complexity and novelty of the product candidates involved. For example, before an NDA or NDA supplement can be submitted to the FDA, or MAA to the EMA or any application or submission to regulatory authorities in other jurisdictions, the product candidate must undergo extensive clinical trials, which can take many years and require substantial expenditures.
In December 2011, we initiated COMET-2, our first phase 3 pivotal trial of cabozantinib in patients with metastatic CRPC, with pain response as the primary efficacy endpoint for the trial. We were not able to reach a timely agreement with the FDA for a Special Protocol Assessment, or SPA, on the proposed design and analysis of the COMET-2 trial. We originally submitted the proposed protocol for this trial using primary endpoints of pain reduction and bone scan response to the FDA in June 2011 with a request for a SPA. The FDA’s final response prior to our discontinuation of the SPA process, which we received in October 2011, raised the following concerns regarding the COMET-2 trial design in the context of its consideration of a SPA for the trial, among other comments:
a concern about the ability to maintain blinding of the trial due to differences in toxicity profiles between cabozantinib and mitoxantrone;
a view that the assumed magnitude of pain improvement is modest and could represent a placebo effect or be attained with less toxicity by opioid therapy;
a view that symptomatic improvement should be supported by evidence of anti-tumor activity, an acceptable safety profile and lack of survival decrement. The FDA also expressed the view that if the effect that we believe cabozantinib will have on pain is mediated by anti-tumor activity, that anti-tumor activity should translate into an improvement in overall survival; and
a recommendation that if we use pain response as a primary efficacy endpoint, that we conduct two adequate and well-controlled trials to demonstrate effectiveness as, according to the FDA, a conclusion based on two persuasive studies will always be more secure. The FDA advised that for a single randomized trial to support an NDA, the trial must be well designed, well conducted, internally consistent and provide statistically persuasive efficacy findings so that a second trial would be ethically or practically impossible to perform.
In the context of its consideration of a SPA for the COMET-2 trial, the FDA also recommended that overall survival be the primary efficacy endpoint. The final FDA response prior to our discontinuation of the SPA process stated that we could choose to conduct the trial in the absence of a SPA agreement. We elected to proceed with initiation of the COMET-2 trial and the COMET-1 trial, and to discontinue further attempts to secure a SPA agreement with respect to the COMET-2 trial. We initiated the COMET-2 trial with a pain palliation endpoint in December 2011 and the COMET-1 trial with an overall survival endpoint in May 2012.

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Any clinical trial may fail to produce results satisfactory to the FDA or regulatory authorities in other jurisdictions. For example, the FDA could determine that the design of a clinical trial is inadequate to produce reliable results. The regulatory process also requires preclinical testing, and data obtained from preclinical and clinical activities are susceptible to varying interpretations. The FDA has substantial discretion in the approval process and may refuse to approve any NDA (regardless of prior receipt of a SPA) or decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. For example, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of cabozantinib.
In addition, delays or rejections may be encountered based upon changes in regulatory policy for product approval during the period of product development and regulatory agency review. Changes in regulatory approval policy, regulations or statutes or the process for regulatory review during the development or approval periods of cabozantinib may cause delays in the approval or rejection of an application.
Even if the FDA or a comparable authority in another jurisdiction approves cabozantinib, the approval may impose significant restrictions on the indicated uses, conditions for use, labeling, distribution, advertising, promotion, marketing and/or production of cabozantinib and may impose ongoing requirements for post-approval studies, including additional research and development and clinical trials. For example, in connection with the FDA’s approval of COMETRIQ for the treatment of progressive, metastatic MTC, we are subject to the various postmarketing requirements, including a requirement to conduct a phase 2 clinical trial comparing a lower dose of COMETRIQ to the approved dose of 140 mg daily COMETRIQ in progressive, metastatic MTC and to conduct other clinical pharmacology and preclinical studies. These agencies also may impose various civil or criminal sanctions for failure to comply with regulatory requirements, including withdrawal of product
approval.
Risks Related to Our Relationships with Third Parties
We are dependent upon our collaborations with major companies, which subjects us to a number of risks.
We have established collaborations with leading pharmaceutical and biotechnology companies, including Genentech, GlaxoSmithKline, Bristol-Myers Squibb, Sanofi, Merck (known as MSD outside of the United States and Canada) and Daiichi Sankyo, for the development and ultimate commercialization of certain compounds generated from our research and development efforts. We may pursue collaborations for selected unpartnered preclinical and clinical programs and compounds. Our dependence on our relationships with existing collaborators for the development and commercialization of compounds under the collaborations subjects us to, and our dependence on future collaborators for development and commercialization of additional compounds will subject us to, a number of risks, including:
we may not be able to control the amount of U.S. marketing and commercialization costs for cobimetinib we are obligated to share under our collaboration with Genentech;
we are not able to control the amount and timing of resources that our collaborators or potential future collaborators will devote to the development or commercialization of drug candidates or to their marketing and distribution;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a drug candidate, repeat or conduct new clinical trials or require a new formulation of a drug candidate for clinical testing;
disputes may arise between us and our collaborators that result in the delay or termination of the research, development or commercialization of our drug candidates or that result in costly litigation or arbitration that diverts management’s attention and resources;
collaborators may experience financial difficulties;
collaborators may not be successful in their efforts to obtain regulatory approvals in a timely manner, or at all;
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation;
business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;
a collaborator could independently move forward with a competing drug candidate developed either independently or in collaboration with others, including our competitors;
we may be precluded from entering into additional collaboration arrangements with other parties in an area or field of exclusivity;

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future collaborators may require us to relinquish some important rights, such as marketing and distribution rights; and
collaborations may be terminated or allowed to expire, which would delay, and may increase the cost of development of, our drug candidates.
If any of these risks materialize, our product development efforts could be delayed and otherwise adversely affected, which could adversely impact our business, operating results and financial condition.
We may not receive revenue from our collaborations.
Historically, we have derived substantially all of our revenues since inception from collaborative research and development agreements. Revenues from research and development collaborations depend on the achievement of milestones, and royalties we earn from any future products developed by our collaborators. If our collaborators fail to develop successful products, or if any of these agreements is terminated early, whether unilaterally or by mutual agreement, we will not earn the revenues contemplated under such collaborative agreements.
Most of our collaboration agreements contain early termination provisions. In addition, from time to time we review and assess certain aspects of our collaborations, partnerships and agreements and may amend or terminate, either by mutual agreement or pursuant to any applicable early termination provisions, such collaborations, partnerships or agreements if we deem them to be no longer in our economic or strategic interests.
We may be unable to establish collaborations for selected preclinical and clinical compounds.
We may pursue new collaborations with leading pharmaceutical and biotechnology companies for the development and ultimate commercialization of selected preclinical and clinical programs and compounds, particularly those drug candidates for which we believe that the capabilities and resources of a partner can accelerate development and help to fully realize their therapeutic and commercial potential. We may not be able to negotiate additional collaborations on acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any additional collaborations because of the numerous risks and uncertainties associated with establishing additional collaborations. If we are unable to negotiate additional collaborations, we may not be able to realize value from a particular drug candidate.
Risks Related to Our Intellectual Property
If we are unable to adequately protect our intellectual property, third parties may be able to use our technology, which could adversely affect our ability to compete in the market.
Our success will depend in part upon our ability to obtain patents and maintain adequate protection of the intellectual property related to our technologies and products. The patent positions of biotechnology companies, including our patent position, are generally uncertain and involve complex legal and factual questions. We will be able to protect our intellectual property rights from unauthorized use by third parties only to the extent that our technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. We will continue to apply for patents covering our technologies and products as, where and when we deem appropriate. However, these applications may be challenged or may fail to result in issued patents. In addition, because patent applications can take many years to issue, there may be pending applications, unknown to us, which may later result in issued patents that cover the production, manufacture, commercialization or use of our product candidates. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Furthermore, others may independently develop similar or alternative technologies or design around our patents. In addition, our patents may be challenged or invalidated or may fail to provide us with any competitive advantages, if, for example, others were the first to invent or to file patent applications for closely related inventions.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties (for example, the patent owner has failed to “work” the invention in that country or the third party has patented improvements). In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. Compulsory licensing of life-saving drugs is also becoming increasingly popular in developing countries either through direct legislation or international initiatives. Such compulsory licenses could be extended to include our products or product candidates, which could limit our potential revenue opportunities. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patent and other intellectual property protection, which makes it difficult to stop infringement. We rely on trade secret protection for some of our confidential and proprietary information. We have taken security measures to protect our proprietary information and trade secrets, but these measures may not provide adequate protection. While we seek to protect our proprietary

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information by entering into confidentiality agreements with employees, collaborators and consultants, we cannot assure you that our proprietary information will not be disclosed, or that we can meaningfully protect our trade secrets. In addition, our competitors may independently develop substantially equivalent proprietary information or may otherwise gain access to our trade secrets.
Litigation or third-party claims of intellectual property infringement could require us to spend substantial time and money and adversely affect our ability to develop and commercialize products.
Our commercial success depends in part upon our ability to avoid infringing patents and proprietary rights of third parties and not to breach any licenses that we have entered into with regard to our technologies and the technologies of third parties. Other parties have filed, and in the future are likely to file, patent applications covering genes and gene fragments, techniques and methodologies relating to model systems and products and technologies that we have developed or intend to develop. If patents covering technologies required by our operations are issued to others, we may have to obtain licenses from third parties, which may not be available on commercially reasonable terms, or at all, and may require us to pay substantial royalties, grant a cross-license to some of our patents to another patent holder or redesign the formulation of a product candidate so that we do not infringe third-party patents, which may be impossible to obtain or could require substantial time and expense.
Third parties may accuse us of employing their proprietary technology without authorization. In addition, third parties may obtain patents that relate to our technologies and claim that use of such technologies infringes on their patents. Regardless of their merit, such claims could require us to incur substantial costs, including the diversion of management and technical personnel, in defending ourselves against any such claims or enforcing our patents. In the event that a successful claim of infringement is brought against us, we may be required to pay damages and obtain one or more licenses from third parties. We may not be able to obtain these licenses at a reasonable cost, or at all. Defense of any lawsuit or failure to obtain any of these licenses could adversely affect our ability to develop and commercialize products.
We may be subject to damages resulting from claims that we, our employees or independent contractors have wrongfully used or disclosed alleged trade secrets of their former employers.
Many of our employees and independent contractors were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, independent contractors or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers, or used or sought to use patent inventions belonging to their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and divert management’s attention. If we fail in defending such claims, in addition to paying money claims, we may lose valuable intellectual property rights or personnel. A loss of key research personnel and/or their work product could hamper or prevent our ability to commercialize certain product candidates, which could severely harm our business.
Risks Related to Employees and Location
The loss of key personnel or the inability to retain and, where necessary, attract additional personnel could impair our ability to expand our operations.
We are highly dependent upon the principal members of our management and scientific staff, the loss of whose services might adversely impact the achievement of our objectives and the continuation of existing collaborations. Also, we may not have sufficient personnel to execute our business plan. Retaining and, where necessary, recruiting qualified clinical and scientific personnel will be critical to support activities related to advancing our clinical and preclinical development programs, and supporting our collaborative arrangements and our internal proprietary research and development efforts. The restructurings we have engaged in could have an adverse impact on our ability to retain and recruit qualified personnel. Competition is intense for experienced clinical personnel, and we may be unable to retain or recruit clinical personnel with the expertise or experience necessary to allow us to pursue collaborations, develop our products and core technologies or expand our operations to the extent otherwise possible. Further, all of our employees are employed “at will” and, therefore, may leave our employment at any time.
Our collaborations with outside scientists may be subject to restriction and change.
We work with scientific and clinical advisors and collaborators at academic and other institutions that assist us in our research and development efforts. These advisors and collaborators are not our employees and may have other commitments that limit their availability to us. Although these advisors and collaborators generally agree not to do competing work, if a conflict of interest between their work for us and their work for another entity arises, we may lose their services. In such a circumstance, we may lose work performed by them, and our development efforts with respect to the matters on which they were working may be significantly delayed or otherwise adversely affected. In addition, although our advisors and

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collaborators sign agreements not to disclose our confidential information, it is possible that valuable proprietary knowledge may become publicly known through them.
Our headquarters are located near known earthquake fault zones, and the occurrence of an earthquake or other disaster could damage our facilities and equipment, which could harm our operations.
Our headquarters are located in South San Francisco, California, and therefore our facilities are vulnerable to damage from earthquakes. We do not carry earthquake insurance. We are also vulnerable to damage from other types of disasters, including fire, floods, power loss, communications failures, terrorism and similar events since any insurance we may maintain may not be adequate to cover our losses. If any disaster were to occur, our ability to operate our business at our facilities could be seriously, or potentially completely, impaired. In addition, the unique nature of our research activities could cause significant delays in our programs and make it difficult for us to recover from a disaster. Accordingly, an earthquake or other disaster could materially and adversely harm our ability to conduct business.
Security breaches may disrupt our operations, subject us to liability and harm our operating results.
Our network security and data recovery measures may not be adequate to protect against computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems. The misappropriation, theft, sabotage or any other type of security breach with respect to any of our proprietary and confidential information that is electronically stored, including research or clinical data, could subject us to liability and have a material adverse impact on our business, operating results and financial condition. Additionally, any break-in or trespass at our facilities that results in the misappropriation, theft, sabotage or any other type of security breach with respect to our proprietary and confidential information, including research or
clinical data, or that results in damage to our research and development equipment and assets, could subject us to liability and have a material adverse impact on our business, operating results and financial condition.
Risks Related to Environmental and Product Liability
We use hazardous chemicals and radioactive and biological materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.
Our research and development processes involve the controlled use of hazardous materials, including chemicals and radioactive and biological materials. Our operations produce hazardous waste products. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. We may face liability for any injury or contamination that results from our use or the use by third parties of these materials, and such liability may exceed our insurance coverage and our total assets. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research, development and production efforts.
In addition, our collaborators may use hazardous materials in connection with our collaborative efforts. In the event of a lawsuit or investigation, we could be held responsible for any injury caused to persons or property by exposure to, or release of, these hazardous materials used by these parties. Further, we may be required to indemnify our collaborators against all damages and other liabilities arising out of our development activities or products produced in connection with these collaborations.
We face potential product liability exposure far in excess of our limited insurance coverage.
We may be held liable if any product we or our collaborators develop causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing or sale. Regardless of merit or eventual outcome, product liability claims could result in decreased demand for our product candidates, injury to our reputation, withdrawal of patients from our clinical trials, substantial monetary awards to third parties and the inability to commercialize any products that we may develop. These claims might be made directly by consumers, health care providers, pharmaceutical companies or others selling or testing our products. We have obtained limited product liability insurance coverage for our clinical trials and commercial activities for cabozantinib in the amount of $15.0 million per occurrence and $15.0 million in the aggregate. However, our insurance may not reimburse us or may not be sufficient to reimburse us for expenses or losses we may suffer. Moreover, if insurance coverage becomes more expensive, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. On occasion, juries have awarded large judgments in class action lawsuits for claims based on drugs that had unanticipated side effects. In addition, the pharmaceutical and biotechnology industries, in general, have been subject to significant medical malpractice litigation. A successful product liability claim or series of claims brought against us could harm our reputation and business and would decrease our cash reserves.

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Risks Related to Our Common Stock and the 2019 Notes
We expect that our quarterly results of operations will fluctuate, and this fluctuation could cause our stock price to decline, causing investor losses.
Our quarterly operating results have fluctuated in the past and are likely to fluctuate in the future. A number of factors, many of which we cannot control, could subject our operating results to volatility, including:
the progress and scope of our development and commercialization activities;
the commercial success of COMETRIQ and the revenues we generate;
recognition of upfront licensing or other fees or revenues;
payments of non-refundable upfront or licensing fees, or payment for cost-sharing expenses, to third parties;
acceptance of our technologies and platforms;
the success rate of our efforts leading to milestone payments and royalties;
the introduction of new technologies or products by our competitors;
the timing and willingness of collaborators to further develop or, if approved, commercialize our product candidates out-licensed to them;
our ability to enter into new collaborative relationships;
the termination or non-renewal of existing collaborations;
the timing and amount of expenses incurred for clinical development and manufacturing of cabozantinib;
adjustments to expenses accrued in prior periods based on management’s estimates after the actual level of activity relating to such expenses becomes more certain;
the impairment of acquired goodwill and other assets;
the impact of our restructuring activities; and
general and industry-specific economic conditions that may affect our collaborators’ research and development expenditures.
A large portion of our expenses, including expenses for facilities, equipment and personnel, are relatively fixed in the short term. If we fail to achieve anticipated levels of revenues, whether due to the expiration or termination of existing contracts, our failure to obtain new contracts, our inability to meet milestones or for other reasons, we may not be able to correspondingly reduce our operating expenses, which could significantly harm our operating results for a particular fiscal period.
Due to the possibility of fluctuations in our revenues and expenses, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. As a result, in some future quarters, our operating results may not meet the expectations of securities analysts and investors, which could result in a decline in the price of our common stock.
Our stock price may be extremely volatile.
The trading price of our common stock has been highly volatile, and we believe the trading price of our common stock will remain highly volatile and may fluctuate substantially due to factors such as the following, many of which we cannot control:
adverse results or delays in our or our collaborators’ clinical trials;
announcement of FDA approval or non-approval, or delays in the FDA review process, of cabozantinib or our collaborators’ product candidates or those of our competitors or actions taken by regulatory agencies with respect to our, our collaborators’ or our competitors’ clinical trials;
the commercial success of COMETRIQ and the revenues we generate;
the timing of achievement of our clinical, regulatory, partnering and other milestones, such as the commencement of clinical development, the completion of a clinical trial, the filing for regulatory approval or the establishment of collaborative arrangements for one or more of our out-licensed programs and compounds;
actions taken by regulatory agencies with respect to cabozantinib or our clinical trials for cabozantinib;
the announcement of new products by our competitors;
quarterly variations in our or our competitors’ results of operations;

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developments in our relationships with our collaborators, including the termination or modification of our agreements;
conflicts or litigation with our collaborators;
litigation, including intellectual property infringement and product liability lawsuits, involving us;
failure to achieve operating results projected by securities analysts;
changes in earnings estimates or recommendations by securities analysts;
financing transactions;
developments in the biotechnology or pharmaceutical industry;
sales of large blocks of our common stock or sales of our common stock by our executive officers, directors and significant stockholders;
departures of key personnel or board members;
developments concerning current or future collaborations;
FDA or international regulatory actions;
third-party reimbursement policies;
disposition of any of our subsidiaries, technologies or compounds; and
general market, economic and political conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
These factors, as well as general economic, political and market conditions, may materially adversely affect the market price of our common stock. Excessive volatility may continue for an extended period of time following the date of this report.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert management’s attention and resources, which could have a material and adverse effect on our business.
Future sales of our common stock or conversion of our convertible notes, or the perception that such sales or conversions may occur, may depress our stock price.
A substantial number of shares of our common stock is reserved for issuance upon conversion of the 2019 Notes, upon the exercise of stock options, upon vesting of restricted stock unit awards, upon sales under our employee stock purchase program, upon exercise of certain warrants issued to Deerfield and upon conversion of the Deerfield Notes. The issuance and sale of substantial amounts of our common stock, including upon conversion of the 2019 Notes or the Deerfield Notes, or the perception that such issuances and sales may occur, could adversely affect the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-related securities in the future at a time and price that we deem appropriate. Trading of the 2019 Notes is likely to influence and be influenced by the market for our common stock. For example, the price of our common stock could be affected by possible sales of common stock by investors who view the 2019 Notes as a more attractive means of equity participation in our company and by hedging or arbitrage trading activity that we expect to occur involving our common stock.
The accounting method for convertible debt securities that may be settled in cash, such as the 2019 Notes, could have a material effect on our reported financial results.
Under Accounting Standards Codification, or ASC, Subtopic 470-20, issuers of certain convertible debt instruments that have a net settlement feature and may be settled in cash upon conversion, including partial cash settlement, are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. As a result of the application of ASC 470-20, we recognized $143.2 million as the initial debt discount with a corresponding increase to paid-in capital, the equity component, for the 2019 Notes. We will be required to record the amortization of this debt discount over the terms of the 2019 Notes, which may adversely affect our reported or future financial results and the market price of our common stock. In addition, if the 2019 Notes become convertible, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2019 Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital. Finally, we use the if-converted method to compute earnings per
share, which could be more dilutive than using the treasury stock method.

Certain provisions applicable to the 2019 Notes and the Deerfield Notes could delay or prevent an otherwise beneficial takeover or takeover attempt
Certain provisions applicable to the 2019 Notes and the indenture pursuant to which the 2019 Notes were issued, and the Deerfield Notes and the note purchase agreement governing the Deerfield Notes, could make it more difficult or more

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expensive for a third party to acquire us. For example, if an acquisition event constitutes a Fundamental Change under the indenture for the 2019 Notes or a Major Transaction under the note purchase agreement governing the Deerfield Notes, holders of the 2019 Notes or the Deerfield Notes, applicable, will have the right to require us to purchase their notes in cash. In addition, if an acquisition event constitutes a Make-Whole Fundamental Change under the indenture for the 2019 Notes, we may be required to increase the conversion rate for holders who convert their 2019 Notes in connection with such Make-Whole Fundamental Change. In any of these cases, and in other cases, our obligations under the 2019 Notes and the indenture pursuant to which such notes were issued and the Deerfield Notes and the note purchase agreement governing the Deerfield Notes, as well as provisions of our organizational documents and other agreements, could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent or deter attempts by our stockholders to replace or remove our current management, which could cause the market price of our common stock to decline.
Provisions in our corporate charter and bylaws may discourage, delay or prevent an acquisition of our
company, a change in control, or attempts by our stockholders to replace or remove members of our current
Board of Directors. Because our Board of Directors is responsible for appointing the members of our
management team, these provisions could in turn affect any attempt by our stockholders to replace current
members of our management team. These provisions include:
a classified Board of Directors;
a prohibition on actions by our stockholders by written consent;
the inability of our stockholders to call special meetings of stockholders;
the ability of our Board of Directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our Board of Directors;
limitations on the removal of directors; and
advance notice requirements for director nominations and stockholder proposals.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Item 1A. Risk Factors
In addition to the factors discussed elsewhere in this report, the following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statements made by us or on our behalf. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we deem immaterial also may impair our business operations. If any of the following risks or such other risks actually occur, our business could be harmed.
Risks Related to Our Business and Industry
Our future prospects are critically dependent upon the commercial success of CABOMETYX for advanced RCC and the further clinical development and commercial success of cabozantinib in additional indications.
Our mission is to maximize the clinical and commercial potential of cabozantinib and cobimetinib and position the Exelixis business for future growth through the resumption of our discovery efforts and the expansion of our development pipeline. We anticipate that for the foreseeable future our ability to generate meaningful revenue to fund our commercial operations and our development and discovery programs is dependent upon the successful commercialization of CABOMETYX for the treatment of advanced RCC in territories where it has been or may soon be approved. The commercial potential of CABOMETYX for the treatment of advanced RCC remains subject to a variety of factors, most importantly, CABOMETYX’s perceived benefit/risk profile as compared to the benefit/risk profiles of other treatments available or currently in development for the treatment of advanced RCC. If revenue from CABOMETYX decreases, we may need to reduce our operating expenses or raise additional funds to execute our business plan, which would have a material adverse effect on our business and financial condition, results of operations and growth prospects. Furthermore, as a consequence of our


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exclusive collaboration agreement with Ipsen, we rely heavily upon Ipsen’s regulatory, commercial, medical affairs, and other expertise and resources for commercialization of CABOMETYX in territories outside of the United States and Japan. If Ipsen is unable to, or does not invest the resources necessary to, successfully commercialize CABOMETYX for the treatment of advanced RCC in the European Union and other international territories where it may be approved, this could reduce the amount of revenue we are due to receive under our collaboration agreement with Ipsen, thus resulting in harm to our business and operations.
We also believe that there are commercial opportunities for cabozantinib in therapeutic indications beyond advanced RCC, and we are pursuing these opportunities by dedicating substantial proprietary resources to developing cabozantinib into a broad and significant oncology franchise. Even following the approval of CABOMETYX for the treatment of advanced RCC in the United States and European Union, our success remains contingent upon, among other things, successful clinical development, regulatory approval and market acceptance of cabozantinib in additional indications, such as first-line RCC, advanced HCC, NSCLC, and other forms of cancer. With top-line results from CELESTIAL anticipated in 2017, we expect growth of the cabozantinib oncology franchise to be most immediately impacted by the clinical trial results of cabozantinib in advanced HCC. However, the historical rate of failures for product candidates in clinical development is high. Should we prove unsuccessful in the further development of cabozantinib beyond MTC or advanced RCC, we may be unable to execute our business plan and our revenues and financial condition would be materially adversely affected.
We are heavily dependent on our partner, Genentech (a member of the Roche group), for the successful development, regulatory approval and commercialization of cobimetinib.
The terms of our collaboration agreement with Genentech provide them with exclusive authority over the global development and commercialization plans for cobimetinib and the execution of those plans. We have no effective influence over those plans and are heavily dependent on Genentech’s decision making. The collaboration agreement provides that we are entitled to a share of U.S. profits and losses received in connection with commercialization of cobimetinib. We are also entitled to low double-digit royalties on ex-U.S. net sales of cobimetinib. In both cases, we are heavily dependent on Genentech’s internal accounting procedures for determining how much, if any, profit we may derive from the collaboration. In connection with the commercialization of Cotellic, we believed Genentech’s pricing of, and cost and revenue allocations for, Cotellic, as determined exclusively by Genentech, have been contrary to the applicable terms of the collaboration agreement. We raised this concern with Genentech, along with other material concerns regarding Genentech’s performance under the collaboration agreement, but were unable to come to resolution on any of these issues. Accordingly, on June 3, 2016, following a 30 day dispute resolution period, we filed a demand for arbitration asserting claims against Genentech related to its clinical development, pricing and commercialization of Cotellic, and cost and revenue allocations in connection with Cotellic’s commercialization in the United States. Soon thereafter, Genentech asserted a counterclaim for breach of contract seeking monetary damages and interest related to the cost allocations under the collaboration agreement. On December 29, 2016, Genentech withdrew its counterclaim against us and stated that it would unilaterally change its approach to allocation of promotional expenses arising from commercialization of the Cotellic plus Zelboraf combination therapy, both retrospectively and prospectively. Notwithstanding Genentech’s change of approach, other significant issues remain in dispute between the parties. Genentech’s action does not address the claims in our demand for arbitration related to Genentech’s clinical development of cobimetinib, or pricing and promotional costs for Cotellic in the United States, nor does it fully resolve claims over revenue allocation. And, Genentech has not clarified how it intends to allocate promotional costs incurred with respect to the promotion of other combination therapies that include cobimetinib for other indications that will be developed or are in development and may be approved. As a result, we will continue to press our position for the arbitral panel to obtain a just resolution of these claims. The ultimate outcome and timing of the arbitration is difficult to predict.
We are also completely dependent upon Genentech to develop cobimetinib further. Any significant changes to Genentech’s business strategy and priorities, over which we have no control, could adversely affect Genentech’s willingness or ability to complete their obligations under our collaboration agreement and result in harm to our business and operations. Subject to contractual diligence obligations, Genentech has complete control over and financial responsibility for cobimetinib’s development program and regulatory strategy and execution, and we are not able to control the amount or timing of resources that Genentech will devote to the product. Of particular significance are Genentech’s development efforts with respect to the combination of cobimetinib with immuno-oncology agents, a promising and competitive area of clinical research. Regardless of Genentech’s efforts and expenditures for the further development of cobimetinib, the results of such additional clinical investigation may not prove positive and may not produce label expansions or approval in additional indications.


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The commercial success of cabozantinib, as CABOMETYX tablets for advanced RCC and as COMETRIQ capsules for MTC, or if approved for additional indications, will depend upon the degree of market acceptance among physicians, patients, health care payers, and the medical community.
Our ability to commercialize cabozantinib, as CABOMETYX tablets for advanced RCC and COMETRIQ capsules for MTC, or if approved for additional indications, will be highly dependent upon the extent to which cabozantinib gains market acceptance among physicians, patients, health care payers such as Medicare, Medicaid and commercial plans and the medical community. If cabozantinib does not achieve an adequate level of acceptance, we may not generate significant future product revenues. The degree of market acceptance of CABOMETYX, COMETRIQ and other cabozantinib products, if approved, will depend upon a number of factors, including:
the effectiveness, or perceived effectiveness, of cabozantinib in comparison to competing products;
the safety of cabozantinib, including the existence of serious side effects of cabozantinib and their severity in comparison to those of any competing products;
cabozantinib’s relative convenience and ease of administration;
unexpected results connected with analysis of data from future or ongoing clinical trials;
the timing of cabozantinib label expansions for additional indications, if any, relative to competitive treatments;
the price of cabozantinib relative to competitive therapies and any new government initiatives affecting pharmaceutical pricing;
the strength of CABOMETYX sales efforts, marketing, medical affairs and distribution support;
the sufficiency of commercial and government insurance coverage and reimbursement; and
our ability to enforce our intellectual property rights with respect to cabozantinib.
If we are unable to maintain or scale adequate sales, marketing, market access and distribution capabilities or enter into or maintain agreements with third parties to do so, we may be unable to commercialize cabozantinib successfully.
In connection with the FDA’s approval of CABOMETYX for the treatment of patients with advanced RCC, we substantially increased our sales, marketing, market access, medical affairs and product distribution capabilities. Establishing and maintaining these capabilities are expensive and time-consuming. Such expenses may be disproportionate compared to the revenues we may be able to generate on sales of cabozantinib, which may have an adverse impact on our results of operations. Also, to the extent that the commercial opportunities for cabozantinib grows over time, we may not properly judge the requisite size and experience of the commercialization teams or the scale of distribution necessary to market and sell cabozantinib successfully. If we are unable to scale our organization appropriately, we may not be able to maximize product revenues and our business may be adversely affected.
We currently rely on a single third party logistics provider (with two distribution locations) to handle shipping and warehousing for our commercial supply of both CABOMETYX and COMETRIQ in the U.S. While we have expanded our U.S. distribution and pharmacy channels in connection with the approval of CABOMETYX by the FDA for the treatment of patients with advanced RCC in the United States, we still rely on a relatively limited distribution network to dispense COMETRIQ in fulfillment of prescriptions in the United States. Furthermore, we rely on our collaboration partners for the commercialization and distribution of CABOMETYX and COMETRIQ in territories outside of the United States, as well as for access and distribution activities for the approved products under the NPU program.
Our current and anticipated future dependence upon the activities, and legal and regulatory compliance, of these or other third parties, may adversely affect our future profit margins and our ability to supply cabozantinib to the marketplace on a timely and competitive basis. For example, if a warehouse of our third party logistics provider suffers a fire or damage from another type of disaster, a significant portion of the commercial supply of CABOMETYX and COMETRIQ could be destroyed, resulting in a disruption in our commercialization efforts. These or other third parties may not be able to provide services in the time we require to meet our commercial timelines and objectives or to meet regulatory requirements. We may not be able to maintain or renew our arrangements with third parties, or enter into new arrangements, on acceptable terms, or at all. Third parties could terminate or decline to renew our arrangements based on their own business priorities, at a time that is costly or inconvenient for us. If we are unable to contract for logistics services or distribution of cabozantinib on acceptable terms, our commercialization efforts may be delayed or otherwise adversely affected.


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We are subject to certain healthcare laws, regulation and enforcement; our failure to comply with those laws could have a material adverse effect on our results of operations and financial condition.
We are subject to certain healthcare laws and regulations and enforcement by the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include, without limitation:
the federal Anti-Kickback Statute, or AKS, which governs our business activities, including our marketing practices, educational programs, pricing policies, and relationships with healthcare providers or other entities. The AKS prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs. Remuneration is not defined in the AKS and has been broadly interpreted to include anything of value, including for example, gifts, discounts, coupons, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payments, ownership interests and providing anything at less than its fair market value. The AKS has been broadly interpreted to apply to manufacturer arrangements with prescribers, purchasers and formulary managers, among others;
the FDCA and its regulations which prohibit, among other things, the introduction or delivery for introduction into interstate commerce of any food, drug, device, or cosmetic that is adulterated or misbranded;
federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations, which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information;
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts;
the Foreign Corrupt Practices Act, a U.S. law which regulates certain financial relationships with foreign government officials (which could include, for example, certain medical professionals);
federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;
federal and state government price reporting laws that require us to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on our marketed drugs (participation in these programs and compliance with the applicable requirements may subject us to potentially significant discounts on our products, increased infrastructure costs, and could potentially affect our ability to offer certain marketplace discounts); and
federal and state financial transparency laws, which generally require certain types of expenditures in the United States to be tracked and reported (compliance with such requirements may require investment in infrastructure to ensure that tracking is performed properly, and some of these laws result in the public disclosure of various types of payments and relationships with healthcare providers and healthcare entities, which could potentially have a negative effect on our business and/or increase enforcement scrutiny of our activities).
In addition, certain marketing practices, including off-label promotion, may also violate certain federal and state healthcare fraud and abuse laws, FDA rules and regulations, as well as false claims laws, including the civil False Claims Act. Suits filed under the civil False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. The filing of qui tam actions has caused a number of pharmaceutical, medical device and other healthcare companies to have to defend a civil False Claims Act action. When an entity is determined to have violated the civil False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim.


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If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we, or our officers or employees, may be subject to penalties, including administrative civil and criminal penalties, damages, fines, withdrawal of regulatory approval, the curtailment or restructuring of our operations, the exclusion from participation in Medicare, Medicaid and other federal and state healthcare programs, individual imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, any of which could adversely affect our ability to sell our products or operate our business and also adversely affect our financial results. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired.
Numerous federal and state laws, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use and disclosure of personal information. Other countries also have, or are developing, laws governing the collection, use and transmission of personal information. In addition, most healthcare providers who are expected to prescribe our products and from whom we obtain patient health information are subject to privacy and security requirements under HIPAA. Although we are not directly subject to HIPAA, we could be subject to criminal penalties if we knowingly obtain individually identifiable health information from a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to affect our business, including recently enacted laws in a majority of states requiring security breach notification. These laws could create liability for us or increase our cost of doing business. International laws, such as the EU Data Privacy Directive (95/46/EC) and Swiss Federal Act on Data Protection, regulate the processing of personal data within the European Union and between countries in the European Union and countries outside of the European Union, including the United States. Failure to provide adequate privacy protections and maintain compliance with safe harbor mechanisms could jeopardize business transactions across borders and result in significant penalties.
If we are unable to obtain both adequate coverage and adequate reimbursement from third-party payers for CABOMETYX or COMETRIQ, our revenues and prospects for profitability will suffer.
Our ability to successfully commercialize CABOMETYX or COMETRIQ is highly dependent on the extent to which coverage and reimbursement is, and will be, available from third-party payers, including governmental payers, such as Medicare and Medicaid, and private health insurers. Patients may not be capable of paying for CABOMETYX or COMETRIQ themselves and may rely on third-party payers to pay for, or subsidize, the costs of their medications, among other medical costs. If third-party payers do not provide coverage or reimbursement for CABOMETYX or COMETRIQ, our revenues and prospects for profitability will suffer. In addition, even if third-party payers provide some coverage or reimbursement for CABOMETYX or COMETRIQ, the availability of such coverage or reimbursement for prescription drugs under private health insurance and managed care plans often varies based on the type of contract or plan purchased. There has been negative publicity regarding, and increasing legislative ad enforcement interest in the United States with respect to, drug pricing and the use of specialty pharmacies, which may result in physicians being less willing to participate in our patient access programs and thereby limit our ability to increase patient access and adoption of cabozantinib. Specifically, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the price of drugs under Medicare, and reform government program reimbursement methodologies for drugs. If future legislation were to impose direct governmental price controls and access restrictions, it could have a significant adverse impact on our business and financial results.
In addition, in some foreign countries, particularly in the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, price negotiations with governmental authorities can take six to twelve months or longer after marketing authorization is granted for a product, which has the potential to substantially delay broad availability of the product in some of those countries. To obtain reimbursement and/or pricing approval in some countries, we and our collaboration partner, Ipsen, may be required to conduct a clinical trial that compares the cost effectiveness of CABOMETYX to other available therapies. The conduct of such a clinical trial could be expensive and result in delays in the commercialization of CABOMETYX. Third-party payers are challenging the prices charged for medical products and services, and many third-party payers limit reimbursement for newly-approved health care products. In particular, third-party payers may limit the indications for which they will reimburse patients who use CABOMETYX or COMETRIQ. Cost-control initiatives could decrease the price we and our collaboration partner, Ipsen, might establish for CABOMETYX, which would result in lower product revenues to us.


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Current healthcare laws and regulations and future legislative or regulatory reforms to the healthcare system may affect our ability to sell CABOMETYX and COMETRIQ profitably.
The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell CABOMETYX and COMETRIQ profitably. Among policy makers and payers in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.
In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of PPACA. The Budget Resolution is not a law; however, it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of PPACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under PPACA to waive, defer, grant exemptions from, or delay the implementation of any provision of PPACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also could consider subsequent legislation to replace elements of PPACA that are repealed. Moreover, certain politicians, including the President, have announced plans to regulate the prices of pharmaceutical products. We cannot know what form any such legislation may take or the market’s perception of how such legislation would affect us. Any reduction in reimbursement from government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may limit our ability to generate revenue or commercialize our current products and/or those for which we may receive regulatory approval in the future.
As a result of the overall trend towards cost-effectiveness criteria and managed healthcare in the United States, third-party payers are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new drugs. They may use tiered reimbursement and may adversely affect demand for CABOMETYX or COMETRIQ by placing a particular product in an expensive tier. They may also refuse to provide any coverage for uses of approved products for medical indications other than those for which the FDA has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payers will reimburse for newly approved drugs, which in turn will put pressure on the pricing of drugs. We also anticipate pricing pressures in connection with the sale of CABOMETYX and COMETRIQ due to the increasing influence of health maintenance organizations and additional legislative proposals. Due to the volatility in the current economic and market dynamics, we are unable to predict the impact of any unforeseen or unknown legislative, regulatory, third-party payer or policy actions, which may include cost containment and healthcare reform measures. Such policy actions could have a material adverse impact on our revenues and prospects for profitability.

Pricing for pharmaceutical products has come under increasing scrutiny by governments, legislative bodies and enforcement agencies. These activities may result in actions that have the effect of reducing our revenue or harming our business or reputation.
Many companies in our industry have received a governmental request for documents and information relating to drug pricing and patient support programs. We may become subject to similar requests, which would require us to incur significant expense and result in distraction for our management team. Additionally, to the extent there are findings, or even allegations, of improper conduct on the part of the company, such findings could further harm our business, reputation and/or prospects. It is possible that such inquiries could result in negative publicity or other negative actions that could harm our reputation; changes in our product pricing and distribution strategies; reduced demand for our approved products and/or reduced reimbursement of approved products, including by federal health care programs such as Medicare and Medicaid and state health care programs.
In addition, the Trump Administration has indicated an interest in taking measures pertaining to drug pricing, including potential proposals relating to Medicare price negotiations, and importation of drugs from other countries. At this time, it is unclear whether any of these proposals will be pursued and how they would impact our products or our future product candidates.
Our competitors may develop products and technologies that impair the value of cabozantinib, cobimetinib and any future product candidates.
The pharmaceutical, biopharmaceutical and biotechnology industries are highly diversified and are characterized by rapid technological change. In particular, the area of novel oncology therapies is a rapidly evolving and competitive field. Specifically, the indication of advanced RCC is highly competitive and several novel therapies and combinations of therapies are in advanced stages of clinical development in this indication, and may compete with or displace cabozantinib. We face, and will continue to face, intense competition from biotechnology, biopharmaceutical and pharmaceutical companies, as well as


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academic research institutions, clinical reference laboratories and government agencies that are pursuing research activities similar to ours. Some of our competitors have entered into collaborations with leading companies within our target markets, including some of our existing collaborators. Some of our competitors are further along in the development of their products than we are. Delays in the development of cabozantinib or cobimetinib for the treatment of additional tumor types, for example, could allow our competitors to bring products to market before us. Our future success will depend upon our ability to maintain a competitive position with respect to technological advances and the shifting landscape of therapeutic strategy following the advent of immunotherapy. Our products may become less marketable if we are unable to successfully adapt our development strategy to address the likelihood that this new approach to treating cancer with immuno-oncology agents will become prevalent in indications for which our products are approved, most notably advanced RCC, and in additional indications where we may seek regulatory approval. Furthermore, the complexities of such a strategy may require collaboration with some of our competitors.
The markets for which we intend to pursue regulatory approval of cabozantinib and for which Roche and Genentech intend to pursue regulatory approval for cobimetinib are highly competitive. Further, our competitors may be more effective at using their technologies to develop commercial products. Many of the organizations competing with us have greater capital resources, larger research and development staff and facilities, more experience in obtaining regulatory approvals and more extensive product manufacturing and commercial capabilities than we do. As a result, our competitors may be able to more easily develop technologies and products that would render our technologies and products, and those of our collaborators, obsolete and noncompetitive. There may also be drug candidates of which we are not aware at an earlier stage of development that may compete with cabozantinib, cobimetinib, and our other product candidates.
If competitors use litigation and regulatory means to obtain approval for generic versions of cabozantinib, our business will suffer.
Under the FDCA, the FDA can approve an ANDA for a generic version of a branded drug without the applicant undertaking the human clinical testing necessary to obtain approval to market a new drug. The FDA can also approve a 505(b)(2) NDA that relies on the agency’s findings of safety and/or effectiveness for a previously approved drug. The filing of an ANDA or 505(b)(2) NDA with respect to cabozantinib could have an adverse impact on our stock price. Moreover, if any such ANDAs or 505(b)(2) NDAs were to be approved and the patents covering cabozantinib were not upheld in litigation, or if a generic competitor is found not to infringe these patents, the resulting generic competition would negatively affect our business, financial condition and results of operations. In this regard, generic equivalents, which must meet the same quality standards as the branded drugs, would be significantly less costly than ours to bring to market. Companies that produce generic equivalents are generally able to offer their products at lower prices. Thus, regardless of the regulatory approval pathway, after the introduction of a generic competitor, a significant percentage of the sales of any branded product are typically lost to the generic product.
Clinical testing of product candidates is a lengthy, costly, complex and uncertain process and may fail to demonstrate safety and efficacy.
Clinical trials are inherently risky and may reveal that a product candidate, even if it is approved for other indications, is ineffective or has an unacceptable safety profile that may significantly decrease the likelihood of regulatory approval in a new indication. For example, COMET-1 and COMET-2, our two phase 3 pivotal trials of cabozantinib in metastatic castration-resistant prostate cancer, or mCRPC, failed to meet their respective primary endpoints of demonstrating a statistically significant increase in OS for patients treated with cabozantinib as compared to prednisone and to demonstrate improvement in pain response for patients treated by cabozantinib as compared to mitoxantrone/prednisone. Based on the outcome of the COMET trials, we deprioritized the clinical development of cabozantinib in mCRPC.
The results of preliminary studies do not necessarily predict clinical or commercial success, and later-stage clinical trials may fail to confirm the results observed in earlier-stage trials or preliminary studies. Although we have established timelines for manufacturing and clinical development of our product candidates based on existing knowledge of our compounds in development and industry metrics, we may not be able to meet those timelines.
We may experience numerous unforeseen events, during or as a result of clinical testing, that could delay or prevent commercialization of our product candidates, including:
lack of efficacy or harmful side effects;
negative or inconclusive clinical trial results may require us to conduct further testing or to abandon projects that we had expected to be promising;
our competitors may discover or commercialize other compounds or therapies that show significantly improved safety or efficacy compared to our product candidates;


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our inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs;
patient registration or enrollment in our clinical testing may be lower than we anticipate, resulting in the delay or cancellation of clinical testing;
failure of our third-party contract research organization or investigators to satisfy their contractual obligations, including deviating from trial protocol; and
regulators or institutional review boards may withhold authorization to commence or conduct clinical trials of a product candidate, or delay, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their determination that participating patients are being exposed to unacceptable health risks.
If we were to have significant delays in or termination of our clinical testing of our product candidates as a result of any of the events described above or otherwise, our expenses could increase and our ability to generate revenues could be impaired, either of which could adversely impact our financial results.
We may not be able to rapidly or effectively continue the further development of our product candidates or meet current or future requirements of the FDA or regulatory authorities in other jurisdictions, including those identified based on our discussions with the FDA or such other regulatory authorities. Our planned clinical trials may not begin on time, or at all, may not be completed on schedule, or at all, may not be sufficient for registration of our product candidates or may not result in an approvable product.
Completion of clinical trials may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of the product candidate. The duration and the cost of clinical trials may vary significantly over the life of a project as a result of factors relating to the clinical trial, including, among others:
the number of patients who ultimately participate in the clinical trial;
the duration of patient follow-up that is appropriate in view of the results or required by regulatory authorities;
the number of clinical sites included in the trials; and
the length of time required to enroll suitable patient subjects.
Any delay could limit our ability to generate revenues, cause us to incur additional expense and cause the market price of our common stock to decline significantly. Our partners under our collaboration agreements may experience similar risks with respect to the compounds we have out-licensed to them. If any of the events described above were to occur with such programs or compounds, the likelihood of receipt of milestones and royalties under such collaboration agreements could decrease.
The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy and uncertain, and may not result in the necessary regulatory approvals for our product candidates, which could adversely affect our business.
The activities associated with the research, development and commercialization of our products and product candidates, are subject to extensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. We have only limited experience in preparing and filing the applications necessary to gain regulatory approvals. The process of obtaining regulatory approvals in the United States and other foreign jurisdictions is expensive, and often takes many years, if approval is obtained at all, and can vary substantially based upon the type, complexity and novelty of the product candidates involved. For example, before an NDA or sNDA can be submitted to the FDA, or MAA to the EMA or any application or submission to regulatory authorities in other jurisdictions, the product candidate must undergo extensive clinical trials, which can take many years and require substantial expenditures.
Any clinical trial may fail to produce results satisfactory to the FDA or regulatory authorities in other jurisdictions. For example, the FDA could determine that the design of a clinical trial is inadequate to produce reliable results. The regulatory process also requires preclinical testing, and data obtained from preclinical and clinical activities are susceptible to varying interpretations. The FDA has substantial discretion in the approval process and may refuse to approve any NDA or decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. For example, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of cabozantinib for any individual, additional indications.
In addition, delays or rejections may be encountered based upon changes in regulatory policy for product approval during the period of product development and regulatory agency review, which may cause delays in the approval or rejection of an application for our product candidates.


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Even if the FDA or a comparable authority in another jurisdiction approves cabozantinib for an indication beyond advanced RCC and MTC, or one of our other product candidates, the approval may be limited, imposing significant restrictions on the indicated uses, conditions for use, labeling, distribution, advertising, promotion, marketing and/or production of the product and could impose ongoing requirements for post-approval studies, including additional research and development and clinical trials. For example, in connection with the FDA’s approval of COMETRIQ for the treatment of progressive, metastatic MTC, we are subject to post-marketing requirement to conduct a clinical study comparing a lower dose of cabozantinib to the approved dose of 140 mg daily cabozantinib in progressive, metastatic MTC. Failure to complete any post-marketing requirements in accordance with the timelines and conditions set forth by the FDA could significantly increase costs or delay, limit or eliminate the commercialization of cabozantinib. Further, these agencies may also impose various administrative, civil or criminal sanctions for failure to comply with regulatory requirements, including withdrawal of product approval.
We may be unable to expand our development pipeline, which could limit our growth and revenue potential.
We are committed to the discovery, development and promotion of new medicines with the potential to improve care and outcomes for people with cancer. In this regard, we recently resumed internal drug discovery efforts with the goal of identifying new product candidates to advance into clinical trials. Internal discovery efforts to identify new product candidates require substantial technical, financial and human resources. These internal discovery efforts may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including the research methodology used may not be successful in identifying potential product candidates, or potential product candidates may, on further study, be shown to have inadequate efficacy, harmful side effects, suboptimal pharmaceutical profile or other characteristics suggesting that they are unlikely to be effective products. Apart from our internal discovery efforts, our strategy to expand our development pipeline is also dependent on our ability to successfully identify and acquire or in-license relevant product candidates. However, the in-licensing and acquisition of product candidates is a competitive area, and many other companies are pursuing the same or similar product candidates to those that we may consider attractive. Established companies, in particular, may have a competitive advantage over us due to their size, financial resources and more extensive clinical development and commercialization capabilities. Furthermore, companies that perceive us to be a competitor may be unwilling to assign or license rights to us.  We may also be unable to in-license or acquire a relevant product candidate on acceptable terms that would allow us to realize an appropriate return on our investment. If we are unable to develop suitable product candidates through internal discovery effort or if we are unable to successfully obtain rights to suitable product candidates, our business, financial condition and prospects for growth could suffer. Even if we succeed in our efforts to obtain rights to suitable product candidates, the competitive business environment may result in higher acquisition or licensing costs. 
With respect to acquisitions, we may not be able to integrate the target company successfully into our existing business, maintain the key business relationships of the target, or retain key personnel of an acquired business. Furthermore, we could assume unknown or contingent liabilities or incur unanticipated expenses. Any acquisitions or investments made by us also could result in our spending significant amounts, issuing dilutive securities, assuming or incurring significant debt obligations and contingent liabilities, incurring large one-time expenses and acquiring intangible assets that could result in significant future amortization expense and significant write-offs, any of which could harm our operating results.
Risks Related to Our Capital Requirements and Financial Results
If additional capital is not available to us, we may be forced to limit the expansion of our product development programs or commercialization efforts.
As of December 31, 2016, we had $479.6 million in cash and investments, which included $393.8 million available for operations, $81.6 million of compensating balance investments that we are required to maintain on deposit with Silicon Valley Bank, and $4.2 million of long-term restricted investments. Our business operations grew substantially during 2016. In order to continue to grow the business and maximize the clinical and commercial opportunities for cabozantinib and cobimetinib, we plan to continue to execute on the U.S. launch of CABOMETYX, while reinvesting in our product pipeline through the continued development of cabozantinib, continued research and development efforts, as well as through in-licensing and acquisition efforts. Our ability to execute on these business objectives will depend on many factors including but not limited to:
the commercial success of both CABOMETYX and COMETRIQ and the revenues we generate from those approved products;
costs associated with maintaining our expanded sales, marketing, medical affairs and distribution capabilities for CABOMETYX in advanced RCC and COMETRIQ in the approved MTC indications;
the achievement of stated regulatory and commercial milestones under our collaboration with Ipsen;


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the commercial success of Cotellic and the calculation of our share of related profits and losses for the commercialization of Cotellic in the U.S. and royalties from Cotellic sales outside the U.S. under our collaboration with Genentech;
the outcome of our arbitration against Genentech in which we have asserted claims related to Genentech’s clinical development, pricing and commercialization of Cotellic, and cost and revenue allocations arising from Cotellic’s commercialization in the United States;
the potential regulatory approval of cabozantinib as a treatment for previously untreated advanced RCC and in other indications, both in the United States and abroad;
future clinical trial results, notably the results from CELESTIAL, our phase 3 pivotal trial in patients with advanced HCC;
our future investments in the expansion of our pipeline through drug discovery and corporate development activities;
our repayment and any potential mandatory prepayment of the Secured Convertible Notes due 2018, or the Deerfield Notes, (see “Note 7. Debt” to our “Notes to Consolidated Financial Statements” contained in Part II, Item 8 of this Annual Report on Form 10-K for a description of these notes), which mature on July 1, 2018, and which we intend to repay on or about July 1, 2017;
our ability to control costs;
our ability to remain in compliance with, or amend or cause to be waived, financial covenants contained in agreements with third parties;
the cost of clinical drug supply for our clinical trials;
trends and developments in the pricing of oncologic therapeutics in the United States and abroad, especially in the European Union;
scientific developments in the market for oncologic therapeutics and the timing of regulatory approvals for competing oncologic therapies; and
the filing, maintenance, prosecution, defense and enforcement of patent claims and other intellectual property rights.
We have a history of net losses and may incur net losses in the future, and may be unable to achieve and maintain profitability.
We have incurred net losses since inception through December 31, 2016, with the exception of the 2011 fiscal year. For the year ended December 31, 2016, we incurred a net loss of $70.2 million and as of December 31, 2016, we had an accumulated deficit of $2.0 billion. These losses have had an adverse effect on our stockholders’ equity (deficit) and working capital. Because of the numerous risks and uncertainties associated with developing and commercializing drugs, we are unable to predict the extent of any future losses. Excluding fiscal 2011, our research and development expenditures and selling, general and administrative expenses have exceeded our revenues for each fiscal year, and we expect to spend significant additional amounts to fund the continued development and commercialization of cabozantinib. In addition, we plan to expand our product pipeline through the resumption of drug discovery and product acquisition and in-licensing. As a result, we expect to continue to incur substantial operating expenses and, consequently, we will need to generate substantial revenues to achieve and maintain profitability.
Since the launch of our first commercial product in January 2013, through December 31, 2016, we have generated an aggregate of $209.7 million in net product revenues, including $135.4 million for the year ended December 31, 2016. Other than sales of CABOMETYX and COMETRIQ, we have derived substantially all of our revenues since inception from collaborative arrangements, including upfront and milestone payments and research funding we earn from any products developed from the collaborative research. The amount of our net profits or losses will depend, in part, on: the level of sales of CABOMETYX and COMETRIQ in the United States; achievement of clinical, regulatory and commercial milestones and the amount of royalties, if any, from sales of CABOMETYX and COMETRIQ under our collaboration with Ipsen; our share of the net profits and losses for the commercialization of Cotellic in the U.S. under our collaboration with Genentech; the amount of royalties from Cotellic sales outside the U.S. under our collaboration with Genentech; other license and contract revenues; and, the level of our expenses, including commercialization activities for cabozantinib and any pipeline expansion efforts.
Our significant level of indebtednesscould limit cash flow available for our operations and expose us to risks that could adversely affect our business, financial condition and results of operations.
We have significant indebtedness and substantial debt service requirements as a result of the Deerfield Notes and our loan and security agreement with Silicon Valley Bank. As of December 31, 2016, our total consolidated indebtedness through


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maturity was $205.0 million (excluding trade payables). Our outstanding debt under our loan and security agreement with Silicon Valley Bank of $81.6 million will become due and payable in May 2018. We may also incur additional indebtedness to meet future financing needs. If we incur additional indebtedness, it would increase our interest expense, leverage and operating and financial costs.
Our current and any potential future indebtedness could have significant negative consequences for our business, results of operations and financial condition, including:
increasing our vulnerability to adverse economic and industry conditions;
limiting our ability to obtain additional financing;
requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our cash flow available for other purposes, including clinical trials, research and development, capital expenditures, working capital and other general corporate purposes;
limiting our flexibility in planning for, or reacting to, changes in our business;
dilution experienced by our existing stockholders as a result of a conversion of the Deerfield Notes, at our discretion, into shares of common stock; and
placing us at a possible competitive disadvantage with less leveraged competitors and competitors that may have better access to capital resources.
We cannot assure you that we will continue to maintain sufficient cash reserves or that our business will generate cash flow from operations at levels sufficient to permit us to pay principal, premium, if any, and interest on our indebtedness, or that our cash needs will not increase. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments or planned early repayments, or if we fail to comply with the various covenants imposed under the terms of the Deerfield Notes, or any indebtedness which we have incurred or may incur in the future, we would be in default, which would permit the holders of the Deerfield Notes or other indebtedness to accelerate the maturity of such notes or other indebtedness and could cause defaults under the Deerfield Notes, or our other indebtedness. Any default under the Deerfield Notes, or any indebtedness that we have incurred or may incur in the future could have a material adverse effect on our business, results of operations and financial condition.
We are exposed to risks related to foreign currency exchange rates.
Most of our foreign expenses incurred are associated with establishing and conducting clinical trials for cabozantinib. The amount of these expenses will be impacted by fluctuations in the currencies of those countries in which we conduct clinical trials. Our agreements with the foreign sites that conduct such clinical trials generally provide that payments for the services provided will be calculated in the currency of that country, and converted into U.S. dollars using various exchange rates based upon when services are rendered or the timing of invoices. When the U.S. dollar weakens against foreign currencies, the U.S. dollar value of the foreign-currency denominated expense increases, and when the U.S. dollar strengthens against these currencies, the U.S. dollar value of the foreign-currency denominated expense decreases. Consequently, changes in exchange rates may affect our financial position and results of operations.
Global credit and financial market conditions could negatively impact the value of our current portfolio of cash equivalents, short-term investments or long-term investments and our ability to meet our financing objectives.
Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. Our short-term and long-term investments consist primarily of readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase. While as of the date of this report we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents, short-term investments or long-term investments since December 31, 2016, no assurance can be given that a deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or investments or our ability to meet our financing objectives.
Our financial results are impacted by management’s selection of accounting methods and certain assumptions and estimates.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with generally accepted accounting principles and reflect management’s judgment of the most appropriate manner to report our financial condition and results of operations. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in our reporting materially different results than would have been reported under a different alternative.


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Certain accounting policies are critical to the presentation of our financial condition and results of operations. The preparation of our financial statements requires us to make significant estimates, assumptions and judgments that affect the amounts of assets, liabilities, revenues and expenses and related disclosures. Significant estimates that may be made by us include assumptions used in the determination of revenue recognition, discounts and allowances from gross revenue, inventory and stock-based compensation. Although we base our estimates and judgments on historical experience, our interpretation of existing accounting literature and on various other assumptions that we believe to be reasonable under the circumstances, if our assumptions prove to be materially incorrect, actual results may differ materially from these estimates.
In addition, future changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our financial position or results of operations. New pronouncements and varying interpretations of pronouncements have occurred with frequency in the past and are expected to occur again in the future and as a result we may be required to make changes in our accounting policies. Those changes could adversely affect our reported revenues and expenses, prospects for profitability or financial position. For example, in May 2014, the Financial Accounting Standards Board issued an Accounting Standards Update entitled Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, which will replace existing revenue recognition guidance in U.S. generally accepted accounting pronouncements when it becomes effective for us in the first quarter of fiscal year 2018. We do not expect that ASU 2014-09 will have a material impact on the recognition of revenue from product sales. We are still in the process of evaluating the effect that this guidance will have on revenue recognition from our collaboration and license agreements, such as our arrangements with Ipsen and Genentech. In any event, we will continue to evaluate the impact of the new standard on all of our revenues, including those mentioned above, and our preliminary assessments may change in the future based on our continuing evaluation. The application of existing or future financial accounting standards, particularly those relating to the way we account for revenues and costs, could have a significant impact on our reported results.
Risks Related to Our Relationships with Third Parties
We are dependent upon our collaborations with major companies, which subjects us to a number of risks.
We have established collaborations with leading pharmaceutical and biotechnology companies, including, Ipsen, Genentech, Daiichi Sankyo, Merck (known as MSD outside of the United States and Canada), BMS and Sanofi for the development and ultimate commercialization of certain compounds generated from our research and development efforts. Our dependence on our relationships with existing collaborators for the development and commercialization of compounds under the collaborations subjects us to, and our dependence on future collaborators for development and commercialization of additional compounds will subject us to, a number of risks, including:
we are not able to control the amount and timing of resources that our collaborators or potential future collaborators will devote to the development or commercialization of drug candidates or to their marketing and distribution;
we are not able to control the U.S. commercial resourcing decisions made and resulting costs incurred by Genentech for cobimetinib, which reasonable costs we are obligated to share, in part, under our collaboration agreement with Genentech;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a drug candidate, repeat or conduct new clinical trials or require a new formulation of a drug candidate for clinical testing;
disputes may arise between us and our collaborators that result in the delay or termination of the research, development or commercialization of our drug candidates, or that diminish or delay receipt of the economic benefits we are entitled to receive under the collaboration, or that result in costly litigation or arbitration that diverts management’s attention and resources;
collaborators may experience financial difficulties;
collaborators may not be successful in their efforts to obtain regulatory approvals in a timely manner, or at all;
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation;
collaborators may not comply with applicable healthcare regulatory laws;
business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;
a collaborator could independently move forward with a competing drug candidate developed either independently or in collaboration with others, including our competitors;


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we may be precluded from entering into additional collaboration arrangements with other parties in an area or field of exclusivity;
future collaborators may require us to relinquish some important rights, such as marketing and distribution rights; and
collaborations may be terminated or allowed to expire, which would delay, and may increase the cost of development of our drug candidates.
If any of these risks materialize, we may not receive collaboration revenue or otherwise realize anticipated benefits from such collaborations, our product development efforts could be delayed and our business, operating results and financial condition could be adversely affected.
If third parties upon which we rely do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or commercialize cabozantinib for the treatment of additional indications beyond advanced RCC and MTC.
We do not have the ability to conduct clinical trials for cabozantinib independently, including our post-marketing commitments in connection with the approvals of CABOMETYX in advanced RCC and COMETRIQ in progressive, metastatic MTC, so we rely on independent third parties for the performance of these trials, such as the U.S. federal government (including NCI-CTEP, a department of the NIH, with whom we have our CRADA), third-party contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties must be replaced or if the quality or accuracy of the data they generate or provide is compromised due to their failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for or commercialize cabozantinib for additional indications beyond the advanced RCC and MTC.
We lack the manufacturing capabilities necessary for us to produce cabozantinib for clinical development or for commercial sale and rely on third parties to do so, which subjects us to various risks.
We do not own or operate manufacturing or distribution facilities or resources for clinical or commercial production and distribution of CABOMETYX and COMETRIQ. Instead, we have multiple contractual agreements in place with third party CMOs who, on our behalf, manufacture clinical and commercial supplies of CABOMETYX and COMETRIQ, and will continue to do so for the foreseeable future. To establish and manage this supply chain requires a significant financial commitment and the creation and maintenance of numerous third-party contractual relationships. Although we maintain significant resources to directly oversee the business activities and relationships with companies in our supply chain effectively, we do not have direct control over their operations. Our third party manufacturers may not be able to produce material on a timely basis or manufacture material with the required quality standards, or in the quantity required to meet our development and commercial needs and applicable regulatory requirements. Additionally, as part of our collaboration with Ipsen, we are responsible for the manufacturing and supply of finished, labeled cabozantinib products to Ipsen through the end of the second quarter of 2018. Failure to meet our supply obligations under the collaboration would impair Ipsen’s ability to successfully commercialize cabozantinib and reduce revenues to which we are entitled under the collaboration.
If our third party contract manufacturers and suppliers do not continue to supply us with our products or product candidates in a timely fashion and in compliance with applicable quality and regulatory requirements, or otherwise fail or refuse to comply with their obligations to us under our supply and manufacturing arrangements, we may not have adequate remedies for any breach, and their failure to supply us could impair or preclude our ability to meet our and/or Ipsen’s commercial needs, or our supply needs for clinical trials.
Risks Related to Our Intellectual Property
Data breaches and cyber-attacks could compromise our intellectual property or other sensitive information and cause significant damage to our business and reputation.
In the ordinary course of our business, we collect, maintain and transmit sensitive data on our networks and systems, including our intellectual property and proprietary or confidential business information (such as research data and personal information) and confidential information with respect to our customers, clinical trial patients and our business partners. We have also outsourced significant elements of our information technology infrastructure and, as a result, third parties may or could have access to our confidential information. The secure maintenance of this information is critical to our business and reputation. We believe that companies have been increasingly subject to a wide variety of security incidents, cyber-attacks and other attempts to gain unauthorized access. These threats can come from a variety of sources, ranging in sophistication from an


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individual hacker to a state-sponsored attack and motive (including corporate espionage). Cyber threats may be generic, or they may be custom-crafted against our information systems. Cyber-attacks continue to become more prevalent and much harder to detect and defend against. Our network and storage applications and those of our vendors may be subject to unauthorized access by hackers or breached due to operator error, malfeasance or other system disruptions. It is often difficult to anticipate or immediately detect such incidents and the damage caused by such incidents. These data breaches and any unauthorized access or disclosure of our information or intellectual property could compromise our intellectual property and expose sensitive business information. A data security breach could also lead to public exposure of personal information of our clinical trial patients, customers and others. Cyber-attacks could cause us to incur significant remediation costs, result in product development delays, disrupt key business operations and divert attention of management and key information technology resources. Our network security and data recovery measures and those of our vendors may not be adequate to protect against such security breaches and disruptions. These incidents could also subject us to liability, expose us to significant expense and cause significant harm to our reputation and business.
If we are unable to adequately protect our intellectual property, third parties may be able to use our technology, which could adversely affect our ability to compete in the market.
Our success will depend in part upon our ability to obtain patents and maintain adequate protection of the intellectual property related to our technologies and products. The patent positions of biopharmaceutical companies, including our patent position, are generally uncertain and involve complex legal and factual questions. We will be able to protect our intellectual property rights from unauthorized use by third parties only to the extent that our technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. We will continue to apply for patents covering our technologies and products as, where and when we deem appropriate. However, these applications may be challenged or may fail to result in issued patents. Our issued patents have been and may in the future be challenged by third parties as invalid or unenforceable under U.S. or foreign laws, or they may be infringed by third parties. As a result, we are from time to time involved in the defense and enforcement of our patents or other intellectual property rights in a court of law, U.S. Patent and Trademark Office inter partes review or reexamination proceeding, foreign opposition proceeding or related legal and administrative proceeding in the United States and elsewhere. The costs of defending our patents or enforcing our proprietary rights in post-issuance administrative proceedings and litigation may be substantial and the outcome can be uncertain. An adverse outcome may allow third parties to use our intellectual property without a license and negatively impact our business.
In addition, because patent applications can take many years to issue, third parties may have pending applications, unknown to us, which may later result in issued patents that cover the production, manufacture, commercialization or use of our product candidates. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Furthermore, others may independently develop similar or alternative technologies or design around our patents. In addition, our patents may be challenged or invalidated or may fail to provide us with any competitive advantages, if, for example, others were the first to invent or to file patent applications for closely related inventions.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties (for example, the patent owner has failed to “work” the invention in that country or the third party has patented improvements). In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. Compulsory licensing of life-saving drugs is also becoming increasingly popular in developing countries either through direct legislation or international initiatives. Such compulsory licenses could be extended to include our products or product candidates, which could limit our potential revenue opportunities. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patent and other intellectual property protection, which makes it difficult to stop infringement. We rely on trade secret protection for some of our confidential and proprietary information. We have taken security measures to protect our proprietary information and trade secrets, but these measures may not provide adequate protection. While we seek to protect our proprietary information by entering into confidentiality agreements with employees, collaborators and consultants, we cannot assure you that our proprietary information will not be disclosed, or that we can meaningfully protect our trade secrets. In addition, our competitors may independently develop substantially equivalent proprietary information or may otherwise gain access to our trade secrets.
Litigation or third-party claims of intellectual property infringement could require us to spend substantial time and money and adversely affect our ability to develop and commercialize products.
Our commercial success depends in part upon our ability to avoid infringing patents and proprietary rights of third parties and not to breach any licenses that we have entered into with regard to our technologies and the technologies of third parties. Other parties have filed, and in the future are likely to file, patent applications covering products and technologies that


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we have developed or intend to develop. If patents covering technologies required by our operations are issued to others, we may have to obtain licenses from third parties, which may not be available on commercially reasonable terms, or at all, and may require us to pay substantial royalties, grant a cross-license to some of our patents to another patent holder or redesign the formulation of a product candidate so that we do not infringe third-party patents, which may be impossible to obtain or could require substantial time and expense. Third parties may accuse us of employing their proprietary technology without authorization. In addition, third parties may obtain patents that relate to our technologies and claim that use of such technologies infringes on their patents. Regardless of their merit, such claims could require us to incur substantial costs, including the diversion of management and technical personnel, in defending ourselves against any such claims or enforcing our patents. In the event that a successful claim of infringement is brought against us, we may be required to pay damages and obtain one or more licenses from third parties. We may not be able to obtain these licenses at a reasonable cost, or at all. Defense of any lawsuit or failure to obtain any of these licenses could adversely affect our ability to develop and commercialize products.
We may be subject to damages resulting from claims that we, our employees or independent contractors have wrongfully used or disclosed alleged trade secrets of their former employers.
Many of our employees and independent contractors were previously employed at universities or other biotechnology, biopharmaceutical or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, independent contractors or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers, or used or sought to use patent inventions belonging to their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and divert management’s attention. If we fail in defending such claims, in addition to paying money claims, we may lose valuable intellectual property rights or personnel. A loss of key research personnel and/or their work product could hamper or prevent our ability to commercialize certain product candidates, which could severely harm our business.
Risks Related to Employees and Location
If we are unable to manage our growth, our business, financial condition, results of operations and prospects may be adversely affected.
We have experienced and expect to continue to experience growth in the number of our employees and in the scope of our operations. This growth places significant demands on our management, operational and financial resources, and our current and planned personnel, systems, procedures and controls may not be adequate to support our growth. To effectively manage our growth, we must continue to improve existing, and implement new, operational and financial systems, procedures and controls and must expand, train and manage our growing employee base, and there can be no assurance that we will effectively manage our growth without experiencing operating inefficiencies or control deficiencies. We expect that we may need to increase our management personnel to oversee our expanding operations, and recruiting and retaining qualified individuals is difficult. In addition, the physical expansion of our operations may lead to significant costs and may divert our management and capital resources. If we are unable to manage our growth effectively, or are unsuccessful in recruiting qualified management personnel, our business, financial condition, results of operations and prospects may be adversely affected.
The loss of key personnel or the inability to retain and, where necessary, attract additional personnel could impair our ability to operate and expand our operations.
We are highly dependent upon the principal members of our management, as well as clinical, commercial and scientific staff, the loss of whose services might adversely impact the achievement of our objectives. Also, we may not have sufficient personnel to execute our business plan. Retaining and, where necessary, recruiting qualified clinical, commercial and scientific personnel will be critical to support activities related to advancing the development program for cabozantinib and our other compounds, successfully executing upon our commercialization plan for cabozantinib and our internal proprietary research and development efforts. Competition is intense for experienced clinical, commercial and scientific personnel, and we may be unable to retain or recruit such personnel with the expertise or experience necessary to allow us to successfully develop and commercialize our products. Further, all of our employees are employed “at will” and, therefore, may leave our employment at any time.
Our collaborations with outside scientists may be subject to restriction and change.
We work with scientific and clinical advisors and collaborators at academic and other institutions that assist us in our research and development efforts. These advisors and collaborators are not our employees and may have other commitments that limit their availability to us. Although these advisors and collaborators generally agree not to do competing work, if a conflict of interest between their work for us and their work for another entity arises, we may lose their services. In such a


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circumstance, we may lose work performed by them, and our development efforts with respect to the matters on which they were working may be significantly delayed or otherwise adversely affected. In addition, although our advisors and collaborators sign agreements not to disclose our confidential information, it is possible that valuable proprietary knowledge may become publicly known through them.
Our headquarters are located near known earthquake fault zones, and the occurrence of an earthquake or other disaster could damage our facilities and equipment, which could harm our operations.
Our headquarters are located in South San Francisco, California, and therefore our facilities are vulnerable to damage from earthquakes. We do not carry earthquake insurance. We are also vulnerable to damage from other types of disasters, including fire, floods, power loss, communications failures, terrorism and similar events since any insurance we may maintain may not be adequate to cover our losses. If any disaster were to occur, our ability to operate our business at our facilities could be seriously, or potentially completely, impaired. In addition, the unique nature of our research activities could cause significant delays in our programs and make it difficult for us to recover from a disaster. Accordingly, an earthquake or other disaster could materially and adversely harm our ability to conduct business.
Facility security breaches may disrupt our operations, subject us to liability and harm our operating results.
Any break-in or trespass at our facilities that results in the misappropriation, theft, sabotage or any other type of security breach with respect to our proprietary and confidential information, including research or clinical data, or that results in damage to our research and development equipment and assets, could subject us to liability and have a material adverse impact on our business, operating results and financial condition.
Risks Related to Environmental and Product Liability
We use hazardous chemicals and radioactive and biological materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.
Our research and development processes involve the controlled use of hazardous materials, including chemicals and radioactive and biological materials. Our operations produce hazardous waste products. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. We may face liability for any injury or contamination that results from our use or the use by third parties of these materials, and such liability may exceed our insurance coverage and our total assets. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research, development and production efforts.
In addition, our collaborators may use hazardous materials in connection with our collaborative efforts. In the event of a lawsuit or investigation, we could be held responsible for any injury caused to persons or property by exposure to, or release of, these hazardous materials used by these parties. Further, we may be required to indemnify our collaborators against all damages and other liabilities arising out of our development activities or products produced in connection with these collaborations.
We face potential product liability exposure far in excess of our limited insurance coverage.
We may be held liable if any product we or our collaborators develop or commercialize causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing or sale. Regardless of merit or eventual outcome, product liability claims could result in decreased demand for our products and product candidates, injury to our reputation, withdrawal of patients from our clinical trials, product recall, substantial monetary awards to third parties and the inability to commercialize any products that we may develop. These claims might be made directly by consumers, health care providers, pharmaceutical companies or others selling or testing our products. We have obtained limited product liability insurance coverage for our clinical trials and commercial activities for cabozantinib in the amount of $20.0 million per occurrence and $20.0 million in the aggregate. However, our insurance may not reimburse us or may not be sufficient to reimburse us for expenses or losses we may suffer. Moreover, if insurance coverage becomes more expensive, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. On occasion, juries have awarded large judgments in class action lawsuits for claims based on drugs that had unanticipated side effects. In addition, the pharmaceutical, biopharmaceutical and biotechnology industries, in general, have been subject to significant medical malpractice litigation. A successful product liability claim or series of claims brought against us could harm our reputation and business and would decrease our cash reserves.


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Risks Related to Our Common Stock
We expect that our quarterly results of operations will fluctuate, and this fluctuation could cause our stock price to decline, causing investor losses.
Our quarterly operating results have fluctuated in the past and are likely to fluctuate in the future. A number of factors, many of which we cannot control, could subject our operating results to volatility, including:
the commercial success of both CABOMETYX and COMETRIQ and the revenues we generate from those approved products;
customer ordering patterns for CABOMETYX and COMETRIQ, which may vary significantly from period to period;
the overall level of demand for CABOMETYX and COMETRIQ, including the impact of any competitive products and the duration of therapy for patients receiving CABOMETYX or COMETRIQ;
costs associated with maintaining our expanded sales, marketing, medical affairs and distribution capabilities for CABOMETYX, COMETRIQ and Cotellic;
our ability to obtain regulatory approval for cabozantinib as a treatment of first-line advanced RCC;
the achievement of stated regulatory and commercial milestones, under our collaboration with Ipsen;
the outcome of our arbitration against Genentech in which we have asserted claims related to Genentech’s clinical development, pricing and commercialization of Cotellic, and cost and revenue allocations arising from Cotellic’s commercialization in the United States;
the progress and scope of other development and commercialization activities for cabozantinib and our other compounds;
future clinical trial results, notably the results from CELESTIAL, our phase 3 pivotal trial in patients with advanced HCC;
our future investments in the expansion of our pipeline through drug discovery and corporate development activities;
the inability to obtain adequate product supply for any approved drug product or inability to do so at acceptable prices;
recognition of upfront licensing or other fees or revenues;
payments of non-refundable upfront or licensing fees, or payment for cost-sharing expenses, to third parties;
the introduction of new technologies or products by our competitors;
the timing and willingness of collaborators to further develop or, if approved, commercialize our product candidates out-licensed to them;
the termination or non-renewal of existing collaborations or third party vendor relationships;
regulatory actions with respect to our product candidates and any approved products or our competitors’ products;
disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
the timing and amount of expenses incurred for clinical development and manufacturing of cabozantinib;
adjustments to expenses accrued in prior periods based on management’s estimates after the actual level of activity relating to such expenses becomes more certain;
the impairment of acquired goodwill and other assets;
additions and departures of key personnel;
general and industry-specific economic conditions that may affect our or our collaborators’ research and development expenditures; and
other factors described in this “Risk Factors” section.
Due to the possibility of fluctuations in our revenues and expenses, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. As a result, in some future quarters, our operating results may not meet the expectations of securities analysts and investors, which could result in a decline in the price of our common stock.


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Our stock price may be extremely volatile.
The trading price of our common stock has been highly volatile, and we believe the trading price of our common stock will remain highly volatile and may fluctuate substantially due to factors such as the following, many of which we cannot control:
adverse results or delays in our or our collaborators’ clinical trials;
the announcement of FDA approval or non-approval, or delays in the FDA review process, of cabozantinib or our collaborators’ product candidates or those of our competitors or actions taken by regulatory agencies with respect to our, our collaborators’ or our competitors’ clinical trials;
the commercial success of both CABOMETYX and COMETRIQ and the revenues we generate from those approved products;
the timing of achievement of our clinical, regulatory, partnering and other milestones, such as the commencement of clinical development, the completion of a clinical trial, the filing for regulatory approval or the establishment of collaborative arrangements for cabozantinib or any of our other programs or compounds;
actions taken by regulatory agencies with respect to cabozantinib or our clinical trials for cabozantinib;
the announcement of new products by our competitors;
quarterly variations in our or our competitors’ results of operations;
developments in our relationships with our collaborators, including the termination or modification of our agreements;
the announcement of an in-licensed product candidate or strategic acquisition;
conflicts or litigation with our collaborators, including the outcome of our arbitration with Genentech regarding Cotellic;
litigation, including intellectual property infringement and product liability lawsuits, involving us;
failure to achieve operating results projected by securities analysts;
changes in earnings estimates or recommendations by securities analysts;
the satisfaction of outstanding debt obligations or entry into new financing arrangements;
developments in the biotechnology, biopharmaceutical or pharmaceutical industry;
sales of large blocks of our common stock or sales of our common stock by our executive officers, directors and significant stockholders;
departures of key personnel or board members;
FDA or international regulatory actions;
third-party coverage and reimbursement policies;
disposition of any of our technologies or compounds; and
general market, economic and political conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
These factors, as well as general economic, political and market conditions, may materially adversely affect the market price of our common stock. In addition, the stock markets in general, and the markets for biotechnology and pharmaceutical stocks in particular, have historically experienced significant volatility that has often been unrelated or disproportionate to the operating performance of particular companies. For example, negative publicity regarding drug pricing and price increases by pharmaceutical companies has negatively impacted, and may continue to negatively impact, the markets for biotechnology and pharmaceutical stocks. Likewise, as a result of the United Kingdom’s pending withdrawal from the European Union and/or significant changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade and health care spending and delivery, including the potential repeal and/or replacement of all or portions of PPACA or greater restrictions on free trade stemming from Trump Administration policies, the financial markets could experience significant volatility that could also negatively impact the markets for biotechnology and pharmaceutical stocks. These broad market fluctuations have adversely affected and may in the future adversely affect the trading price of our common stock. Excessive volatility may continue for an extended period of time following the date of this report.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert management’s attention and resources, which could have a material and adverse effect on our business.


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Future sales of our common stock or conversion of the Deerfield Notes, or the perception that such sales or conversions may occur, may depress our stock price.
A substantial number of shares of our common stock are reserved for issuance upon the exercise of stock options, upon vesting of restricted stock unit, or RSU, awards, upon a purchase under our employee stock purchase program, upon exercise of certain outstanding warrants and upon conversion of the Deerfield Notes. The issuance and sale of substantial amounts of our common stock, including upon conversion of the Deerfield Notes, or the perception that such issuances and sales may occur, could adversely affect the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-related securities in the future at a time and price that we deem appropriate.
Certain provisions applicable to the Deerfield Notes could delay or prevent an otherwise beneficial takeover or takeover attempt.
Certain provisions applicable to the Deerfield Notes and the note purchase agreement governing the Deerfield Notes, could make it more difficult or more expensive for a third party to acquire us. For example, if an acquisition event constitutes a Major Transaction under the note purchase agreement governing the Deerfield Notes, holders of the Deerfield Notes will have the right to require us to purchase their notes in cash. In this case, and in other cases, our obligations under the Deerfield Notes and the note purchase agreement governing the Deerfield Notes, could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent or deter attempts by our stockholders to replace or remove our current management, which could cause the market price of our common stock to decline.
Provisions in our corporate charter and bylaws may discourage, delay or prevent an acquisition of us, a change in control, or attempts by our stockholders to replace or remove members of our current Board of Directors. Because our Board of Directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. These provisions include:
a classified Board of Directors;
a prohibition on actions by our stockholders by written consent;
the inability of our stockholders to call special meetings of stockholders;
the ability of our Board of Directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our Board of Directors;
limitations on the removal of directors; and
advance notice requirements for director nominations and stockholder proposals.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Our ability to use net operating losses to offset future taxable income may be subject to limitations.
Under the Internal Revenue Code, or the Code, and similar state provisions, certain substantial changes in our ownership could result in an annual limitation on the amount of net operating loss carry-forwards that can be utilized in future years to offset future taxable income. The annual limitation may result in the expiration of net operating losses and credit carry-forwards before utilization. We concluded, as of December 31, 2016, that an ownership change, as defined under Section 382, had not occurred. However, if there is an ownership change under Section 382 of the Code in the future, we may not be able to utilize a material portion of our net operating losses, or NOLs. Furthermore, our ability to utilize our NOLs is conditioned upon our attaining profitability and generating United States federal taxable income. As described above, we have incurred significant net losses since our inception; thus, we do not know whether or when we will generate the United States federal taxable income necessary to utilize our NOLs. A full valuation allowance has been provided for the entire amount of our NOLs.
ITEM 1B.UNRESOLVED STAFF COMMENTS
Not applicable.None.


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ITEM 2.PROPERTIES
We lease a total of 367,773247,027 square feet of office and laboratory facilities in South San Francisco, California. The leased premises comprise sixfour buildings and are covered by fourthree lease agreements, as follows:
The first two leases cover threetwo buildings for a total of 179,964130,964 square feet and expiresexpire in 2017, with two five-year options to extend their respective terms prior to expiration.May 2017. We have subleased a total of 76,12093,243 square feet of portions of these buildings to fourfive different subtenants. The terms of the subleases covering 74,163 square feet expire at the end of our lease term and the sublease for the balance is for a term of one year with annual options to extend through the end of our lease term.terms.
The third lease covers two buildings for a total of 116,063 square feet and expireexpires in June 2018.
The fourth lease covering a portion of one building containing 71,746 square feet and expire in 2015. We have subleased approximately 68,738 square feet ofone five-year options to extend the building covered by the fourth lease to a single subtenant. The term of the sublease will expire at the end of our lease term.prior to expiration.
We believe that our leased facilities have sufficient space to accommodate our current needs.
ITEM 3.LEGAL PROCEEDINGS
On June 3, 2016, we filed a Demand for Arbitration before JAMS in San Francisco, California asserting claims against Genentech (a member of the Roche Group) related to its clinical development, pricing and commercialization of Cotellic, and cost and revenue allocations arising from Cotellic’s commercialization in the United States.
In December 2006, we entered into a worldwide collaboration for the development and commercialization of cobimetinib with Genentech. The terms of the collaboration agreement provide Genentech with authority over the global development and commercialization plans for cobimetinib and the execution of those plans. The collaboration agreement further provides that we are entitled to an initial equal share of U.S. profits and losses for cobimetinib, with our share decreasing as sales increase, as well as low double-digit royalties on ex-U.S. net sales of cobimetinib. To date, cobimetinib has been approved for use exclusively in combination with Zelboraf (vemurafenib) and launched by Genentech in the United States and multiple other territories, including the European Union, Canada, Australia and Brazil as a treatment for patients with advanced melanoma harboring a BRAF V600E or V600K mutation. It is marketed as Cotellic.
Our arbitration demand asserts that Genentech has breached the parties’ contract for, amongst other breaches, failing to meet its diligence and good faith obligations. The demand seeks various forms of declaratory, monetary, and equitable relief, including without limitation that the cost and revenue allocations for Cotellic be shared equitably consistent with the collaboration agreement’s terms, along with attorneys’ fees and costs of the arbitration.
On July 13, 2016, Genentech asserted a counterclaim for breach of contract seeking monetary damages and interest related to the cost allocations under the collaboration agreement. On December 29, 2016, Genentech withdrew its counterclaim against us and stated that it would unilaterally change its approach to allocation of promotional expenses arising from commercialization of the Cotellic plus Zelboraf combination therapy, both retrospectively and prospectively. We believe this revised allocation approach substantially reduced our exposure to costs associated with promotion of the Cotellic plus Zelboraf combination in the United States. Notwithstanding Genentech’s change of approach, other significant issues remain in dispute between the parties. Genentech’s action does not address the claims in our demand for arbitration related to Genentech’s clinical development of cobimetinib, or pricing and promotional costs for Cotellic in the United States, nor does it fully resolve claims over revenue allocation. And, Genentech has not clarified how it intends to allocate promotional costs incurred with respect to the promotion of other combination therapies that include cobimetinib for other indications that will be developed or are notin development and may be approved. As a partyresult, we will continue to any material legal proceedings. press our position for the arbitral panel to obtain a just resolution of these claims. The ultimate outcome and timing of the arbitration is difficult to predict.
We may from time to time become a party to variousother legal proceedings arising in the ordinary course of business.

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ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.


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PART II
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock has traded on the NASDAQ Global Select Market (formerly the NASDAQ National Market) under the symbol “EXEL” since April 11, 2000. The following table sets forth, for the periods indicated, the high and low intraday sales prices for our common stock as reported by the NASDAQ Global Select Market:
 Common Stock Price
 High Low
Year ended December 28, 2012:   
Quarter ended March 30, 2012$6.57
 $4.47
Quarter ended June 29, 2012$5.59
 $4.37
Quarter ended September 28, 2012$6.95
 $4.19
Quarter ended December 28, 2012$5.39
 $4.29
Year ended December 27, 2013:   
Quarter ended March 29, 2013$5.06
 $4.32
Quarter ended June 28, 2013$5.30
 $4.33
Quarter ended September 27, 2013$5.88
 $4.58
Quarter ended December 27, 2013$6.14
 $4.66
 Common Stock Price
 High Low
Year ended December 30, 2016:   
Quarter ended April 1, 2016$5.85
 $3.55
Quarter ended July 1, 2016$8.19
 $4.11
Quarter ended September 30, 2016$15.58
 $7.93
Quarter ended December 30, 2016$18.29
 $10.04
Year ended January 1, 2016:   
Quarter ended April 3, 2015$3.16
 $1.54
Quarter ended July 3, 2015$4.18
 $2.51
Quarter ended October 2, 2015$6.81
 $3.31
Quarter ended January 1, 2016$6.42
 $4.70
On February 19, 201416, 2017, the last reported sale price on the NASDAQ Global Select Market for our common stock was $7.18$22.65 per share.
Holders
On February 19, 201416, 2017, there were approximately 506448 holders of record of our common stock. The number of record holders is based upon the actual number of holders registered on our books at such date and does not include holders of shares in “street names” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depository trust companies.
Dividends
Since inception, we have not paid dividends on our common stock. We currently intend to retain all future earnings, if any, for use in our business and currently do not plan to pay any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board of Directors. Our loan and security agreement with Silicon Valley Bank restricts our ability to pay dividends and make distributions. In addition, our note purchase agreement with Deerfield restricts our ability to make distributions.

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Performance Graph
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of ours under the Securities Act of 1933, as amended.
The following graph compares, for the five year period ended December 31, 2013,2016, the cumulative total stockholder return for our common stock, the NASDAQ Stock Market (U.S. companies) Index, or the NASDAQ Market Index, and the NASDAQ Biotechnology Index. The graph assumes that $100 was invested on December 31, 20082011 in each of our common stock, the NASDAQ Market Index and the NASDAQ Biotechnology Index and assumes reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
December 31,
12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/20132011 2012 2013 2014 2015 2016
Exelixis, Inc.100
 141
 157
 91
 86
 114
100
 95
 125
 35
 119
 315
NASDAQ Market Index100
 139
 163
 160
 181
 255
100
 114
 160
 181
 192
 207
NASDAQ Biotechnology Index100
 114
 131
 146
 190
 318
100
 130
 218
 295
 326
 256


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ITEM 6.SELECTED FINANCIAL DATA
The following selected consolidated financial information has been derived from our audited consolidated financial statements. The financial information as of December 31, 20132016 and 20122015 and for each of the three years in the period ended, December 31, 2013,2016, 2015, and 2014 are derived from audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The financial information as of December 31, 2014, 2013 and 2012, and for each of the years ended December 31, 2013 and 2012, are derived from audited consolidated financial statements not included in this Annual Report on Form 10-K, which have been revised as described below. The following Selected Financial Data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” included elsewhere in this Annual Report on Form 10-K. The historical results are not necessarily indicative of the results of operations to be expected in the future. 

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 Year Ended December 31,
 2013 2012 2011 2010 2009
 (In thousands, except per share data)
Consolidated Statements of Operations Data:         
Revenues$31,338
 $47,450
 $289,636
 $185,045
 $151,759
Operating expenses:         
Cost of goods sold1,118
 —
 —
 —
 —
Research and development178,763
 128,878
 156,836
 210,678
 234,702
Selling, general and administrative50,958
 31,837
 33,129
 33,020
 34,382
Collaboration cost sharing—
 —
 —
 —
 4,582
Restructuring charge1,231
 9,171
 10,136
 32,744
 —
Total operating expenses232,070
 169,886
 200,101
 276,442
 273,666
(Loss) income from operations(200,732) (122,436) 89,535
 (91,397) (121,907)
Other income (expense), net (1)(44,124) (25,102) (12,543) (1,005) (18,936)
(Loss) income before taxes(244,856) (147,538) 76,992
 (92,402) (140,843)
Income tax (benefit) provision(96) 107
 1,295
 (72) (1,286)
Net (loss) income(244,760) (147,645) 75,697
 (92,330) (139,557)
Loss attributed to noncontrolling interest—
 —
 —
 —
 4,337
Net (loss) income attributable to Exelixis, Inc.$(244,760) $(147,645) $75,697
 $(92,330) $(135,220)
Net (loss) income per share, basic, attributable to Exelixis, Inc.$(1.33) $(0.92) $0.60
 $(0.85) $(1.26)
Net (loss) income per share, diluted, attributable to Exelixis, Inc.$(1.33) $(0.92) $0.58
 $(0.85) $(1.26)
Shares used in computing basic net (loss) income per share184,062
 160,138
 126,018
 108,522
 107,073
Shares used in computing diluted net (loss) income per share184,062
 160,138
 130,479
 108,522
 107,073
 Year Ended December 31,
 2016 2015 2014 2013 2012
 (In thousands, except per share data)
Consolidated Statements of Operations Data:         
Revenues$191,454
 $37,172
 $25,111
 $31,338
 $47,450
Operating expenses:         
Cost of goods sold6,552
 3,895
 2,043
 1,118
 —
Research and development95,967
 96,351
 189,101
 178,763
 128,878
Selling, general and administrative116,145
 57,305
 50,829
 50,958
 31,837
Restructuring charge914
 1,042
 7,596
 1,231
 9,171
Total operating expenses219,578
 158,593
 249,569
 232,070
 169,886
Loss from operations(28,124) (121,421) (224,458) (200,732) (122,436)
Other expense, net (1)
(42,098) (40,268) (37,021) (37,556) (22,792)
Loss before taxes(70,222) (161,689) (261,479) (238,288) (145,228)
Income tax provision (benefit)—
 55
 (182) (96) 107
Net loss (1)
$(70,222) $(161,744) $(261,297) $(238,192) $(145,335)
Net loss per share, basic and diluted (1)
$(0.28) $(0.77) $(1.34) $(1.29) $(0.91)
Shares used in computing basic and diluted loss per share amounts250,531
 209,227
 194,299
 184,062
 160,138
 December 31,
 2016 2015 2014 2013 2012
 (In thousands)
Consolidated Balance Sheet Data:         
Cash and investments$479,554
 $253,310
 $242,760
 $415,862
 $633,961
Working capital (deficit)$200,215
 $126,414
 $(3,188) $178,756
 $350,837
Total assets$597,541
 $332,342
 $323,269
 $497,951
 $714,142
Long-term obligations (1)
$237,635
 $420,897
 $312,163
 $395,599
 $394,311
Accumulated deficit (1)
$(1,983,147) $(1,912,925) $(1,751,181) $(1,489,884) $(1,251,692)
Total stockholders’ equity (deficit) (1)
$89,318
 $(140,806) $(159,324) $14,498
 $238,127
____________________
(1)In 2007, we sold 80.1%Prior periods have been revised to reflect the correction of our former German subsidiary, Artemis Pharmaceuticals GmbH (now known as TaconicArtemis GmbH), or Artemis, and our plant trait business. We exercised our option to sell our remaining 19.9% ownership in Artemis in 2011 and recognized an additional gain of $2.2 million in other income. In 2009 and 2010, in associationthe accounting for non-cash interest expense associated with the sale2019 Notes. See “Note 1. Organization and Summary of our plant trait business, we recognizedSignificant Accounting Policies - Correction of an Immaterial Error” in the “Notes to the Consolidated Financial Statements” for additional gaininformation on the sale of the business of $2.1 million and $7.2 million, respectively. In June 2009, we recorded a $9.8 million loss upon deconsolidation of Symphony Evolution, Inc. as a result of the expiration of our purchase option. In addition, our credit facility with Deerfield expired in November 2009, resulting in our acceleration of interest expense of $5.2 million relating to the closing fee and outstanding warrants issued in connection with the facility.correction.

 December 31,
 2013 2012 2011 2010 2009
 (In thousands)
Consolidated Balance Sheet Data:         
Cash and investments$415,862
 $633,961
 $283,720
 $256,377
 $220,993
Working capital (deficit)$178,756
 $350,837
 $136,500
 $(16,455) $22,882
Total assets$503,287
 $721,097
 $393,262
 $360,790
 $343,410
Long-term obligations$349,196
 $342,959
 $193,983
 $186,702
 $57,688
Accumulated deficit$(1,498,762) $(1,254,002) $(1,106,357) $(1,182,054) $(1,089,724)
Total stockholders’ equity (deficit)$66,238
 $296,434
 $90,632
 $(228,325) $(163,725)


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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Some of the statements under in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements. These statements are based on our 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. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “focus,” “assume,” “goal,” “objective,” “will,” “may” “would,” “could,” “estimate,” “predict,” “target,” “potential,” “continue,” “encouraging” or the negative of such terms or other similar expressions identify 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 “Item 1A. Risk Factors” as well as those discussed elsewhere in this Annual Report on Form 10-K. 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.
We have adopted a 52- or 53-week fiscal year policy that generally ends on the Friday closest to December 31st. Fiscal year 2014, a 53-week year, ended on January 2, 2015; fiscal year 2015, a 52-week year, ended on January 1, 2016; fiscal year 2016, a 52-week year, ended on December 30, 2016; and fiscal year 2017, a 52-week year, will end on December 29, 2017. For convenience, references in this report as of and for the fiscal years ended January 2, 2015, January 1, 2016, and December 30, 2016 are indicated as being as of and for the years ended December 31, 2014, 2015, and 2016, respectively. The quarterly period ended January 2, 2015 is a 14-week fiscal quarter; all other interim periods presented are 13-week fiscal quarters.
Overview
We are a biotechnologybiopharmaceutical company committed to developing small molecule therapiesthe discovery, development and commercialization of new medicines to improve care and outcomes for people with cancer. Since its founding in 1994, three products discovered at Exelixis have progressed through clinical development, received regulatory approval, and entered the commercial marketplace. Two are derived from cabozantinib, an inhibitor of multiple tyrosine kinases including MET, AXL, and VEGF receptors: CABOMETYX™ tablets approved for previously treated advanced kidney cancer and COMETRIQ® capsules approved for progressive, metastatic medullary thyroid cancer. The third product, Cotellic®, is a formulation of cobimetinib, a selective inhibitor of MEK, marketed under a collaboration with Genentech (a member of the Roche Group), and is approved as part of a combination regimen to treat advanced melanoma. Both cabozantinib and cobimetinib have shown potential in a variety of forms of cancer and are the subjects of broad clinical development programs.
While our commercialization efforts for CABOMETYX and COMETRIQ are focused in the United States, the products are marketed for their approved indications outside of the United States and Japan under our collaboration agreement with Ipsen. We are also closely working with Ipsen and our other cabozantinib collaboration partner, Takeda, on the further global development and commercialization of cabozantinib.
Beyond the FDA-approved indications of cabozantinib for second-line advanced RCC and progressive, metastatic MTC, we are engaged in a broad development program composed of over 45 ongoing or planned clinical trials in additional tumor types, many of which are conducted through our CRADA with NCI-CTEP or our IST program. The most notable studies at this time are CELESTIAL, our company-sponsored phase 3 trial of cabozantinib in advanced HCC, for which we anticipate results in 2017, and CABOSUN, a randomized phase 2 trial comparing cabozantinib to sunitinib in the first-line treatment of intermediate- or poor-risk RCC patients, being conducted by The Alliance through our CRADA with NCI-CTEP. In May 2016, The Alliance informed us that CABOSUN met its primary endpoint demonstrating a statistically significant and clinically meaningful improvement of PFS compared with sunitinib. Based on these results, we are working towards the submission of a sNDA in 2017 for cabozantinib as a treatment for first-line advanced RCC. Cabozantinib has demonstrated clinical activity as a single agent in advanced RCC, and we are interested in further examining its potential in combination with immunotherapies to treat this serious disease. Building on the available preclinical and clinical observations that cabozantinib results in a more immune-permissive tumor environment potentially resulting in cooperative activity of cabozantinib in combination with immune check point inhibitors, in collaboration with BMS, we plan to evaluate the combination of cabozantinib with nivolumab or nivolumab and ipilimumab in various tumor types, including a phase 3 trial in first-line advanced RCC, as well as studies in bladder cancer and HCC.
In addition to these advances connected with cabozantinib, significant progress continues to be made with respect to the clinical development, regulatory status and commercial potential of cobimetinib under our collaboration agreement with


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Genentech. For additional information on the cobimetinib development program, see “Part I. Item 1. Business - Cobimetinib Development Program.”
Additional information regarding our business is included in Part I, Item 1, “Business,” included in this Annual Report on Form 10-K.
During 2016, we significantly grew our commercial organization and positioned the business to be able to drive towards and support an expanded product pipeline. Below is a summary of our significant business developments:
In February 2016, we entered into a collaboration and license agreement with Ipsen for the commercialization and further development of cabozantinib. Pursuant to the terms of the collaboration agreement, Ipsen received exclusive commercialization rights for current and potential future cabozantinib indications outside of the United States, Canada and Japan. The collaboration agreement was subsequently amended in December 2016 to include commercialization rights in Canada.
In April 2016, based on results of our phase 3 pivotal trial METEOR, which met its primary endpoint of improving PFS, as well as its secondary endpoints of improving OS and ORR, the FDA approved CABOMETYX for the treatment of cancer. Our two mostpatients with advanced assets, COMETRIQ® (cabozantinib),RCC who have received prior anti-angiogenic therapy.
In May 2016, we announced that CABOSUN met its primary endpoint, demonstrating a statistically significant and clinically meaningful improvement in PFS compared with sunitinib in patients with advanced intermediate- or poor-risk RCC. Based on these results, we are working towards the submission of a sNDA in the third quarter of 2017 for cabozantinib as a treatment for first-line advanced RCC.
In June 2016, we presented results from our wholly-owned inhibitor of multiple receptor tyrosine kinases, and cobimetinib (GDC-0973/XL518), a potent, highly selective inhibitor of MEK, which we out-licensed to Genentech, are currently the subject of six ongoing phase 3 pivotal trials. Top-linetrial METEOR at the ASCO 2016 Annual Meeting, showing that CABOMETYX demonstrated a statistically significant and clinically meaningful increase in OS. Compared with everolimus, CABOMETYX was associated with a 34% reduction in the rate of death and median OS was 21.4 months for patients receiving CABOMETYX versus 16.5 months for those receiving everolimus (HR=0.66, 95% CI 0.53-0.83, P=0.0003).
In June 2016, our collaboration partner Genentech announced preliminary results from a phase 1b trial evaluating the safety and clinical activity of the combination of cobimetinib with ateolizumab in patients with metastatic CRC, which included 23 patients with advanced CRC (22 with mutant KRAS and one with wild-type KRAS). The ORR for the combination was 17%, including four confirmed PRs; additionally five patients achieved SD. Responses were seen in tumors with the microsatellite stable, or MSS, phenotype, which comprises 95% of CRC. MSS CRC has historically been refractory to immuno-oncology agents. The median duration of response was not yet reached, with a range of 5.4 months to more than 11.1 months. No dose-limiting toxicities were observed.
In September 2016, the EC approved CABOMETYX for the treatment of adult patients with advanced RCC following prior VEGF-targeted therapy and in December 2016, Ipsen recorded its first commercial sales in Europe.
In October 2016, we announced positive results from the NCI-CTEP-sponsored phase 1 trial of cabozantinib in combination with nivolumab in patients with previously treated genitourinary tumors.
In November 2016, we announced Genentech’s efforts to advance the development program for cobimetinib, through the initiation and announcement of multiple phase 3 pivotal trials exploring the combination of cobimetinib with other targeted and immuno-oncology agents for the treatment of melanoma and CRC.
In January 2017, we entered into a collaboration and license agreement with Takeda for the commercialization and further clinical development of cabozantinib in Japan.
2016 Financial Highlights
Our total net product revenue increased by $101.2 million, or 296%, in 2016 compared to 2015, primarily due to the commercial launch of CABOMETYX as a treatment for patients with advanced RCC in April 2016 and, to a lesser extent, an increase in COMETRIQ product sales.
Our collaboration revenue increased by $53.1 million in 2016 compared to 2015, primarily due to upfront payments and milestones received as a result of entering into our collaboration and license agreement with Ipsen.
Cash and investments increased to $479.6 million at December 31, 2016 as compared to $253.3 million at December 31, 2015.
Between August and November 2016, we retired all $287.5 million of the 2019 Notes through privately negotiated exchange transactions and redemption procedures provided for by the 2019 Notes. For additional information on the retirement of the 2019 Notes, see “Note 7. Debt,” to our “Notes to Consolidated Financial Statements contained in Part II, Item 8 of this Annual Report on Form 10-K.


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2017 Outlook
In 2017, our key objective is to maximize the clinical and commercial opportunities for cabozantinib and cobimetinib as oncology franchises. On the commercial front, we plan to continue to execute on the U.S. launch of CABOMETYX as a treatment for patients with advanced RCC and increase sales of COMETRIQ and Cotellic, while supporting our collaboration partners on the execution of their commercial plans. From the research and development perspective, we intend to continue to invest in our cabozantinib development program, while driving toward the expansion of our product pipeline through the measured resumption of drug discovery activities and the evaluation of potential in-licensing and acquisition opportunities that align with our oncology drug development expertise.
We anticipate that we will continue to face a number of challenges and risks to our business that may impact our ability to execute on our 2017 business objectives. In particular, we anticipate that for the foreseeable future our ability to generate meaningful revenue to fund our commercial operations and our development and discovery programs is dependent upon the successful commercialization of CABOMETYX for the treatment of advanced RCC in territories where it has been or may soon be approved. The commercial potential of CABOMETYX for the treatment of advanced RCC remains subject to a variety of factors, most importantly, CABOMETYX’s perceived benefit/risk profile as compared to the benefit/risk profiles of other treatments available or currently in development for the treatment of advanced RCC. Our ability to generate meaningful product revenue from CABOMETYX is also affected by a number of other factors, including the extent to which coverage and reimbursement for CABOMETYX is available from government and other third-party payers. Obtaining and maintaining appropriate coverage and reimbursement for CABOMETYX is increasingly challenging due to, among other things, the attention being paid to healthcare cost containment and other potential austerity measures being discussed in the U.S. and worldwide, as well as increasing policy interest in the U.S. with respect to pharmaceutical drug pricing practices. Our ability to fulfill the commercial potential of cabozantinib also depends on our ability to expand the compound’s use by generating data in clinical development that will support regulatory approval of cabozantinib in additional indications. Our immediate focus in this regard is a potential regulatory approval of our sNDA for cabozantinib for first-line advanced RCC based upon data from CABOSUN. This approval represents a greater challenge than others because CABOSUN was not originally designed as a registrational trial. However, given the positive nature of CABOSUN results, we are planning to submit a sNDA to the FDA. Achievement of our 2017 business objectives will also depend on our ability to adapt our development and commercialization strategy to navigate the increasing prevalence of immunotherapy competition, as well as the use of combination therapy to treat cancer. Furthermore, our research and development objectives may be curtailed as a result of operational challenges related to organizational growth as we resume drug discovery activities, and we may be unable to successfully identify appropriate candidates for in-licensing or acquisition.
Some of these challenges and risks are specific to our business, and others are common to companies in the pharmaceutical industry with development and commercial operations. For a complete discussion of challenges and risks we face, see in in Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K.


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Results of Operations – Comparison of Years Ended December 31, 2016, 2015 and 2014
Revenues
Revenues by category were as follows (dollars in thousands):
 Year Ended December 31,
 2016 2015 2014
Gross product revenues$151,499
 $36,650
 $28,963
Discounts and allowances(16,124) (2,492) (3,852)
Net product revenues135,375
 34,158
 25,111
Royalty and product supply revenues, net2,795
 14
 —
License revenues (1)
13,284
 —
 —
Contract revenues (2)
40,000
 3,000
 —
Collaboration revenues56,079
 3,014
 —
Total revenues$191,454
 $37,172
 $25,111
Dollar change$154,282
 $12,061
  
Percentage change415% 48%  
____________________
(1)Includes amortization of upfront payments.
(2)Includes milestone payments.
Net product revenues by product were as follows (dollars in thousands):
 Year Ended December 31,
 2016 2015 2014
CABOMETYX$93,481
 $—
 $—
COMETRIQ41,894
 34,158
 25,111
Net product revenues$135,375
 $34,158
 $25,111
Dollar change$101,217
 $9,047
  
Percentage change296% 36%  
The increase in net product revenues for the year ended December 31, 2016, as compared to 2015, was primarily due to the impact of the commercial launch of CABOMETYX in late April 2016, and, to a lesser extent, an increase in demand for COMETRIQ. CABOMETYX was approved by the FDA on April 25, 2016 as a treatment for patients with advanced RCC who have received prior anti-angiogenic therapy. Net product revenues for CABOMETYX during 2016 were also favorably impacted by the build of channel inventory by the specialty pharmacies and distributors to whom we sell CABOMETYX in connection with its initial launch. The 23% increase in net product revenues for COMETRIQ for the year ended December 31, 2016, as compared to 2015, was primarily due to a 15% increase in the number of COMETRIQ units sold and to a lesser extent, an increase in the average selling price of the product. The 36% increase in net product revenues for the year ended December 31, 2015, as compared to 2014, was primarily due to a 26% increase in the number of COMETRIQ units sold and, to a lesser extent, the impact of a change to the “sell-in” method which resulted in the one-time recognition of $2.6 million of deferred revenue attributable to sales to the specialty pharmacy that sells COMETRIQ in the U.S. in the first quarter of 2015. The COMETRIQ sales volume increases in both periods were driven by increased product demand.
Royalty and product supply revenues, net for the years ended December 31, 2016 and 2015 primarily includes recognition of $2.8 million and $14 thousand, respectively, of royalties on ex-U.S. net sales of Cotellic following Genentech’s launch of the product in late 2015. There was no such royalty and product supply revenue during the comparable period in 2014.
License revenues for the year ended December 31, 2016 consisted of the recognition of $13.3 million of the upfront payments and non-substantive milestone received in 2016 in connection with our collaboration and license agreement with Ipsen. The upfront payment of $200.0 million, received in the first quarter of 2016, the $60.0 million milestone we achieved upon the approval of cabozantinib by the EMA in second-line RCC, and the $10.0 million upfront payment received in


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December 2016 in consideration for the commercialization rights in Canada are being recognized ratably over the remaining term of the collaboration agreement. The collaboration agreement continues through early 2030, which is the current estimated patent expiration of cabozantinib in the European Union. There was no such license revenue during the comparable periods in 2015 and 2014.
Contract revenues for the year ended December 31, 2016 reflect recognition of two $10.0 million milestones for the first commercial sales of CABOMETYX by Ipsen in Germany and the United Kingdom, $15.0 million from a milestone payment earned from Daiichi Sankyo related to its worldwide license of our compounds that modulate mineralocorticoid receptor, including CS-3150/esaxerenone (a specific rotational isomer of XL550) in September 2016 and $5.0 million from a milestone payment earned from Merck related to its worldwide license of our PI3K-d program in July 2016. Contract revenues for the year ended December 31, 2015 reflect a $3.0 million contingent payment from Merck related to that same license. There was no such contract revenue during the comparable period in 2014.
Total revenues by significant customer were as follows (dollars in thousands):
 Year Ended December 31,
 2016 2015 2014
Diplomat Specialty Pharmacy$63,826
 $30,856
 $24,832
Ipsen33,252
 —
 —
Others, individually less than 10% of total revenues for all periods presented94,376
 6,316
 279
Total revenues$191,454
 $37,172
 $25,111
We recognize net product revenue net of discounts and allowances that are further described in “Note 1. Organization and Summary of Significant Accounting Policies” to our “Notes to Consolidated Financial Statements” contained in Part II, Item 8 of this Annual Report on Form 10-K. The activities and ending reserve balances for each significant category of discount and allowance were as follows (dollars in thousands):
 Customer credits and co-pay assistance Rebates Chargebacks Returns Total
Balance at December 31, 2014$2,320
 $484
 $(10) $—
 $2,794
Provision related to sales made in:        —
Current period1,014
 1,539
 69
 38
 2,660
Prior periods—
 (197) 10
 —
 (187)
Payments(3,003) (935) (30) —
 (3,968)
Balance at December 31, 2015331
 891
 39
 38
 1,299
Provision related to sales made in:        —
Current period5,721
 5,105
 5,297
 359
 16,482
Prior periods2
 (313) (39) (8) (358)
Payments(4,779) (3,056) (3,976) (38) (11,849)
Balance at December 31, 2016$1,275
 $2,627
 $1,321
 $351
 $5,574
The balance at December 31, 2014 consisted primarily of a project management fee payable to Sobi which was paid during the year ended December 31, 2015. Other activity during 2015 was related to discounts and allowances on product sales of COMETRIQ through a single specialty pharmacy. The growth in the ending reserve balances and the activity for the year ended December 31, 2016 resulted from the increase in discounts and allowances on increased product sales through an expanded distribution network, which includes five specialty pharmacies and three specialty distributors, which we implemented following the launch of CABOMETYX and the continued distribution of COMETRIQ through one specialty pharmacy and one specialty distributor.


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Cost of Goods Sold
The cost of goods sold and our gross margins were as follows (dollars in thousands):
 Year Ended December 31,
 2016 2015 2014
Cost of goods sold$6,552
 $3,895
 $2,043
Gross margin95% 89% 92%
Cost of goods sold is related to our product revenues and consists primarily of a 3% royalty payable to GlaxoSmithKline on net sales of any product incorporating cabozantinib, indirect labor costs, the cost of manufacturing, write-downs related to expiring and excess inventory, and other third party logistics costs of our product. Portions of the manufacturing costs for inventory were incurred prior to the regulatory approval of CABOMETYX and COMETRIQ and, therefore, were expensed as research and development costs when those costs were incurred, rather than capitalized as inventory. The sale of products containing previously expensed materials resulted in a 7%, 6% and 9% reduction in the Cost of goods sold during the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, we have $1.2 million in previously expensed materials that will not be charged to Costs of goods sold in future periods. Cost of goods sold also includes write-downs related to excess and expiring inventory. Such write-downs were $0.5 million for the year ended December 31, 2016 as compared to $1.2 million for 2015 and $0.2 million for 2014. Gross margin percentage is net product revenues less cost of goods sold, divided by net product revenues.
The increase in Cost of goods sold was primarily related to the launch of CABOMETYX during the year ended December 31, 2016 and increases in the number of units of COMETRIQ sold during the years ended December 31, 2016 and 2015, as compared to the preceding periods. The increase in gross margins for the year ended December 31, 2016, as compared to 2015, was related to the change in product mix as CABOMETYX has a lower manufacturing cost than COMETRIQ. The decrease in gross margins for the year ended December 31, 2015, as compared to 2014, was related to the increase in write-downs related to excess and expiring inventory, described above.
Research and Development Expenses
Total research and development expenses were as follows (dollars in thousands):
 Year Ended December 31,
 2016 2015 2014
Research and development expenses$95,967
 $96,351
 $189,101
Dollar change$(384) $(92,750)  
Percentage changeless than 1%
 (49)%  
Research and development expenses consist primarily of clinical trial expenses, personnel expenses, stock-based compensation, consulting and outside services, the allocation of general corporate costs, and temporary personnel expenses.
The nominal decrease in research and development expenses for the year ended December 31, 2016, as compared to 2015, was primarily related to clinical trial costs, which includes services performed by third-party contract research organizations and other vendors who support our clinical trials. The decrease in clinical trial costs was $8.9 million for the year ended December 31, 2016, as compared to 2015. The decrease in clinical trial costs was predominantly due to decreases in costs related to METEOR, our phase 3 pivotal trial in advanced RCC and was partially offset by increases in costs related to CELESTIAL, our phase 3 pivotal trial in advanced HCC. Decreases in research and development expenses for the year ended December 31, 2016, as compared to 2015, also related to a decrease in the allocation of general corporate costs and stock-based compensation. The allocation of general corporate costs decreased by $4.2 million for the year ended December 31, 2016 as compared to the comparable period in 2015, primarily due to headcount growth in the selling, general and administrative functions. Stock-based compensation decreased by $2.3 million for the year ended December 31, 2016 as compared to the comparable period in 2015, primarily due to the 2015 recognition of stock-based compensation expenses for performance-based stock-options tied to the positive top-line data received from the METEOR trial and the anticipated acceptance of our NDA filing with the FDA which was partially offset by a bonus to our employees in the form of fully-vested RSU during 2016. These decreases were almost entirely offset by increases in personnel expenses and consulting and outside services. Personnel and related expenses increased by $12.8 million for the year ended December 31, 2016 as compared to the comparable period in 2015 primarily due to the hiring of medical science liaisons as a result of the launch of CABOMETYX and an increase in the accrual for corporate bonuses. Consulting and outside services increased by $2.1


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million for the year ended December 31, 2016 as compared to the comparable period in 2015 primarily due to increases in activities related to medical affairs and drug safety.
The decrease in research and development expenses for the year ended December 31, 2015, as compared to 2014, was primarily related to a decrease in clinical trial costs, which includes services performed by third-party CROs and other vendors that support our clinical trials. The decrease in clinical trial costs was $70.3 million for the year ended December 31, 2015, as compared to 2014. The decrease in clinical trial costs was predominantly due to decreases in costs related to COMET-1 and COMET-2, our phase 3 pivotal trials are expected in 2014.mCRPC which we terminated in September 2014, METEOR, our phase 3 pivotal trial in advanced RCC, and a reduction of general program level costs; the decrease in costs related to METEOR included the impact of a $9.8 million decrease in comparator drug purchases.
Decreases in research and development expenses for the year ended December 31, 2015, as compared to 2014, also related to personnel expenses, consulting and outside services and temporary personnel. Personnel expenses decreased by $16.6 million for the year ended December 31, 2015, as compared to 2014 primarily due to workforce reductions undertaken as a consequence of the failure of COMET-1. The allocation of general corporate costs decreased by $8.6 million for the year ended December 31, 2015 as compared to the comparable period in 2014, primarily due to headcount growth in the selling, general and administrative functions. Consulting and outside services decreased by $3.6 million primarily as a result of decreases in clinical development consulting activities and the use of outside medical safety liaisons. Temporary personnel decreased by $2.9 million due to a decrease in clinical trial activities performed by those personnel. Those decreases were partially offset by increases in stock-based compensation and regulatory filing fees. Stock-based compensation increased by $8.4 million primarily due to expense recognized for performance-based stock-options described above. Regulatory filing fees of $2.4 million were paid to the FDA in 2015 in connection with the filing of our NDA.
We are focusing our proprietary resources and development and commercialization efforts primarily on COMETRIQ (cabozantinib), which was approved on November 29, 2012, bycabozantinib to maximize the FDA, for the treatmenttherapeutic and commercial potential of progressive, metastatic medullary thyroid cancer, or MTC, in the United States, where it became commercially available in late January 2013. In December 2013, the European Committee for Medicinal Products for Human Use, or CHMP, issuedthis compound, and as a positive opinion on the Marketing Authorization Application, or MAA, submittedresult, we expect our near-term research and development expenses to relate to the European Medicines Agency, or EMA,clinical development of cabozantinib. We expect to continue to incur significant development costs for COMETRIQ for the proposed indication of metastatic MTC. The CHMP’s positive opinion will be reviewed by the European Commission, which has the authority to approve medicines for the European Union.
Cabozantinib is being evaluatedcabozantinib in future periods as we evaluate its potential in a broad development program including twocomprising approximately 45 ongoing or planned clinical trials across multiple indications. The most notable study of this program is our company-sponsored phase 3 pivotal trials in metastatic castration-resistant prostate cancer, or CRPC, an ongoing phase 3 pivotal trial in metastatic renal cell cancer, or RCC, and an ongoing phase 3 pivotal trialof cabozantinib in advanced hepatocellular cancer, or HCC. We believe cabozantinib has the potential to be a high-quality, broadly-active and differentiated anti-cancer agent that can make a meaningful differenceHCC called CELESTIAL. In addition, postmarketing commitments in the lives of patients. Our objective is to develop cabozantinib into a major oncology franchise, and we believe thatconnection with the approval of COMETRIQ (cabozantinib) for the treatment of progressive, metastatic MTC provides us with the opportunity to establish a commercial presence in furtherance of this objective. We currently expect top-line data from our two phase 3 pivotal trials of cabozantinib in CRPC and the overall survival analysis of our phase 3 pivotal trial of cabozantinib in progressive, metastatic MTC dictate that we conduct an additional study in 2014.that indication. As a result, we expect our research and development expenses to increase as we continue to develop cabozantinib and our pipeline.
Cobimetinib is also being evaluated in a broad development program, including a multicenter, randomized, double-blind, placebo-controlledWe do not have reliable estimates regarding the timing of our clinical trials. We estimate that typical phase 1 clinical trials last approximately one year, phase 2 clinical trials last approximately one to two years and phase 3 clinical trials last approximately two to four years. However, the length of time may vary substantially according to factors relating to the particular clinical trial, evaluatingsuch as the combinationtype and intended use of cobimetinib with vemurafenib versus vemurafenibthe drug candidate, the clinical trial design and the ability to enroll suitable patients.
We do not have reliable estimates of total costs for a particular drug candidate, or for cabozantinib for a particular indication, to reach the market. Our potential therapeutic products are subject to a lengthy and uncertain regulatory process that may involve unanticipated additional clinical trials and may not result in previously untreated BRAFV600 mutation positive patients with unresectable locally advanced or metastatic melanoma that was initiated on November 1, 2012. Roche and Genentech have provided guidance that they expect top-line datareceipt of the necessary regulatory approvals. Failure to receive the necessary regulatory approvals would prevent us from this trial in 2014.
Undercommercializing the termsproduct candidates affected. In addition, clinical trials of our co-development agreement with Genentech for cobimetinib, we are entitledpotential product candidates may fail to an initial equal share of U.S. profitsdemonstrate safety and losses for cobimetinib,efficacy, which will decrease as sales increase, and will share equally in the U.S. marketing and commercialization costs. The profit share has multiple tiers—we are entitled to 50% of profits from the first $200 million of U.S. actual sales, decreasing to 30% of profits from U.S. actual sales in excess of $400 million. We are entitled to low double-digit royalties on ex-U.S. net sales. In November 2013, we exercised an option under the co-development agreement to co-promote in the United States. We will provide up to 25%could prevent or significantly delay regulatory approval. A discussion of the total sales force for cobimetinibrisks and uncertainties with respect to our research and development activities, including completing the development of our product candidates, and the consequences to our business, financial position and growth prospects can be found in the United States if commercialized,“Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.
Selling, General and will call on customersAdministrative Expenses
Total selling, general and otherwise engageadministrative expenses were as follows (dollars in promotional activities using that sales force, consistent with the terms of the co-development agreement and a co-promotion agreement to be entered into by the parties.thousands):
Our Strategy
We believe that the available clinical data demonstrate that cabozantinib has the potential to be a broadly active anti-cancer agent, and our objective is to build cabozantinib into a major oncology franchise. The initial regulatory approval of
 Year Ended December 31,
 2016 2015 2014
Selling, general and administrative expenses$116,145
 $57,305
 $50,829
Dollar change$58,840
 $6,476
  
Percentage change103% 13%  

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COMETRIQ (cabozantinib)Selling, general and administrative expenses consist primarily of personnel expenses, consulting and outside services, stock-based compensation, travel and entertainment, facility costs, legal and accounting costs, and marketing.
The increase in selling, general and administrative expenses for the year ended December 31, 2016, as compared to treat progressive, metastatic MTC provides2015, was primarily related to personnel expenses, consulting and outside services, travel and entertainment, the allocation of general corporate costs, and stock-based compensation. Personnel expenses increased by $44.1 million for the year ended December 31, 2016, as compared to 2015, primarily due to an increase in headcount connected with the build-out of our U.S. commercial organization as a niche market opportunityresult of the launch of CABOMETYX as well as an increase in incentive compensation and the accrual for corporate bonuses. Consulting and outside services increased by $16.0 million for the year ended December 31, 2016, as compared to 2015, primarily due to costs incurred supporting the commercialization and launch of CABOMETYX. Travel and entertainment increased by $5.5 million for the year ended December 31, 2016, as compared to 2015, primarily due to travel incurred by our U.S. commercial organization. The allocation of general corporate costs to research and development and cost of goods sold decreased by $3.9 million for the year ended December 31, 2016, as compared to 2015, primarily due to headcount growth in the selling, general and administrative functions. Stock-based compensation increased by $3.3 million for the year ended December 31, 2016, as compared to 2015, primarily due to headcount growth and a bonus paid to our employees in the form of fully-vested RSUs which was partially offset by the 2015 recognition of expenses for performance-based stock-options described above. These increases were partially offset by a decrease in marketing expenses.
Marketing expenses includes our share of losses under our collaboration agreement with Genentech. On June 3, 2016, following a 30 day dispute resolution period, we filed a demand for arbitration asserting claims against Genentech related to its clinical development, pricing and commercialization of Cotellic, and cost and revenue allocations in connection with Cotellic’s commercialization in the United States. Soon thereafter, Genentech asserted a counterclaim for breach of contract seeking monetary damages and interest related to the cost allocations under the collaboration agreement. On December 29, 2016, Genentech withdrew its counterclaim against us in the ongoing JAMS arbitration concerning alleged breaches of the parties’ collaboration agreement. When notifying the arbitral panel and us of this unilateral action, Genentech further stated that allowsit changed, both retroactively and prospectively, the manner in which it allocates promotional expenses of the Cotellic plus Zelboraf combination therapy. As a result of Genentech’s decision to change its cost allocation approach, we are relieved of our obligation to pay $18.7 million of disputed costs that had been accrued by us as of September 30, 2016. We have invoiced Genentech for certain expenses, with interest, that we had previously paid. Accordingly, during the year ended December 31, 2016, we offset selling, general and administrative expenses with a $13.3 million recovery for disputed losses under the collaboration agreement that had been recognized prior to gain commercialization experience while providing2016. During the year ended December 31, 2016, we also recognized a solid foundationloss of $4.5 million for potential expansion into larger cancer indications.2016 activities under the collaboration agreement as computed under Genentech’s revised cost allocation approach. In total, we have recorded a net cost recovery of $8.8 million during the year ended December 31, 2016 for the collaboration agreement. In comparison, during 2015 marketing expenses included losses of $16.6 million under the collaboration agreement.
The increase in selling, general and administrative expenses for the year ended December 31, 2015, as compared to 2014, was primarily related to increases in marketing costs and stock-based compensation. Marketing expenses increased by $10.2 million, which includes our share of losses under our collaboration agreement with Genentech totaling $16.6 million. Stock-based compensation, increased by $3.5 million primarily due to expense recognized for performance-based stock-options tied to the positive top-line data received from the METEOR trial and the anticipated acceptance of our NDA filing with the FDA. Those increases were partially offset by decreases in personnel costs, consulting and outside services, facilities costs and patent and other legal and accounting fees. Personnel expenses decreased by $5.7 million primarily due to workforce reductions undertaken as a consequence of the failure of COMET-1. Consulting and outside services decreased by $3.3 million as a result of decreases in marketing research activities and reductions in outside services for buildings we are no longer occupying. Facilities costs decreased by $2.8 million primarily as a result of facilities we have vacated in connection with our 2014 Restructuring (see “Note 3. Restructurings” to our “Notes to Consolidated Financial Statements” contained in Part II, Item 8 of this Annual Report on Form 10-K for a description of these costs). Patent and other legal and accounting fees decreased by $2.0 million primarily due to decreases in activities related to patent filings and defense.
We are focusingexpect our internal effortsSelling, general and administrative expenses will increase as we continue to support our ongoing activities related to the commercialization of CABOMETYX. Those expenses may increase further commensurate with potential expanded sales opportunities.
Total Other Expense, net
Certain historical amounts in other expense, net have been revised to reflect the correction of the accounting for non-cash interest expense associated with the 2019 Notes. See “Note 1. Organization and Summary of Significant Accounting


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Policies - Correction of an Immaterial Error” in the “Notes to the Consolidated Financial Statements” for additional information on cancersthe correction.
Total other expense, net, were as follows (dollars in thousands):
 Year Ended December 31,
 2016 2015 2014
Interest income and other, net$4,863
 $412
 $4,341
Interest expense(33,060) (40,680) (41,362)
Loss on extinguishment of debt(13,901) —
 —
Total other expense, net$(42,098) $(40,268) $(37,021)
Dollar change$(1,830) $(3,247)  
Percentage change5% 9%  
Total other expense, net consists primarily of the loss on extinguishment of debt, interest expense incurred on our debt, gains on the sale of equity investments, unrealized gains and losses from the fair value re-measurement of a warrant, foreign exchange fluctuations and interest income earned on our cash and investments.
The increase in Total other expense, net for the year ended December 31, 2016, as compared to 2015, was primarily related to the $13.9 million loss associated with the conversion and redemption of $286.9 million in aggregate principal amount of the 2019 Notes for 54,009,279 shares of our Common Stock. See “Note 7. Debt” in our “Notes to Consolidated Financial Statements” for more information on the conversions.
Interest expense is comprised of interest accrued on the 2019 Notes, the Deerfield Notes and the Silicon Valley Bank term loan. (see “Note 7. Debt” to our “Notes to Consolidated Financial Statements” contained in Part II, Item 8 of this Annual Report on Form 10-K for a description of these debt instruments, including the conversions and redemption of the 2019 Notes). Interest expenses decreased by $7.6 million for the year ended December 31, 2016, as compared to 2015, primarily due to the conversions and redemption of the 2019 Notes. We expect our interest expense will continue to decrease as a result of the full year impact of the interest savings from the conversions and redemption of the 2019 Notes, the maturity of the Silicon Valley Bank term loan and the anticipated prepayment of the Deerfield Notes on or about July 1, 2017.
Interest income and other, net for the year ended December 31, 2016 includes a $2.5 million gain on the sale of our 9% interest in Akarna Therapeutics, Ltd, which we believe cabozantinib has significant therapeuticacquired in 2015 in exchange for intellectual property rights related to a compound discovered by us. During 2014, Interest income and commercial potential inother, net includes an $0.8 million gain for a purchase price adjustment resulting from the near term, while utilizing our CRADA with NCI-CTEP and ISTs,resolution of contingencies related to generate additional data to allow us to prioritize future late stage trials in a cost-effective fashion. We believe that this staged approach to building value represents the most rational and effective useSeptember 2011 sale of our resources.remaining interest in another business. There were no such gains during 2015.
Interest income and other, net for the years ended December 31, 2015 and 2014 include $0.5 million in unrealized losses and $1.8 million in unrealized gains, respectively, on the revaluation of the 2014 Warrants; there were no such gains or losses during 2016. (see “Note 7. Debt” to our “Notes to Consolidated Financial Statements” contained in Part II, Item 8 of this Annual Report on Form 10-K for a description of the 2014 Warrants).
Collaborations
Liquidity and Capital Resources
We have established collaborationsincurred net losses since inception through December 31, 2016, with leading pharmaceuticalthe exception of the 2011 fiscal year. For the year ended December 31, 2016, we incurred a net loss of $70.2 million and biotechnology companies, including Genentech, GlaxoSmithKline, Bristol-Myers Squibb, Sanofi, GlaxoSmithKline, Merckas of December 31, 2016, we had an accumulated deficit of $2.0 billion. These losses have had an adverse effect on our stockholders’ equity (deficit) and Daiichi Sankyo,working capital. Because of the numerous risks and uncertainties associated with developing and commercializing drugs, we are unable to predict the extent of any future losses. Excluding fiscal 2011, our research and development expenditures and selling, general and administrative expenses have exceeded our revenues for various compoundseach fiscal year, and programs in our portfolio. Pursuantwe expect to these collaborations, we have out-licensed compounds or programsspend significant additional amounts to a partner for furtherfund the continued development and commercialization have no further development cost obligations related to such compounds or programs and may be entitled to receive milestones and royalties or a share of profits from commercialization. As disclosed on ClinicalTrials.gov (NCT01689519), a phase 3 clinical trial for one of these compounds, cobimetinib (GDC-0973/XL518), which we out-licensed to Genentech, was initiated on November 1, 2012.cabozantinib during 2017. In addition, several other out-licensed compounds are in multiple phase 2 studies. These partnered compounds could potentially bewe intend to expand our product pipeline through the measured resumption of significant value to us if their development progresses successfully.
With respect to our partnered compounds, we are eligible to receive potential contingent payments under our collaborations totaling approximately $2.4 billion in the aggregate on a non-risk adjusted basis, of which 10% are related to clinical development milestones, 41% are related to regulatory milestonesdrug discovery and 49% are related to commercial milestones, all to be achieved by the various licensees.
Certain Factors Important to Understanding Our Financial Conditionproduct acquisition and Results of Operations
Successful development of drugs is inherently difficult and uncertain. Our business requires significant investments in research and development over many years, and products often fail during the research and development process. Our long-term prospects depend upon our ability, and the ability of our partners to successfully commercialize new therapeutics in highly competitive areas such as cancer treatment. Our financial performance is driven by many factors, including those described below.
Limited Sources of Revenues
COMETRIQ was approved by the FDA for the treatment of progressive, metastatic MTC in the United States on November 29, 2012. We commercially launched COMETRIQ in late January 2013. We currently estimate that there are between 500 and 700 first- and second-line metastatic MTC patients diagnosed each year in the United States who will be eligible for COMETRIQ, and asin-licensing. As a result, we only expect to continue to incur substantial operating expenses and, consequently, we will need to generate limitedsubstantial revenues fromto achieve and maintain profitability.
Since the salelaunch of COMETRIQour first commercial product in MTC. Effective October 29,January 2013, the wholesale acquisition price for COMETRIQ is $10,395 for a 28-day supply of all dosage strengths. Prior to the approval of COMETRIQ, we had no pharmaceutical product that had received marketing approval, and from the commercial launch through December 31, 2013,2016, we have generated $15.0an aggregate of $209.7 million in net product revenues, fromincluding $135.4 million for the saleyear ended December 31, 2016. Other than sales of COMETRIQ.
WeCABOMETYX and COMETRIQ, we have derived substantially all of our revenues since inception from collaborative research and development agreements. Revenues from research and development collaborations depend on research funding, the achievement of milestones and royalties we earn from any future products developed from the collaborative research. During the fiscal year ended December 31, 2013, we completed the recognition of deferred revenue derived from research funding under our existing collaborative research and development agreements. Any future revenue derived from our existing collaborative research and development agreements will depend on the achievement of milestones and royalties we earn from any future products developed from the collaborations. We do not expect any significant contingent or milestone payments in 2014.
Our collaborative research and development agreements may be terminated or allowed to expire. In June 2013 we received a written notice from Bristol-Myers Squibb of its decision to terminate a global license agreement pursuant to which we granted to Bristol-Myers Squibb a license to our small-molecule TGR5 agonist program. In October 2013 we received a written notice from Bristol-Myers Squibb of its decision to terminate our December 2006 collaboration agreement, pursuant to which the parties agreed to discover, develop and commercialize novel targeted therapies for the treatment of cancer. As a result of the terminations, we will no longer be eligible to receive milestones or royalties from either of these collaborative arrangements.

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Clinical Developmentcollaborative arrangements, including upfront and milestone payments and research funding and through the public sale of Cabozantinib
We have focused our proprietary resourcescommon stock. The amount of our net profits or losses will depend, in large part, on: the level of sales of CABOMETYX and development efforts onCOMETRIQ in the developmentU.S.; achievement of cabozantinib. However,clinical, regulatory and commercial milestones and the product candidate may fail to show adequate safety or efficacy in clinical testing. Furthermore, predicting the timingamount of royalties, if any, from sales of CABOMETYX and COMETRIQ under our collaboration agreements with Ipsen and Takeda; our share of the initiation or completionnet profits and losses for the commercialization of clinical trials is difficult,Cotellic in the U.S. under our collaboration with Genentech; the amount of royalties from Cotellic sales outside the U.S. under our collaboration with Genentech; other license and our trials may be delayed due to many factors, including factors outsidecontract revenues; and, the level of our control. The future development path ofexpenses, including commercialization activities for cabozantinib depends upon the results of each stage of clinical development. We expect to incur increased expenses for the development of cabozantinib as it advances in clinical development.
Liquidityand any pipeline expansion efforts.
As of December 31, 20132016, we had $415.9$479.6 million in cash and investments, which included short- and long-term restricted cash and investments of $12.2393.8 million and $16.9available for operations, $81.6 million, respectively, and short- and long-term unrestricted of compensating balance investments of $138.5 million and $144.3 million, respectively. Wethat we are required to maintain on deposit with Silicon Valley Bank, or oneand $4.2 million of its affiliates short- and long-term unrestricted investments of $1.8 million and $81.9 million, respectively, pursuant to covenants in our loan and security agreement with Silicon Valley Bank.restricted investments. We anticipate that our current cash and cash equivalents, short- and long-termshort-term investments available for operations, product revenues and productcollaboration revenues, will enable us to maintain our operations for a period of at least 12 months following the endfiling date of 2013. However,this report. The sufficiency of our future capital requirements will be substantial,cash resources depends on numerous assumptions, including assumptions related to product sales, operating expenses, the repayment of both the Deerfield Notes and we may need to raise additional capital in the future. Our capital requirements will depend on many factors, and we may need to use available capital resources and raise additional capital significantly earlier than we currently anticipate.
Our minimum liquidity needs are also determined by financial covenants in our term loan and security agreement withfrom Silicon Valley Bank, as well as the other factors set forth in “Risk Factors” under the headings “Risks Related to our Capital Requirements and Financial Results,” in Part I, Item 1A of this Annual Report on Form 10-K. Our assumptions may prove to be wrong or other factors may adversely affect our business, and as a result we may not have the cash resources to fund our planned operations, which are described under “– Liquidity and Capital Resources – Cash Requirements.”
Our abilitywould have a material adverse effect on our business. In addition, we may choose to raise additional funds through the issuance of equity or debt due to market conditions or strategic considerations, even if we believe we have sufficient funds for our current and future operating plans. For example, we may be severely impaired if cabozantinib failschoose to show adequate safetyraise additional capital to fund in-licensing or efficacy in clinical testing.product acquisition opportunities.
Convertible Senior Subordinated NotesSources and Uses of Cash
In August 2012, we issued and soldThe following table summarizes our cash flow activities (in thousands):
 Year Ended December 31,
 2016 2015 2014
Net loss$(70,222) $(161,744) $(261,297)
Adjustments to reconcile net loss to net cash used in operating activities49,251
 46,004
 36,169
Changes in operating assets and liabilities227,267
 (25,845) (10,277)
Net cash provided by (used in) operating activities206,296
 (141,585) (235,405)
Net cash (used in) provided by investing activities(216,048) 50,077
 146,330
Net cash provided by financing activities19,804
 152,747
 65,492
Net increase (decrease) in cash and cash equivalents10,052
 61,239
 (23,583)
Cash and cash equivalents at beginning of year141,634
 80,395
 103,978
Cash and cash equivalents at end of year$151,686
 $141,634
 $80,395
Operating Activities
Our operating activities provided cash of $287.5206.3 million aggregate principal amountfor the year ended December 31, 2016, compared to $141.6 million cash used in 2015 and $235.4 million cash used in 2014.
Cash provided by operating activities for the year endedDecember 31, 2016 was primarily a result of $280.0 million in upfront and milestone payments received from Ipsen under our collaboration and license agreement and cash receipts from our net product revenues of $135.4 million. Those proceeds were partially offset by operating expenses of $219.6 million for the period, less non-cash expenses for stock-based compensation totaling $22.9 million and the amortization of debt discount, debt issuance costs and accrual of interest paid in kind totaling $16.4 million. Our operating expenses were largely attributable to the development and commercialization of cabozantinib. In addition, cash provided by operating activities also increased as a result of a $16.7 million increase in accrued compensation and benefits and a $6.8 million increase in other liabilities which was partially offset by a $37.0 million increase in trade and other receivables, a $10.9 million decrease in the accrued partnership liability and a $3.9 million decrease in accrued clinical trial liabilities.
Cash used in operating activities for the year ended December 31, 2015 related primarily to our $158.6 million operating expenses for the period, less $37.2 million in revenues for the period and non-cash expenses for accretion of debt discount and interest paid in kind totaling $20.9 million on the Deerfield Notes and the 2019 Notes for net proceeds of $277.7 million. The 2019 Notes mature on August 15, 2019, unless earlier converted, redeemed or repurchased, and bear interest at a rate of 4.25% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning February 15, 2013. Subject to certain terms and conditions, at any time on or after August 15, 2016, we may redeem for cash all or a portion of the 2019 Notes. The redemption price will equal 100% of the principal amount of the 2019 Notes to be redeemed plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Upon the occurrence of certain circumstances, holders may convert their 2019 Notes prior to the close of business on the business day immediately preceding May 15, 2019. On or after May 15, 2019, until the close of business on the second trading day immediately preceding August 15, 2019, holders may surrender their 2019 Notes for conversion at any time. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The initial conversion rate of 188.2353 shares of common stock per $1,000 principal amount of the 2019 Notes is equivalent to a conversion price of approximately $5.31 per share of common stock and is subject to adjustment in connection with certain events. If a “Fundamental Change” (as defined in the indenture governing the 2019 Notes) occurs, holders of the 2019 Notes may require us to purchase for cash all or any portion of their 2019 Notes at a purchase price equal to 100% of the principal amount of the Notes to be purchased plus accrued and unpaid interest, if any, to, but excluding, the Fundamental Change purchase date.stock-based compensation totaling $22.0 million. In addition if certain bankruptcyto current period operating expenses, we made cash payments that resulted in a $23.5 million reduction in accrued clinical trial liabilities and insolvency-related events of defaults occur, the principal of, andan $8.8 million reduction in restructuring liabilities, which was partially offset by a $10.2 million increase in our accrued and unpaid interest on, all of the then outstanding notes shall automatically become due and payable. If an event of default other than certain bankruptcy and insolvency-related events of defaults occurs and is continuing, the Trustee by notice to us or the holders of at least 25% in principal amount of the outstanding 2019 Notes by notice to us and the Trustee, may declare the principal of, and accrued and unpaid interest on, all of the then outstanding 2019 Notes to be due and payable.collaboration liability.
In connection with the offering of the 2019 Notes, $36.5 million of the proceeds were deposited into an escrow account which contains an amount of permitted securities sufficient to fund, when due, the total aggregate amount of the first six scheduled semi-annual interest payments on the 2019 Notes. As of December 31, 2013, we have used $12.3 million of the amounts held in the escrow account to pay the required semi-annual interest payments. The short- and long-term amounts held in the escrow account as of December 31, 2013 were $12.2 million and $16.9 million, respectively, and are included in short- and long-term restricted cash and investments. We have pledged our interest in the escrow account to the Trustee as security for our obligations under the 2019 Notes.

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Table of Contents

Deerfield Facility
In June 2010, we entered into a note purchase agreement with Deerfield Private Design Fund, L.P. and Deerfield Private Design International, L.P., orCash used in operating activities for the Original Deerfield Purchasers, pursuant to which, on July 1, 2010, we sold to the Original Deerfield Purchasers an aggregate of $124.0 million initial principal amount our Secured Convertible Notes due July 1, 2015, which we refer as the Deerfield Notes, for an aggregate purchase price of $80.0 million, less closing fees and expenses of approximately $2.0 million. As ofyear ended December 31, 2013 and 2012,2014 related primarily to our $249.6 million in operating expenses for the remaining outstanding principal balanceperiod, less non-cash expenses for accretion of debt discount totaling $22.3 million on the Deerfield Notes was $114.0and the 2019 Notes, stock-based compensation totaling $10.0 million and $124.0 million, respectively. We referdepreciation and amortization totaling $2.4 million. Our operating expenses were largely attributable to the Original Deerfield Purchasersdevelopment of cabozantinib. In addition, we made cash payments that resulted in a $13.2 million reduction in accounts payable and other accrued expenses during the New Deerfield Purchasers (identified below) collectivelyperiod and paid $10.2 million for restructuring activities, which was partially offset by a $6.6 million increase in accrued clinical trial liabilities.
Operating cash flows can differ from our consolidated net loss as Deerfield.
The outstanding principal amounta result of the Deerfield Notes bears interestdifferences in the annual amounttiming of $6.0cash receipts and earnings recognition and non-cash charges.
Investing Activities
Our investing activities resulted in a $216.0 million payable quarterly in arrears. Duringuse of cash for the yearsyear ended December 31, 2016, as compared to providing cash of $50.1 million for 2015 and $146.3 million for 2014.
Cash used by investing activities for the year endedDecember 31, 2016 was primarily due to investment purchases of $377.8 million, less cash from the maturity of unrestricted and restricted investments of $158.6 million.
Cash provided by investing activities for the year ended December 31, 2013, 2012,2015 was primarily due to the maturity of unrestricted and 2011, total interest expenserestricted investments of $198.7 million, less investment purchases of $149.6 million.
Cash provided by investing activities for the Deerfield Notesyear ended December 31, 2014 was $16.1primarily due to the maturity of unrestricted and restricted investments of $273.2 million, $15.9less investment purchases of $127.7 million.
Financing Activities
Our financing activities provided cash of $19.8 million for the year ended December 31, 2016, compared to $152.7 million for 2015, and $14.3$65.5 million respectively, including for 2014.
Cash provided by financing activities for the stated coupon rate andyear ended December 31, 2016 was the amortizationresult of the debt discountissuance of common stock under our equity incentive plans totaling $27.5 million which was partially offset by cash payments from the conversion and debt issuance costs. The non-cash expense relating to the amortization of the debt discount and debt issuance costs was $10.1 million, $9.9 million, and $8.3 million, respectively, during those periods. The balance of unamortized fees and costs was $1.4 million and $2.3 million as of December 31, 2013 and 2012, respectively, which is recorded in the accompanying Consolidated Balance Sheet as Other assets.
On August 6, 2012, the parties amended the note purchase agreement to permit the issuanceredemption of the 2019 Notes and modify certain optional prepayment rights. The amendment became effective upontotaling $7.7 million.
Cash provided by our financing activities for the year ended December 31, 2015 was primarily due to the issuance of 28,750,000 shares of common stock in July 2015 for net proceeds of $145.6 million and $10.9 million in proceeds from the 2019 Notes andexercise of stock options, which was partially offset by principal payments on debt of $4.4 million.
Cash provided by our financing activities for the paymentyear ended December 31, 2014 was primarily due to the Original Deerfield Purchasersissuance of a $1.510,000,000 shares of common stock in January 2014 for net proceeds of $75.6 million. The cash provided by the issuance of common stock was partially offset by principal payments on debt of $11.7 million.
Proceeds from these financing activities have historically been used for general working capital purposes, such as product commercialization and research and development activities and other general corporate purposes. However, during the next two years, we will be required to make significant payments to satisfy our outstanding debt obligations. On May 31, 2017, we will be required to pay the principal balance of $80.0 million consent fee. On August 1, 2013, the parties further amended the note purchase agreement to clarify certain ofplus accrued and unpaid interest on our other rights under the note purchase agreement.
On January 22, 2014, the note purchase agreement was further amended to provide usterm loan with an option to extend the maturity date of our indebtedness under the note purchase agreement to July 1, 2018. Under the terms of the extension option, we have the right to require Deerfield Partners, L.P.Silicon Valley Bank and Deerfield International Master Fund, L.P., or the New Deerfield Purchasers, to acquire $100 million principal amount of the Deerfield Notes and extend the maturity date thereof to July 1, 2018. We are under no obligation to exercise the extension option. To exercise the extension option, we must provide a notice of exercise to Deerfield prior to March 31, 2015. If we exercise the extension option, the Deerfield Notes would mature on July 1, 2018 and bearwe will be required to pay the principal balance of $125.0 million including interest on and after July 2, 2015 at the rate of 7.5% per annum to be paid in cash, quarterly in arrears, and 7.5% per annum to be paid in kind, quarterly in arrears, for a totalplus accrued and unpaid coupon interest rate of 15% per annum.
In each of January 2014 and 2013, we made mandatory prepayments of $10.0 million on the Deerfield Notes. We will be requiredintend to make an additional mandatory prepayment onrepay the Deerfield Notes in 2015 equal to 15% of certain revenues from collaborative arrangements, which we refer to as Development/Commercialization Revenue, received during the prior fiscal year, subject to a maximum prepayment amount of $27.5 million. There is no minimum prepayment due in 2015. Our obligation to make annual mandatory prepayments equal to 15% of Development/Commercialization Revenue received by us during the prior fiscal year will apply in each of 2016, 2017 and 2018 if we exercise the extension option. However, we will only be obligated to make any such annual mandatory prepayment after exercise of the extension option if the New Deerfield Purchasers provide notice to us of their election to receive the prepayment. Mandatory prepayments relating to Development/Commercialization Revenue will continue to be subject to a maximum annual prepayment amount of $27.5 million. The definition of “Development/Commercialization Revenue” expressly excludes any saleearly, on or distribution of drug or pharmaceutical products in the ordinary course of our business, and any proceeds from any Intellectual Property Sales (as further described below).
As a result of the January 2014 amendment, we are required to notify the applicable Deerfield entities of certain sales, assignments, grants of exclusive licenses or other transfers of our intellectual property pursuant to which we transfer all or substantially all of our legal or economic interests, defined as an Intellectual Property Sale, and the Deerfield entities may elect to require us to prepay the principal amount of the Deerfield Notes in an amount equal to (i) 100% of the cash proceeds of any Intellectual Property Sale relating to cabozantinib and (ii) 50% of the cash proceeds of any other Intellectual Property Sale.
Under the note purchase agreement as amended, we may voluntarily prepay the principal amount of the Deerfield Notes as follows (the amount at which we repay in each case below is referred to as the Prepayment Price):
Prior toabout July 1, 2015: we may prepay all of the principal amount of the Deerfield Notes at any time at a prepayment price equal to the outstanding principal amount, plus accrued and unpaid interest through the date of such prepayment, plus all interest that would have accrued on the principal amount of the Deerfield Notes between the date of such prepayment and the applicable maturity date of the Deerfield Notes if the outstanding principal amount of the Deerfield Notes as of such prepayment date had remained outstanding through the applicable maturity date, plus all other accrued and unpaid obligations; and

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If we exercise the extension option: we may prepay all of the principal amount of the Deerfield Notes2017, at a prepayment price equal to 105% of the outstanding principal amount of the Deerfield Notes,notes, plus all accrued and unpaid interest throughto the date of such prepayment, plus, if prior to July 1, 2017, all interestrepayment. We expect that would have accrued on the principal amount of the Deerfield Notes between the date of such prepaymentcash and July 1, 2017, if the outstanding principal amount of the Deerfield Notes as of such prepayment date had remained outstanding through July 1, 2017, plus all other accruedcash equivalents and unpaid obligations, collectively referred to as the Prepayment Price.
In lieu of making any portion of the Prepayment Price or mandatory prepayment in cash, subject to certain limitations (including a cap on the number of shares issuable under the note purchase agreement), we have the right to convert all or a portion of the principal amount of the Deerfield Notes into, or satisfy all or any portion of the Prepayment Price amounts or mandatory prepayment amounts with shares of our common stock. Additionally, in lieu of making any payment of accrued and unpaid interest in respect of the Deerfield Notes in cash, subject to certain limitations, we may elect to satisfy any such payment with shares of our common stock. The number of shares of our common stock issuable upon conversion or in settlement of principal and interest obligationsshort-term investments held at December 31, 2016 will be based upon the discounted trading price of our common stock over a specified trading period. Upon certain changes of control of our company, a sale or transfer of assets in one transaction or a series of related transactions for a purchase price of more than (i) $400 million or (ii) 50% of our market capitalization, Deerfield may require us to prepay the Deerfield Notes at the Prepayment Price. Upon an event of default, Deerfield may declare all or a portion of the Prepayment Price to be immediately due and payable.
In connection with the January 2014 amendment to the note purchase agreement, on January 22, 2014 we issued to the New Deerfield Purchasers two-year warrants, we which we refer to as the 2014 Deerfield Warrants, to purchase an aggregate of 1,000,000 shares of our common stock at an exercise price of $9.70 per share. If we exercise the extension option, the exercise price will be reset to the lower of (x) the existing exercise price and (y) 120% of the volume weighted average price of our common stock for the ten trading days immediately following the date of such extension election. The 2014 Deerfield Warrants are exercisable for a term of two years, subject to a two year extension if we exercise the extension option, and contain certain limitations that prevent the holder of the 2014 Deerfield Warrants from acquiring shares upon exercise of a Warrant that would result in the number of shares beneficially owned by the holder to exceed 9.98% of the total number of shares of our common stock then issued and outstanding. The number of shares for which the 2014 Deerfield Warrants are exercisable and the associated exercise prices are subject to certain adjustments as set forth in the 2014 Deerfield Warrants. In addition, upon certain changes in control of our company, to the extent the 2014 Deerfield Warrants are not assumed by the acquiring entity, or upon certain defaults under the 2014 Deerfield Warrants, the holder has the right to net exercise the 2014 Deerfield Warrants for shares of common stock, or be paid an amount in cash in certain circumstances where the current holders of our common stock would also receive cash, equal to the Black-Scholes Merton value of the 2014 Deerfield Warrants.
In connection with the issuance of the 2014 Deerfield Warrants, we entered into a registration rights agreement with Deerfield, pursuant to which we agreed to file, no later than February 21, 2014, a registration statement with the SEC covering the resale of the shares of common stock issuable upon exercise of the 2014 Deerfield Warrants.
In connection with the note purchase agreement, we also entered into a security agreement in favor of Deerfield which provides that our obligations under the Deerfield Notes will be secured by substantially all of our assets except intellectual property. On August 1, 2013, the security agreement was amended to limit the extent to which voting equity interests in any of our foreign subsidiaries shall be secured assets.
The note purchase agreement as amended and the security agreement include customary representations and warranties and covenants made by us, including restrictions on the incurrence of additional indebtedness.
Loan Agreement with Silicon Valley Bank
On May 22, 2002, we entered into a loan and security agreement with Silicon Valley Bank for an equipment line of credit. On December 21, 2004, December 21, 2006 and December 21, 2007, we amended the loan and security agreement to provide for additional equipment lines of credit and on June 2, 2010, we further amended the loan and security agreement to provide for a new seven-year term loan in the amount of $80.0 million. As of December 31, 2013, the combined outstanding principal balance due under the lines of credit and term loan was $82.1 million, compared to $85.3 million as of December 31, 2012. The principal amount outstanding under the term loan accrues interest at 1.0% per annum, which interest is due and payable monthly. We are requiredused to repay the term loandebt. See “Note 7. Debt” to our “Notes to Consolidated Financial Statements” contained in one balloon principal payment, representing 100%Part II, Item 8 of the principal balance and accrued and unpaid interest,this Annual Report on MayForm 10-K for additional details on these debt arrangements.
Off-Balance Sheet Arrangements
As of December 31, 2017. We are required to repay2016, we did not have any advances under an equipment line of credit in 48 equal monthly payments of principal and interest. We have the option to prepay all, but not less than all, of the amounts advanced under the term loan, provided that we pay all unpaid accrued interest thereon that is due through the date of such prepayment and the interest on the entire principal balance of the term loan that would otherwise have been paid after suchmaterial off-balance-sheet arrangements, as defined by applicable SEC regulations.

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prepayment date until the maturity date of the term loan. We have the option to prepay without penalty any advance under an equipment line of credit other than advances under a single equipment line of credit, which has a 1.0% prepayment penalty, provided that we pay all unpaid accrued interest thereon that is due through the date of such prepayment. In accordance with the terms of the loan and security agreement, we are required to maintain an amount equal to at least 100%, but not to exceed 107%, of the outstanding principal balance of the term loan and all equipment lines of credit under the loan and security agreement on deposit in one or more investment accounts with Silicon Valley Bank or one of its affiliates as support for our obligations under the loan and security agreement (although we are entitled to retain income earned or the amounts maintained in such accounts). Any amounts outstanding under the term loan during the continuance of an event of default under the loan and security agreement will, at the election of Silicon Valley Bank, bear interest at a per annum rate equal to 6.0%. If one or more events of default under the loan and security agreement occurs and continues beyond any applicable cure period, Silicon Valley Bank may declare all or part of the obligations under the loan and security agreement to be immediately due and payable and stop advancing money or extending credit to us under the loan and security agreement.
Restructurings
Between March 2010 and May 2013, we implemented five restructurings, which we refer to collectively as the Restructurings, as a consequence of our decision to focus our proprietary resources and development efforts on the development and commercialization of cabozantinib and strategy to manage costs. The aggregate reduction in headcount from the Restructurings was 429 employees. We recorded charges and credits related to the Restructurings in periods other than those in which the Restructurings were implemented as a result of sublease activities for our buildings in South San Francisco, California, changes in assumptions regarding anticipated sublease activities, the effect of the passage of time on our discounted cash flow computations, previously planned employee terminations, and sales of excess equipment and other assets.Contractual Obligations
We have recorded aggregate restructuring chargescontractual obligations in the form of $53.3 million from inception through December 31, 2013 in connection with the Restructurings,convertible notes, loans payable, operating leases and purchase obligations. The following chart details our contractual obligations, including any potential accrued or accreted interest, as of which $29.2 million related to facility charges, $21.7 million related to termination benefits, $2.3 million related to the impairment of excess equipment and other assets, and an additional minor amount related to legal and other fees. Asset impairment charges, net were partially offset by cash proceeds of $2.7 million from the sale of such assets.
For the years ended December 31, 20132016, 2012, and 2011 we recorded restructuring charges of $1.2 million, $9.2 million, and $10.1 million, respectively, which related primarily to termination benefits and facility charges in connection with the exit of portions of certain of our buildings in South San Francisco. (in thousands):
We expect
  Payments Due by Period
Contractual Obligations Total 
Less than
1 year
 
1-3
Years
 
More than 3
years
Deerfield notes (1)
 $124,972
 $—
 $124,972
 $—
Loans payable (2)
 80,000
 80,000
 —
 —
Operating leases (3)
 11,481
 8,474
 3,007
 —
Purchase obligations (4)
 1,112
 1,112
 —
 —
Total contractual cash obligations $217,565
 $89,586
 $127,979
 $—
____________________
(1)Due date is based on our contractual obligations under the Deerfield Notes. We intend to repay the Deerfield Notes on or about July 1, 2017 and as a result, we have classified the Deerfield Notes as a current liability as of December 31, 2016. See “Note 7. Debt” of the Notes to Consolidated Financial Statements regarding the terms of the Deerfield Notes.
(2)Consists of our obligations under our loan from Silicon Valley Bank. See “Note 7. Debt” of the Notes to Consolidated Financial Statements regarding the terms of our loan from Silicon Valley Bank.
(3)The operating lease payments do not include $1.2 million to pay accrued facility charges of $13.5 million, net of cash received from our subtenants, through the end of our lease terms of the buildings, the last of which ends in 2017. With respect to our Restructurings, we expect to incur additional restructuring charges of approximately $0.9 million which relate to the exit, in prior periods, of certain of our South San Francisco buildings. These charges will be recorded through the end of the building lease terms, the last of which ends in 2017.
The Restructurings have resulted in aggregate cash expenditures of $35.4 million, net of $10.2 million in cash received from subtenants and $2.7 million in cash received in 2017 in connection with the subleases of our South San Francisco buildings.
(4)At December 31, 2016, we had firm purchase commitments related to manufacturing and maintenance of inventory. These commitments include a portion of our 2017 contractual minimum purchase obligation. Our actual purchases are expected to significantly exceed these amounts.
In connection with the sale of excess equipmentour plant trait business in 2007, we agreed to indemnify the purchaser and other assets. Net cash expenditures for the Restructurings were $6.7 million, $5.3 million and $9.3 million for the years ended December 31, 2013, 2012, and 2011, respectively.
The restructuring charges that we expect to incur in connection with the Restructurings are subjectits affiliates up to a number of assumptions, and actual results may materially differ. We may alsospecified amount if they incur other material charges not currently contemplateddamages due to events thatany infringement or alleged infringement of certain patents. We have certain collaboration licensing agreements, which contain standard indemnification clauses. Such clauses typically indemnify the customer or vendor for an adverse judgment in a lawsuit in the event of our misuse or negligence. We consider the likelihood of an adverse judgment related to an indemnification agreement to be remote. Furthermore, in the event of an adverse judgment, any losses under such an adverse judgment may occur as a result of, or associated with, the Restructurings.be substantially offset by applicable corporate insurance.
Critical Accounting Estimates
The preparation of our consolidated financial statements is in conformity with accounting principles generally accepted in the United StatesU.S. which requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements. On an ongoing basis, management evaluates its estimates including, but not limited to, those related to inventory, revenue recognition, valuationincluding deductions from revenues (such as rebates, chargebacks, sales returns and sales allowances), the period of long-lived assets,performance, identification of deliverables and evaluation of milestones with respect to our collaborations, the amounts of revenues and expenses under our profit and loss sharing agreement, recoverability of inventory, certain accrued liabilities including the accrued clinical trial accruals and restructuring liability, share-based compensation and the valuation of the debt and equity components of our convertible debt at issuance.and stock-based compensation. 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. Our senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements. For a complete description of our significant accounting policies, see “Note 1 - Organization and Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” included in this Annual Report on Form 10-K.

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An accounting policyRevenue Recognition
Net Product Revenues and Discounts and Allowances
We recognize net product revenues when there is considered to be critical if it requirespersuasive evidence that an accounting estimate to be madearrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured. We calculate gross product revenues based on assumptions about mattersthe price that we charge to the specialty pharmacies and distributors in the U.S. We estimate our domestic net product revenues by deducting from our gross product revenues (a) trade allowances, such as discounts for prompt payment, (b) estimated government rebates and chargebacks, (c) certain other fees paid to specialty pharmacies and distributors and (d) returns. Discounts and allowances are highly uncertaincomplex and significant judgment by management. Estimates are assessed each period and updated to reflect current information.
We initially record estimates for these deductions at the time we recognize the gross revenue. Our estimates for these deductions are based on third party market research data for competitor products for the treatment of advanced RCC, customer and payer data received from the specialty pharmacies and distributors whom sell our product and historical utilization rates. Based in part on the availability of this third party market research data and historical data for COMETRIQ, we made the determination during 2016 that we had sufficient experience and data to reasonably estimate is made,expected future returns and if different estimates that reasonably could have been used,the discounts and allowances due to payers at the time of shipment to the specialty pharmacy or changes indistributor, and therefore record revenue for CABOMETYX product sales using the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. We believe our critical accounting policies relating to“sell-in” revenue recognition clinical trial accruals, inventory, stock option valuation, convertible debt valuationmodel. We update our estimates on a recurring basis as new information becomes available. See “Note 1. Organization and restructuring liability reflect the more significant estimates and assumptions used in the preparationSummary of Significant Accounting Policies” to our Consolidated Financial Statements for a further description of our consolidated financial statements.discounts and allowances.
Revenue Recognition
Licenses and ContractsCollaboration Revenues
Revenues from license fees and milestone paymentscollaboration agreements primarily consist of upfront license fees, milestone, royalty and/or product supply payments. These arrangements have multiple elements and milestone payments received under variousour deliverables may include intellectual property rights, distribution rights, delivery of manufactured product, commercial and development activities and participation on joint steering, commercial and development committees. In order to account for these arrangements, we identify the deliverables and evaluate whether the delivered elements have value to our collaboration agreements. We initially recognizepartner on a stand-alone basis and represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver future goods or services, a right or license to use an asset, or another performance obligation. If we determine that multiple deliverables exist, the consideration is allocated to one or more units of accounting based upon the best estimate of the selling price of each deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. A delivered item or items that do not qualify as a separate unit of accounting within the arrangement shall be combined with the other applicable undelivered items within the arrangement. The allocation of arrangement consideration and the recognition of revenue then shall be determined for those combined deliverables as a single unit of accounting. For a combined unit of accounting, non-refundable upfront fees received from third party collaborators as unearned revenues and then recognize these amounts onare recognized in a ratable basismanner consistent with the final deliverable, which has generally been ratably over the expected termperiod of our continued involvement. Amounts received in advance of performance are recorded as deferred revenue. The determination of deliverables and the research collaboration. Therefore, any changes inallocation of consideration using selling prices and the expected termperiod of the research collaborationour continued involvement may involve significant judgments and estimates that will impact revenue recognition for the given period.recognition. Often, the total research term of our continued involvement is not contractually defined and an estimate of the term of our total obligation must be made.
Although milestone payments are generally non-refundable once the milestone is achieved, we recognize milestone revenues on a straight-line basis over Therefore, any changes in the expected research term of our continued involvement will impact revenue recognition for the arrangement. This typically results in a portion of a milestone being recognizedgiven period.
Royalty revenues, and U.S. profits and losses under the collaboration agreement with Genentech, are based on the date the milestone is achieved, with the balance being recognized over the remaining research term of the agreement. In certain situations, we may receive milestone payments after the end ofamounts reported to us by our period of continued involvement. In such circumstances, we would recognize 100% of the milestone revenues when the milestone is achieved. Milestones are classified as contract revenues in our Consolidated Statements of Operations.
Collaborative agreement reimbursement revenues consist of research and development support received from collaboratorscollaboration partners and are recorded as earned basedwhen such information becomes available to us; for Ipsen, this occurs in the current quarter, and for Genentech, this occurs in the following quarter. We base our estimates on the performance requirements by both parties under the respective contracts.
Some of our research and licensing arrangements have multiple deliverables in order to meet our customer’s needs. For example, the arrangements may include a combination of intellectual property rights and research and development services. Multiple element revenue agreements are evaluated to determine whether the delivered item has value to the customer on a stand-alone basis and whether objective and reliable evidence of the fair value of the undelivered item exists. Deliverables in an arrangement that do not meet the separation criteria are treated as one unit of accounting for purposes of revenue recognition. Generally, the revenue recognition guidance applicable to the final deliverable is followed for the combined unit of accounting. For certain arrangements, the period of time over which certain deliverables will be provided is not contractually defined. Accordingly, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Product Sales
We recognize revenue when it is both realized or realizable and earned, meaning persuasive evidence of an arrangement exists, delivery has occurred, title has transferred, the price is fixed or determinable, there are no remaining customer acceptance requirements, and collectability of the resulting receivable is reasonably assured. For product sales in the United States, this generally occurs upon shipment of the product to the patient by our distributor. For product sales in Europe, this occurs when our European distribution partner has accepted the product.
We sell our product, COMETRIQ, in the United States to a specialty pharmacy that benefits from customer incentives and has a right of return. We have a limited sales history and cannot reliably estimate expected returns of the product nor the discounts and rebates due to payorsbest information available at the time of shipmentprovided to the specialty pharmacy. Accordingly, upon shipmentus by our collaboration partners. However, additional information may subsequently become available to the specialty pharmacy,us, which may allow us to make a more accurate estimate in future periods. In this event, we are required to record deferredadjustments to collaboration revenue on our Consolidated Balance Sheets. We recognize revenuein future periods when the specialty pharmacy providesactual level of activity becomes more certain. Such increases or decreases in revenue are generally considered to be changes in estimates and will be reflected in collaboration revenues in the product to a patient based on the fulfillment of a prescription. We record revenue using an analysis of prescription data from our specialty pharmacy to ascertain the date of shipment and the payor mix. This approach is frequently referred to as the “sell-through” revenue recognition model. Once the prescription has been provided to the patient, it is not subject to return unless the product is damaged.period they become known.
Product sales to our European distribution partner are not subject to customer incentives, rights of return or discounts and allowances. We record revenue at the time our European distribution partner has accepted the product, a method also known as the “sell-in” revenue recognition model.
Product Sales Discounts and AllowancesInventory
We calculate grossconsider regulatory approval of product revenues based oncandidates to be uncertain and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. As such, the price that we charge our United States specialty pharmacy and our European distribution partner. We estimate our United States netmanufacturing costs for product revenues by deducting from our gross productcandidates

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revenues (a) trade allowances, suchincurred prior to regulatory approval are not capitalized as discounts for prompt payment, (b) estimated government rebatesinventory, but rather are expensed as research and chargebacks, and (c) estimated costsdevelopment costs. When regulatory approval is obtained, capitalization of patient assistance programs. inventory may begin.
We initially record estimates for these deductionsvalue inventory at the time we recognizelower of cost or net realizable value. We determine the gross revenue. We update our estimatescost of inventory using the standard-cost method, which approximates actual cost based on a recurringfirst-in, first-out method. We analyze our inventory levels quarterly and write down inventory subject to expiry in excess of expected requirements, or that has a cost basis in excess of its expected net realizable value. The related costs are recognized as new information becomes available. These discounts and allowances apply only to gross product revenues earnedcost of goods sold in the United States. See “Note 1. OrganizationConsolidated Statements of Operations.
On a quarterly basis, we analyze our estimated production levels for the following twelve month period, which is our normal operating cycle and Summary of Significant Accounting Policies” ofreclassify inventory we do not expect to use within the Notes tonext twelve months into Other long-term assets in the Consolidated Financial Statements for a description of the discounts and allowances we record on our product sales.Balance Sheets.
Clinical Trial Accruals
All of our clinical trials have been executed with support from contract research organizations, or CROs, and other vendors. We accrue costs for clinical trial activities performed by CROs based upon the estimated amount of work completed on each trial. For clinical trial expenses, the significant factors used in estimating accruals include the number of patients enrolled, the activities to be performed for each patient, the number of active clinical sites, and the duration for which the patients will be enrolled in the trial. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, correspondence with CROs and review of contractual terms. We base our estimates on the best information available at the time. However, additional information may become available to us, which may allow us to make a more accurate estimate in future periods. In this event,If we may be requireddo not identify costs that we have begun to record adjustments to research and development expenses in future periods whenincur or if we underestimate or overestimate the actual level of activity becomes more certain. Such increasesservices performed or decreases in cost are generally considered to be changes in estimates and will be reflected in research and developmentthe costs of these services, our actual expenses in the period first known. For example,could differ from our estimates. There were no such significant reductions during the years ended December 31, 2013, 2012 and 2011, we recorded a reduction related to prior periods of approximately $0.8 million, $2.7 million, and $1.6 million, respectively, to our accrued clinical trial liabilities and research and development expenses primarily related to our phase 2 and phase 3 clinical trials for cabozantinib. The reductions in these expenses were a result of changes in estimates of expected scans during planned patient visits and additional assessments that will no longer occur2016, 2015 or which were subsequently covered by our patients’ insurance providers, as well as a reduction of our expected obligation in 2012 for lab services.
Inventory
We consider regulatory approval of product candidates to be uncertain and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for product candidates incurred prior to regulatory approval are not capitalized as inventory, but rather are expensed as research and development costs. When regulatory approval is obtained, capitalization of inventory may begin. On November 29, 2012, the FDA approved our first product, COMETRIQ, for the treatment of progressive, metastatic MTC in the United States, where it became commercially available in late January 2013.
Inventory is valued at the lower of cost or net realizable value. We determine the cost of inventory using the standard-cost method, which approximates actual cost based on a first-in, first-out method. We analyze our inventory levels quarterly and write down inventory that has become obsolete, or has a cost basis in excess of its expected net realizable value and inventory quantities in excess of expected requirements. Expired inventory is disposed of and the related costs are recognized as cost of goods sold in the Consolidated Statements of Operations.2014.
Stock Option Valuation
Our estimate of compensation expense requires us to determine the appropriate fair value model and a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns, future forfeitures and related tax effects. The most significant assumptions are our estimates of the expected volatility and the expected term of the award.stock option. In addition, we are required to estimate the expected forfeiture rate, including assessing the likelihood of achieving our goals for performance-based stock options, and recognize expense only for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period. The value of a stock option is derived from its potential for appreciation. The more volatile the stock, the more valuable the option becomes because of the greater possibility of significant changes in stock price. Because there is a market for options on our common stock, we have considered implied volatilities as well as our historical realized volatilities when developing an estimate of expected volatility. The expected option term also has a significant effect on the value of the option. The longer the term, the more time the option holder has to allow the stock price to increase without a cash investment and thus, the more valuable the option. Further, lengthier option terms provide more opportunity to exploit market highs. However, empirical data show that employees, for a variety of reasons, typically do not wait until the end of the contractual term of a nontransferable option to exercise. Accordingly, companies are required to estimate the expected term of the option for input to an option-pricing model. As required under thegenerally accepted accounting rules,principles, we review our valuation assumptions at each grant date and, as a result, from time to time we will likely change the valuation assumptions we use to value stock based awardsoptions granted in future periods. The assumptions used in calculating the fair value of

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share-based payment awards stock options represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. As of December 31, 2013, $17.12016, $23.9 million of total unrecognized compensation expense related to stock options was expected to be recognized over a weighted-average period of 2.622.90 years and $7.3$13.9 million of total unrecognized compensation expense relating to restricted stock unitsRSUs was expected to be recognized over 3.28 years.years. See “Note 11 -10. Employee Benefit Plans” of the Notes to Consolidated Financial Statements for a further discussion on stock-based compensation.
Valuation of Debt and Equity Instruments issued in Connection with August 2012 OfferingRecent Accounting Pronouncements
The 2019 Notes are accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options. Under ASC Subtopic 470-20, issuers of certain convertible debt instruments that haveFor a net settlement feature and may be settled in cash upon conversion, including partial cash settlement, are required to separately account for the liability (debt) and equity (conversion option) componentsdescription of the instrument. The carrying amountexpected impact of recent accounting pronouncements, see “Note 1 - Organization and Summary of Significant Accounting Policies” in the liability component of any outstanding debt instrument is computed by estimating the fair value of a similar liability without the conversion option. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the convertible debt instrument. The effective interest rate used in determining the liability component of the 2019 Notes was 10.09%. See “Note 8 - Debt” of the Note“Notes to Consolidated Financial Statements for further information regarding the 2019 Notes.
Restructuring Liability
In connection with our restructuring activities, we estimate facility-related restructuring charges which represent the present value of the estimated facility costs for which we would obtain no future economic benefit offset by estimated future sublease income, including any credit or debit relating to existing deferred rent balances associated with the vacated building.
We derive our estimates based primarily on discussions with our brokers and our own view of market conditions based in part on discussions with potential subtenants. These estimates require significant assumptions regarding the time required to contract with subtenants, the amount of idle space we would be able to sublease and potential future sublease rates. The present value factor, which also affects the level of accreted interest expense that we will recognize as additional restructuring charges over the term of the lease, is based on our estimate of our credit-risk adjusted borrowing rate at the time the initial lease-related restructuring liability is calculated.
Changes in the assumptions underlying our estimates could have a material impact on our restructuring charge and restructuring liability. We are required to continue to update our estimate of our restructuring liability in future periods as conditions warrant, and we expect to further revise our estimate in future periods as we continue our discussions with potential subtenants.
In addition, in connection with our sublease efforts for our buildings in South San Francisco, if we vacate and sublease these facilities for rates that are not significantly in excess of our costs, we would not likely recover the carrying value of certain assets associated with these facilities. As such, we could potentially recognize additional asset impairment charges, in future periods, if we were to sublease parts of either of these buildings.
If the actual amounts differ from our estimates, the amount of restructuring charges could be materially impacted. See “Note 4 - Restructurings” of the Notes to Consolidated Financial Statements for a further discussion on our Restructurings.
Exelixis International (Bermuda) Ltd.
Effective July 2013, Exelixis engaged in intercompany transactions with its wholly-owned subsidiary Exelixis International (Bermuda) Ltd., or Exelixis Bermuda, pursuant to which Exelixis Bermuda acquired the existing and future intellectual property rights to exploit cabozantinib in jurisdictions outside of the United States.
Fiscal Year Convention
Exelixis has adopted a 52- or 53-week fiscal year that generally ends on the Friday closest to December 31st. Fiscal year 2011, a 52-week year, ended on December 30, 2011, fiscal year 2012, a 52-week year, ended on December 28, 2012, fiscal year 2013, a 52-week year, ended on December 27, 2013, and fiscal year 2014, a 53-week year, will end on January 2, 2015. For convenience, referencesStatements” included in this report as of and for the fiscal years ended December 30, 2011, December 28, 2012 and December 27, 2013, are indicatedAnnual Report on a calendar year basis, ended December 31, 2011, 2012 and 2013, respectively.Form 10-K.


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Results of Operations – Comparison of Years Ended December 31, 2013, 2012 and 2011
Revenues
Total revenues by category were as follows (dollars in thousands):
 Year Ended December 31,
 2013 2012 2011
License revenues (1)$8,380
 $26,714
 $245,549
Contract revenues (2)7,941
 20,736
 41,309
Collaboration reimbursements—
 —
 2,778
Net product revenues15,017
 —
 —
Total revenues$31,338
 $47,450
 $289,636
Dollar change$(16,112) $(242,186)  
Percentage change(34)% (84)%  
____________________
(1)Includes amortization of upfront payments.
(2)Includes contingent and milestone payments.
Total revenues by customer were as follows (dollars in thousands):
 Year Ended December 31,
 2013 2012 2011
Bristol-Myers Squibb$16,321
 $31,253
 $171,695
Diplomat Specialty Pharmacy14,004
 —
 —
Swedish Orphan Biovitrum1,013
 —
 —
Merck—
 10,667
 1,333
Daiichi Sankyo—
 5,500
 —
Sanofi—
 30
 113,913
Other—
 —
 2,694
Total revenues$31,338
 $47,450
 $289,635
Dollar change$(16,112) $(242,185)  
Percentage change(34)% (84)%  
Revenues for the year ended December 31, 2013 included net product revenues of $15.0 million from the sale of COMETRIQ, which became commercially available in late January 2013. The decrease in revenues from 2012 to 2013 was due to a decrease in contract and license revenues as a result of having fully recognized all revenues from our collaboration agreements with Bristol-Myers Squibb, $10.7 million in license revenue recognized in 2012 resulting from the completion of the technology transfer under our December 2011 license agreement with Merck for our PI3K-delta program, and a $5.5 million milestone payment received in August 2012 under our collaboration agreement with Daiichi Sankyo for XL550.
The decrease in revenues from 2011 to 2012 was primarily due to the acceleration in 2011 of revenues under two collaboration agreements, resulting in an abnormally large amount of license revenue in 2011 and the loss of any license revenues under those agreements beyond 2011. These accelerations consisted of the October 2011 acceleration of $99.1 million of license revenue as a result of the termination of our 2008 collaboration agreement with Bristol Myers-Squibb for XL281, the December 2011 acceleration of $53.1 million in license revenue and a $15.3 million one-time termination fee accrued in December 2011 as a result of the termination in of our 2009 collaboration with Sanofi for the discovery of inhibitors of PI3K. Further contributing to the decrease was a $6.8 million fee received and recognized in 2011 in connection with the transfer in April 2011 of substantially all development activities pertaining to XL147 and XL765 to Sanofi under our 2009 license agreement for these compounds. These decreases in revenues were partially offset by a payment of $5.5 million received from Daiichi Sankyo in August 2012 related to our collaboration agreement for XL550 and $10.7 million in revenue recognized in 2012 under our December 2011 agreement with Merck for our PI3K-delta program.

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Cost of Goods Sold
Cost of goods sold is related to our product revenues and in 2013 consisted primarily of a 3% royalty we are required to pay GlaxoSmithKline and indirect labor costs, and to a lesser extent, the cost of manufacturing and other third party logistics costs for our product. A significant portion of the manufacturing costs for 2013 product sales was incurred prior to regulatory approval of COMETRIQ for the treatment of progressive, metastatic MTC and, therefore, was expensed as research and development costs when those costs were incurred, rather than capitalized as inventory.
For 2013, the cost of goods sold was $1.1 million and our gross margin was 93%. The cost of goods sold and product gross margins we have experienced in this early stage of our product launch may not be representative of what we may experience going forward.
Research and Development Expenses
Total research and development expenses were as follows (dollars in thousands):
 Year Ended December 31,
 2013 2012 2011
Research and development expenses$178,763
 $128,878
 $156,836
Dollar change$49,885
 $(27,958)  
Percentage change39% (18)%  
Research and development expenses consist primarily of clinical trial expenses, personnel expenses, allocation of general corporate costs, consulting and outside services, stock-based compensation and expenses for temporary employees.
The increase in 2013 as compared to 2012 was primarily driven by increases in clinical trial costs, which include services performed by CROs and other vendors who support our clinical trials. Those increases in clinical trial costs were $43.1 million, or 75%, for 2013 as compared 2012. The increases in clinical trial costs were primarily related to clinical trial activities for COMET-1, and METEOR, our phase 3 pivotal trials in metastatic CRPC and metastatic RCC, respectively, as well as costs incurred in connection with the start-up of CELESTIAL, our phase 3 pivotal trial for advanced HCC. The increases in costs for those trials were partially offset by lower clinical trial costs related to the continued wind down of various phase 2 studies for cabozantinib, most notably the RDT as well as the EXAM trial for cabozantinib in patients with MTC.
There were additional increases in research and development expenses for 2013, related to consulting and outside services, personnel, temporary personnel, and stock-based compensation. Consulting and outside services increased by $3.6 million primarily as a result of the engagement of additional medical science liaisons required to support our increased clinical trial activities. Personnel increased by $3.4 million primarily due to hiring undertaken as a result of increased clinical trial activities as well as wage increases. Temporary personnel increased by $1.7 million primarily due to increased clinical trial activities. Stock-based compensation increased by $1.4 million primarily as a result of an increase in the number and valuation of new grants as well as an increase in the participation and valuation of purchases under our 2000 Employee Stock Purchase Plan. Those increases were partially offset by decreases of $1.4 million in depreciation and amortization expense primarily as a result of the impairment and disposition of assets related to the Restructurings and the impact of additional assets becoming fully depreciated during 2012 and a decrease in the overhead allocation of general corporate costs of $1.5 million (such as facility costs, property taxes and insurance) to research and development, primarily due to a decrease in allocable costs.
The decrease in 2012 compared to 2011, was primarily due to decrease in clinical trial costs in that period. Those decreases in clinical trial costs were $17.6 million, or 23%, during 2012. The decreases in clinical trial costs were primarily due to the gradual wind down of our RDT and EXAM, various cabozantinib clinical pharmacology studies that occurred in 2011 in support of our NDA filing for progressive, metastatic MTC, the transfer of XL147 and XL765 to Sanofi in 2011, and the termination of our 2008 agreement with Bristol Myers-Squibb for XL281 in 2011. These decreases were partially offset by an increase in clinical trial activities for our COMET-1 and COMET-2 trials, as well as an increase in chemistry, manufacturing and control, or CMC, expenses associated with commercial launch preparation and increases for various IST trials, resulting in a net decrease for 2012.
There were additional decreases in research and development expenses for 2012 in the overhead allocation of general corporate costs to research and development of $5.0 million, primarily due to a decrease in allocable costs, personnel of $1.7 million and stock-based compensation expense of $1.5 million primarily due to the reduction in headcount related to the Restructurings, depreciation and amortization expense of $1.5 million primarily as a result of the impairment and disposition of assets related to the Restructurings and the impact of additional assets becoming fully depreciated during 2011 and 2012 and temporary of $1.4 million and lab supplies of $1.0 million as a result of the Restructurings. The above decreases were partially

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offset by an increase in consulting expenses of $2.1 million primarily as a result of increased outsourcing of development and clinical trial activities.
Historically, we grouped our research and development expenses into three categories: development, drug discovery and other. As noted under “Overview”, we are focusing our proprietary resources and development efforts exclusively on cabozantinib in order to maximize the therapeutic and commercial potential of this compound, and as a result, we expect nearly all of our future research and development expenses to relate to the clinical development of cabozantinib. Additionally, as a consequence of our focus on cabozantinib, we have discontinued all of our drug discovery efforts, including those previously funded under our ROR collaboration agreement with Bristol-Myers Squibb following the completion of our obligations in July 2013. As a result of this shift in business strategy and the limited relevance of the disclosure with respect to our current operations, we no longer disclose the breakdown of our research and development expenses by category.
We expect to continue to incur significant development costs for cabozantinib in future periods as we evaluate it’s potential in a variety of cancer indications through a broad development program, including two ongoing phase 3 pivotal trials in metastatic CRPC, a phase 3 pivotal trial in metastatic RCC, and an ongoing phase 3 pivotal trial in advanced HCC. We also expect to expand the cabozantinib development program to other solid tumor indications, based on encouraging interim data that have emerged from our phase 2 RDT as well as other clinical trials. In addition, postmarketing commitments in connection with the approval of COMETRIQ in progressive, metastatic MTC dictate that we conduct additional studies in that indication.
We do not have reliable estimates regarding the timing of our clinical trials. We estimate that typical phase 1 clinical trials last approximately one year, phase 2 clinical trials last approximately one to two years and phase 3 clinical trials last approximately two to four years. However, the length of time may vary substantially according to factors relating to the particular clinical trial, such as the type and intended use of the drug candidate, the clinical trial design and the ability to enroll suitable patients.
We do not have reliable estimates of total costs for a particular drug candidate, or for cabozantinib for a particular indication, to reach the market. Our potential therapeutic products are subject to a lengthy and uncertain regulatory process that may involve unanticipated additional clinical trials and may not result in receipt of the necessary regulatory approvals. Failure to receive the necessary regulatory approvals would prevent us from commercializing the product candidates affected. In addition, clinical trials of our potential product candidates may fail to demonstrate safety and efficacy, which could prevent or significantly delay regulatory approval.
Selling, General and Administrative Expenses
Total selling, general and administrative expenses were as follows (dollars in thousands):
 Year Ended December 31,
 2013 2012 2011
Selling, general and administrative expenses$50,958
 $31,837
 $33,129
Dollar change$19,121
 $(1,292)  
Percentage change60% (4)%  
Selling, general and administrative expenses consist primarily of personnel expenses, consulting and outside services, facility costs, employee stock-based compensation expense, patent costs, marketing, computer and office supplies, and other legal and accounting fees. These expenses also include selling and distribution costs in 2013 as a result of the commercial launch of COMETRIQ in late January 2013.
Approximately half of the increases for 2013 as compared 2012 were a result of an increase in expenses related to our U.S. sales force and our European distribution partner for the sale of COMETRIQ. The remaining increases were related to an increase of $3.2 million of personnel expenses, an increase of $1.7 million in legal and accounting fees, an increase of $1.7 million of employee stock-based compensation expense, an increase of $1.5 million in patent costs, and the reduced overhead allocations to research and development. These increases were partially offset by a decrease of $1.4 million in facilities costs. In late 2013, we internalized our outside sales function.
The decrease in general and administrative expenses for 2012, as compared to 2011, was primarily related to decreases in facility costs, legal and accounting fees, employee stock-based compensation expense, and depreciation and amortization. These decreases were partially offset by increases in marketing and commercialization activities in preparation for the commercial launch of COMETRIQ for progressive, metastatic MTC and reduced allocations to research and development as a result of lower headcount.

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Restructuring Charge
Between March 2010 and May 2013, we implemented the Restructurings. The aggregate reduction in headcount from the Restructurings was 429 employees. We recorded charges and credits related to the Restructurings in periods other than those in which the Restructurings were implemented as a result of sublease activities for our buildings in South San Francisco, California, changes in assumptions regarding anticipated sublease activities, the effect of the passage of time on our discounted cash flow computations, previously planned employee terminations, and sales of excess equipment and other assets.
Total charges from our Restructurings were as follows (dollars in thousands):
 Year Ended December 31,
 2013 2012 2011
Restructuring charge$1,231
 $9,171
 $10,136
Dollar change$(7,940) $(965)  
Percentage change(87)% (10)%  
The 2013 restructuring charge related to termination benefits and was partially offset by a $0.7 million credit resulting from a new sublease entered into during the year. The 2012 restructuring charge was primarily related to termination benefits in May 2012 and the December 2012 determination to extend disuse of most of the remaining space in one building for the remainder of the lease term. Our 2011 restructuring charge was primarily facility-related charges that relate to portions of two additional buildings in South San Francisco and took into consideration our entry into two sublease agreements for the majority of one of these buildings in July 2011 as well as charges relating to the short-term exit of the second floor of another building in December 2011.
Total Other Income (Expense), net
Total other income (expense), net, were as follows (dollars in thousands):
 Year Ended December 31,
 2013 2012 2011
Interest income and other, net$1,223
 $1,986
 $1,462
Interest expense(45,347) (27,088) (16,259)
Gain on sale of businesses—
 —
 2,254
Total other income (expense), net$(44,124) $(25,102) $(12,543)
Dollar change$(19,022) $(12,559)  
Total other income (expense), net consists primarily of interest expense incurred on our debt, partially offset by interest income earned on our cash and investments and gains on sales of businesses.
The change in total other expense, net for 2013, compared to the 2012 and 2011, was primarily due to the increased interest expense resulting from the August 2012 issuance of the 2019 Notes. Interest expense includes aggregate non-cash interest expense on both the 2019 Notes and the Deerfield Notes of $26.3 million and $15.6 million and $8.3 million, for 2013, 2012, and 2011, respectively.
Income Tax Provision
The income tax (benefit) provision were as follows (in thousands):
 Year Ended December 31,
 2013 2012 2011
Income tax (benefit) provision$(96) $107
 $1,295
Dollar change$(203) $(1,188)  
The 2013 income tax benefit resulted from the exception to the general intra-period allocation rules required by ASC 740-20-45-7, and is related to the income tax effect of unrealized gains on available-for-sale investments included in other comprehensive income. $0.1 million and $0.6 million of the 2012 and 2011 income tax provision, respectively, related to an adjustment resulting from a further evaluation of qualified expenses for refunds received in 2009 and 2010 as a result of the enactment of the Housing and Economy Recovery Act of 2008 and the American Recovery and Reinvestment Tax Act of 2009.

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The remaining $0.7 million of the 2011 provision related to a tax deferred revenue adjustment that resulted in a state tax liability due to state net operating loss carryover limitations.
During 2013, Exelixis Bermuda acquired the existing and future intellectual property rights to exploit cabozantinib in jurisdictions outside of the United States. The transfer of the existing rights created a taxable gain in the U.S. and state jurisdictions. For tax purposes, that gain is primarily offset by current fiscal year losses and the remainder through the utilization of an insignificant amount of net operating loss carry-forwards for which there is a corresponding reduction to our valuation allowance.
Liquidity and Capital Resources
Sources and Uses of Cash
The following table summarizes our cash flow activities for the years ended December 31, 2013, 2012, and 2011 (in thousands):
 Year Ended December 31,
 2013 2012 2011
Net (loss) income$(244,760) $(147,645) $75,697
Adjustments to reconcile net (loss) income to net cash used in operating activities48,255
 33,137
 29,954
Changes in operating assets and liabilities(2,268) (8,638) (264,884)
Net cash used in operating activities(198,773) (123,146) (159,233)
Net cash provided by (used in) investing activities144,351
 (259,470) (51,463)
Net cash (used in) provided by financing activities(11,669) 478,428
 187,513
Net (decrease) increase in cash and cash equivalents(66,091) 95,812
 (23,183)
Cash and cash equivalents at beginning of year170,069
 74,257
 97,440
Cash and cash equivalents at end of year$103,978
 $170,069
 $74,257
To date, we have financed our operations primarily through the sale of equity, payments and loans from collaborators and banks, debt financing arrangements and equipment financing facilities. We have also financed certain of our research and development activities under our agreements with various collaborators. As of December 31, 2013, we had $415.9 million in cash and investments, which included short- and long-term restricted cash and investments of $12.2 million and $16.9 million and short- and long-term unrestricted investments of $1.8 million and $81.9 million that we are required to maintain on deposit with Silicon Valley Bank or one of its affiliates pursuant to covenants in our loan and security agreement with Silicon Valley Bank. In addition, in January 2014 we sold 10.0 million shares of our common stock in an underwritten public offering, raising approximately $75.6 million of net proceeds.
Operating Activities
Our operating activities used cash of $198.8 million for the year ended December 31, 2013, compared to $123.1 million for the year ended December 31, 2012, and $159.2 million for the year ended December 31, 2011.
Cash used in operating activities for 2013 related primarily to our $232.1 million in operating expenses, less non-cash expenses for accretion of debt discount totaling $26.3 million, stock-based compensation totaling $12.0 million, amortization of discounts and premiums on investments totaling $6.8 million, and depreciation and amortization totaling $3.1 million. Our operating expenses were primarily attributable to the development of cabozantinib. In addition, we paid $6.8 million for restructuring activities during the period. All of our license and contract revenues during 2013 were non-cash, which was reflected in the $14.9 million reduction in deferred revenue during the period.
Cash used in operating activities for 2012 related primarily to our $169.9 million in operating expenses for the year, less non-cash expenses for stock-based compensation and depreciation and amortization totaling $8.8 million and $5.7 million, respectively. Our operating expenses were largely attributable to the development of cabozantinib. In addition, we paid $6.3 million for our Restructurings during 2012. These uses of cash were partially offset by the receipt of $27.3 million in cash in January 2012 relating to the termination of our 2009 discovery collaboration with Sanofi in December 2011 and the upfront payment received from Merck under our P13K-delta license agreement. As significant portion of our other 2012 revenues were non-cash, which was reflected in the $41.9 million reduction in deferred revenue during the year. Cash paid for interest of $7.0 million was significantly lower than our interest expense of $27.1 million due in large part to accretion of implied interest

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under the Deerfield Notes and the 2019 Notes. The decrease in cash used for operating activities during 2012 as compared 2011 was primarily due to the decrease in operating expenses during those periods.
Cash used in operating activities for 2011 related primarily to our $200.1 million in operating expenses for the year, less non-cash expenses for stock-based compensation totaling $12.1 million, non-cash expenses for accretion of debt discount totaling $8.0 million and depreciation and amortization totaling $6.8 million. In addition, there was an increase in our receivables balance relating to our collaboration agreements and a reduction in our other accrual balances due to the timing of payments made to vendors.
Except for 2011, we have been in a net loss position and our cash used in operating activities has been primarily driven by our net loss. Operating cash flows can differ from our consolidated net loss as a result of differences in the timing of cash receipts and earnings recognition and non-cash charges. For at least the next several years, we expect to continue to use cash for operating activities as we incur net losses associated with our research and development activities, primarily with respect to manufacturing and development expenses for cabozantinib.
Investing Activities
Our investing activities provided cash of $144.4 million for the year ended December 31, 2013, compared to cash used of $259.5 million for the year ended December 31, 2012, and cash used of $51.5 million for 2011.
Cash provided by investing activities for 2013 was primarily due to the maturity of investments of $325.2 million, partially offset by investment purchases of $190.0 million.
Cash used by investing activities for 2012 was primarily due to the purchase of $533.5 million of investments and a net increase in restricted cash of $36.0 million, primarily in connection with the 2019 Notes. These uses were partially offset by proceeds from the maturity of investments of $310.8 million.
Cash used by investing activities for 2011 was primarily driven by the purchase of $237.2 million in investments partially offset by proceeds received from the maturity of investments of $124.8 million, proceeds from the sale of investments before maturity of $55.2 million and proceeds of $3.0 million from the sale of our 19.9% equity ownership in Artemis.
Financing Activities
Our financing activities used cash of $11.7 million for the year ended December 31, 2013, compared to cash provided of $478.4 million for the year ended December 31, 2012, and cash provided of $187.5 million for 2011.
Cash used for financing activities for 2013 was primarily due to principal payments on debt of $13.2 million.
Cash provided by our financing activities for 2012 was due to the issuance of 12.7 million shares of common stock in February 2012 and 34.5 million shares of common stock in August 2012 for total net proceeds of $203.5 million, as well as the issuance and sale of the 2019 Notes for net proceeds of $277.7 million.
Cash provided by our financing activities for 2011 consisted of net proceeds of $179.4 million from the issuance of 17.3 million shares of common stock, proceeds from the exercise of stock options of $12.4 million and the final draw down of $2.6 million required under our Silicon Valley Bank loan agreement. These increases in cash were partially offset by cash used for principal payments on notes payable and bank obligations of $8.6 million.
Proceeds from collaboration loans and common stock issuances are used for general working capital purposes, such as research and development activities and other general corporate purposes. Over the next several years, we are required to make certain payments on notes and bank obligations. In 2010, we amended our loan and security agreement with Silicon Valley Bank to provide for a new seven-year term loan in the amount of $80.0 million. In addition, we entered into a note purchase agreement with Deerfield pursuant to which we sold to Deerfield an aggregate $124.0 million initial principal amount of the Deerfield Notes for an aggregate purchase price of $80.0 million, less closing fees and expenses of approximately $2.0 million. In August 2012, we incurred $287.5 million of indebtedness through the issuance of the 2019 Notes. See “---Certain Factors Important to Understanding Our Financial Condition and Results of Operations” and “Note 8 - Debt” of the Notes to the Consolidated Financial Statements for additional details on these agreements.
Cash Requirements
We have incurred annual net losses since inception through the year ended December 31, 2013, with the exception of the fiscal year ended December 31, 2011. In 2011, we had net income primarily as a result of the acceleration of revenue recognized under our 2008 collaboration agreement with Bristol-Myers Squibb that terminated in October 2011 and under our

53

2009 discovery collaboration agreement with Sanofi that terminated in December 2011. We anticipate net losses and negative operating cash flow for the foreseeable future. For the year endedDecember 31, 2013, we had a net loss of $244.8 million; as of December 31, 2013, we had an accumulated deficit of $1.5 billion. We commercially launched COMETRIQ for the treatment of progressive, metastatic MTC in the United States in late January 2013. From the commercial launch through December 31, 2013, we have generated $15.0 million in net revenues from the sale of COMETRIQ. We have derived substantially all of our revenues since inception from collaborative research and development agreements. Revenues from research and development collaborations depend on research funding, the achievement of milestones, and royalties we earn from any future products developed from the collaborative research. If we are unable to successfully achieve milestones or our collaborators fail to develop successful products, we will not earn the revenues contemplated under such collaborative agreements. The amount of our net losses will depend, in part, on the rate of growth, if any, in our sales of COMETRIQ for progressive, metastatic MTC, license and contract revenues and on the level of our expenses. These losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Our research and development expenditures and general and administrative expenses have exceeded our revenues for each year other than 2011, and we expect to spend significant additional amounts to fund the continued development of cabozantinib. As a result, we expect to continue to incur substantial operating expenses, and, consequently, we will need to generate significant additional revenues to achieve future profitability. Because of the numerous risks and uncertainties associated with developing drugs, we are unable to predict the extent of any future losses or when we will become profitable, if at all.
We anticipate that our current cash and cash equivalents, short- and long-term investments and product revenues will enable us to maintain our operations for a period of at least 12 months following the end of 2013. However, our future capital requirements will be substantial, and we may need to raise additional capital in the future. Our capital requirements will depend on many factors, and we may need to use available capital resources and raise additional capital significantly earlier than we currently anticipate. These factors include:
the progress and scope of the development and commercialization activities with respect to COMETRIQ (cabozantinib);
repayment of the 2019 Notes;
repayment of the Deerfield Notes;
repayment of our loan from Silicon Valley Bank;
the commercial success of COMETRIQ and the revenues we generate;
the level of payments received under existing collaboration agreements, licensing agreements and other arrangements;
the degree to which we conduct funded development activity on behalf of partners to whom we have out-licensed compounds or programs;
whether we enter into new collaboration agreements, licensing agreements or other arrangements (including, in particular, with respect to COMETRIQ (cabozantinib)) that provide additional capital;
our ability to control costs;
our ability to remain in compliance with, or amend or cause to be waived, financial covenants contained in agreements with third parties;
the amount of our cash and cash equivalents, short- and long-term investments that serve as collateral for bank lines of credit;
future clinical trial results;
our need to expand our product and clinical development efforts;
the cost and timing of regulatory approvals;
the cost of clinical and research supplies of our product candidates;
our obligation to share U.S. marketing and commercialization costs for cobimetinib under our collaboration with Genentech;
our ability to share the costs of our clinical development efforts with third parties;
the effect of competing technological and market developments;
the filing, maintenance, prosecution, defense and enforcement of patent claims and other intellectual property rights; and
the cost of any acquisitions of or investments in businesses, products and technologies.
We may seek to raise funds through the sale of equity or debt securities or through external borrowings. In addition, we may enter into additional strategic partnerships, collaborative arrangements or other strategic transactions. It is unclear

54

whether any such partnership, arrangement or transaction will occur, on satisfactory terms or at all, or what the timing and nature of such a partnership, arrangement or transaction may be. The sale of equity or convertible debt securities in the future may be dilutive to our stockholders, and debt-financing arrangements may require us to pledge certain assets and enter into covenants that would restrict certain business activities or our ability to incur further indebtedness, and may contain other terms that are not favorable to our stockholders or us. If we are unable to obtain adequate funds on reasonable terms, we may be required to curtail operations significantly or obtain funds by entering into financing, supply or collaboration agreements on unattractive terms or we may be required to relinquish rights to technology or product candidates or to grant licenses on terms that are unfavorable to us.
We may need to obtain additional funding in order to stay in compliance with financial covenants contained in our loan and security agreement with Silicon Valley Bank. The loan and security agreement requires that we maintain an amount equal to at least 100%, but not to exceed 107%, of the outstanding principal balance of the term loan and all equipment lines of credit under the loan and security agreement at all times in one or more investment accounts with Silicon Valley Bank or one of its affiliates as support for our obligations under the loan and security agreement. If the balance on our deposit account(s) falls below the required level for more than 10 days, Silicon Valley Bank may declare all or part of the obligations under the loan and security agreement to be immediately due and payable and stop advancing money or extending credit to us. If we are unable to remain in compliance with our financial covenants or if we are unable to renegotiate such covenants and the lender exercises its remedies under the agreement, we would not be able to operate under our current operating plan.
We have contractual obligations in the form of debt, loans payable, operating leases, purchase obligations and other long-term liabilities. The following chart details our contractual obligations, including any potential accrued or accreted interest, as of December 31, 2013 (in thousands):
 Payments Due by Period
Contractual ObligationsTotal 
Less than
1 year
 
1-3
Years
 
4-5
years
 
More than 5
years
Convertible notes (1)$401,500
 $10,000
 $104,000
 $—
 $287,500
Loans payable (2)82,090

1,762
 328
 80,000
 —
Operating leases (3)68,389
 19,896
 36,583
 11,910
 —
Purchase obligations (4)830
 830
 —
 —
 —
Other long-term liabilities66
 7
 —
 59
 —
Total contractual cash obligations$552,875
 $32,495
 $140,911
 $91,969
 $287,500
____________________
(1)Includes our obligations under the Deerfield Notes and the 2019 Notes. See “---Certain Factors Important to Understanding Our Financial Condition and Results of Operations” and “Note 8 - Debt” of the Notes to Consolidated Financial Statements regarding the terms of the Deerfield Notes and the 2019 Notes.
(2)Includes our obligations under our loan from Silicon Valley Bank. See “---Certain Factors Important to Understanding Our Financial Condition and Results of Operations” and “Note 8 - Debt” of the Notes to Consolidated Financial Statements regarding the terms of our loan from Silicon Valley Bank.
(3)
The operating lease payments do not include $16.1 million to be received through 2017 in connection with the sublease for three of our South San Francisco buildings.
(4)At December 31, 2013, we had firm purchase commitments related to manufacturing and maintenance of inventory. These commitments include a portion of our 2014 contractual minimum purchase obligation. Our actual purchases are expected to significantly exceed these amounts.
In connection with the sale of our plant trait business, we agreed to indemnify the purchaser and its affiliates up to a specified amount if they incur damages due to any infringement or alleged infringement of certain patents. We have certain collaboration licensing agreements, which contain standard indemnification clauses. Such clauses typically indemnify the customer or vendor for an adverse judgment in a lawsuit in the event of our misuse or negligence. We consider the likelihood of an adverse judgment related to an indemnification agreement to be remote. Furthermore, in the event of an adverse judgment, any losses under such an adverse judgment may be substantially offset by corporate insurance.
Recent Accounting Pronouncements
In July 2012, ASC Topic 350, Testing Indefinite-Lived Intangible Assets for Impairment was amended to permit a reporting entity to first assess qualitative factors to determine whether it is necessary to perform the annual quantitative impairment test for indefinite-lived intangible assets. This guidance was effective January 1, 2013. The adoption of this amendment did not affect our financial position or results of operations.
In February 2013, ASC Topic 220, Comprehensive Income was amended to require additional information about amounts

55

reclassified out of accumulated other comprehensive income. We adopted this guidance beginning January 1, 2013, and will provide the additional information when such reclassifications occur. The adoption of this amendment did not affect our financial position or results of operations.
Off-Balance Sheet Arrangements
As of December 31, 2013, we did not have any material off-balance-sheet arrangements, as defined by applicable SEC regulations.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our long-term debt. As of December 31, 20132016 and 2012,2015, we had cash and investments of $415.9479.6 million and $634.0253.3 million, respectively. Our investments are subject to interest rate risk, and our interest income may fluctuate due to changes in U.S. interest rates. We manage market risk through diversification requirements mandated by our investment policy, which limits the amount of our portfolio that can be invested in a single issuer. We limit our credit risk by limiting purchases to high-quality issuers. At December 31, 20132016 and 2012,2015, we had debt outstanding of $347.2189.1 million and $335.7417.9 million, respectively. Our payment commitments associated with these debt instruments are primarily fixed and consist of interest payments, principal payments, or a combination of both. The fair value of our investments and our debt will fluctuate with movements of interest rates. We have estimated the effects on our interest rate sensitive assets and liabilities based on a one percentage point hypothetical adverse change in interest rates as of December 31, 20132016 and 2012.2015. For our investments, the estimated effects of hypothetical interest rate changes are obtained from the same third-party pricing sources we use to value our investments. For debt instruments, we determine the estimated effects of hypothetical interest rate changes using the same present value model we use to determine the fair of value of those instruments. As of December 31, 20132016 and 2012,2015, a decrease in the interest rates of one percentage point would have had a net adverse change in the fair value of interest rate sensitive assets and liabilities of $8.2$0.3 million and $8.7 million, respectively.
In addition, we have exposure to fluctuations in certain foreign currencies in countries in which we conduct clinical trials. Most of our foreign expenses incurred were associated with establishing and conducting clinical trials for cabozantinib at sites outside of the United States.U.S. Our agreements with the foreign sites that conduct such clinical trials generally provide that payments for the services provided will be calculated in the currency of that country, and converted into U.S. dollars using various exchange rates based upon when services are rendered or the timing of invoices. When the U.S. dollar weakens against foreign currencies, the U.S. dollar value of the foreign-currency denominated expense increases, and when the U.S. dollar strengthens against these currencies, the U.S. dollar value of the foreign-currency denominated expense decreases. As of December 31, 20132016 and 2012,2015, approximately $4.9$2.2 million and $1.1$3.2 million, respectively, of our clinical accrual balance was owed in foreign currencies. An adverse change of one percentage point in the foreign currency exchange rates would not have resulted in a material impact for any periods presented.
We incurredrecorded a net$0.2 million loss, of $0.3a $0.1 million relating to our foreign currency contract that was settled in December 2011. We did not record any gains or lossesgain and a $0.5 million gain relating to foreign exchange fluctuations for the fiscal years ended December 31, 2013 or 2012.2016, 2015 and 2014, respectively.

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EXELIXIS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Page
Report of Independent Registered Public Accounting Firm
5868
Consolidated Balance Sheets
5969
Consolidated Statements of Operations
6070
Consolidated Statements of Comprehensive (Loss) IncomeLoss
6070
Consolidated Statements of Stockholders’ Equity (Deficit)
6171
Consolidated Statements of Cash Flows
6272
Notes to Consolidated Financial Statements
6374

57
67

Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Exelixis, Inc.
We have audited the accompanying consolidated balance sheets of Exelixis, Inc. as of December 27, 201330, 2016 and December 28, 2012January 1, 2016, and the related consolidated statements of operations, comprehensive (loss) income,loss, stockholders’ equity (deficit) and cash flows for each of the three fiscal years in the period ended December 27, 201330, 2016. These financial statements are the responsibility of Exelixis, Inc.’sthe Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Exelixis, Inc. at December 27, 201330, 2016 and December 28, 2012January 1, 2016, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended December 27, 201330, 2016, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Exelixis, Inc.’s internal control over financial reporting as of December 27, 201330, 2016, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 framework) and our report dated February 20, 201427, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Redwood City, California
February 20, 201427, 2017

58
68

EXELIXIS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 31,December 31,
2013 20122016 2015
ASSETS      
Current assets:      
Cash and cash equivalents$103,978
 $170,069
$151,686
 $141,634
Short-term investments138,475
 241,371
268,117
 25,426
Short-term restricted cash and investments12,213
 12,246
Trade and other receivables3,941
 2,751
42,246
 5,183
Inventory2,890
 —
3,338
 2,616
Prepaid expenses and other current assets5,112
 6,104
5,416
 3,806
Total current assets266,609
 432,541
470,803
 178,665
Long-term investments144,299
 182,311
55,601
 83,600
Long-term restricted cash and investments16,897
 27,964
4,150
 2,650
Property and equipment, net4,910
 6,059
2,071
 1,434
Goodwill63,684
 63,684
63,684
 63,684
Other assets6,888
 8,538
Other long-term assets1,232
 2,309
Total assets$503,287
 $721,097
$597,541
 $332,342
LIABILITIES AND STOCKHOLDERS’ EQUITY   
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)   
Current liabilities:      
Accounts payable$9,345
 $4,398
$6,565
 $6,401
Accrued compensation and benefits20,334
 3,629
Accrued clinical trial liabilities34,958
 20,560
14,131
 18,071
Accrued compensation and benefits12,797
 10,375
Other accrued liabilities13,116
 11,795
Accrued collaboration liability—
 10,938
Current portion of convertible notes10,000
 10,000
109,122
 —
Current portion of loans payable1,762
 3,170
Current portion of restructuring4,425
 5,085
Deferred revenue1,450
 16,321
Current portion of term loan payable80,000
 —
Current portion of deferred revenue19,665
 —
Other current liabilities20,771
 13,212
Total current liabilities87,853
 81,704
270,588
 52,251
Long-term portion of convertible notes255,147
 240,476
—
 337,937
Long-term portion of loans payable80,328
 82,090
Long-term portion of restructuring9,047
 14,137
Long-term portion of term loan payable—
 80,000
Long-term portion of deferred revenue237,094
 —
Other long-term liabilities4,674
 6,256
541
 2,960
Total liabilities437,049
 424,663
508,223
 473,148
Commitments (Note 14)
 
Stockholders’ equity:   
Commitments (Note 13)
 
Stockholders’ equity (deficit):   
Preferred stock, $0.001 par value, 10,000,000 shares authorized and no shares issued—
 —
—
 —
Common stock, $0.001 par value; 400,000,000 shares authorized; issued and outstanding:
184,533,651 and 183,697,213 shares at December 31, 2013 and 2012,
respectively
184
 183
Common stock, $0.001 par value; 400,000,000 shares authorized; issued and
outstanding: 289,923,798 and 227,960,943 shares at December 31, 2016 and 2015,
respectively
290
 228
Additional paid-in capital1,564,670
 1,550,345
2,072,591
 1,772,123
Accumulated other comprehensive income (loss)146
 (92)
Accumulated other comprehensive loss(416) (232)
Accumulated deficit(1,498,762) (1,254,002)(1,983,147) (1,912,925)
Total stockholders’ equity66,238
 296,434
Total liabilities and stockholders’ equity$503,287
 $721,097
Total stockholders’ equity (deficit)89,318
 (140,806)
Total liabilities and stockholders’ equity (deficit)$597,541
 $332,342
The accompanying notes are an integral part of these consolidated financial statements.

59
69

EXELIXIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Year Ended December 31,
 2013 2012 2011
Revenues:     
License, contract and collaboration reimbursement revenues$16,321
 $47,450
 $289,636
Net product revenues15,017
 —
 —
Total revenues31,338
 47,450
 289,636
Operating expenses:     
Cost of goods sold1,118
 —
 —
Research and development178,763
 128,878
 156,836
Selling, general and administrative50,958
 31,837
 33,129
Restructuring charge1,231
 9,171
 10,136
Total operating expenses232,070
 169,886
 200,101
(Loss) income from operations(200,732) (122,436) 89,535
Other income (expense), net:     
Interest income and other, net1,223
 1,986
 1,462
Interest expense(45,347) (27,088) (16,259)
Gain on sale of business—
 —
 2,254
Total other income (expense), net(44,124) (25,102) (12,543)
(Loss) income before income taxes(244,856) (147,538) 76,992
Income tax (benefit) provision(96) 107
 1,295
Net (loss) income$(244,760) $(147,645) $75,697
Net (loss) income per share, basic$(1.33) $(0.92) $0.60
Net (loss) income per share, diluted$(1.33) $(0.92) $0.58
Shares used in computing basic (loss) income per share amounts184,062
 160,138
 126,018
Shares used in computing diluted (loss) income per share amounts184,062
 160,138
 130,479

 Year Ended December 31,
 2016 2015 2014
Revenues:     
Net product revenues$135,375
 $34,158
 $25,111
Collaboration revenues56,079
 3,014
 —
Total revenues191,454
 37,172
 25,111
Operating expenses:     
Cost of goods sold6,552
 3,895
 2,043
Research and development95,967
 96,351
 189,101
Selling, general and administrative116,145
 57,305
 50,829
Restructuring charges914
 1,042
 7,596
Total operating expenses219,578
 158,593
 249,569
Loss from operations(28,124) (121,421) (224,458)
Other expense, net:     
Interest income and other, net4,863
 412
 4,341
Interest expense(33,060) (40,680) (41,362)
Loss on extinguishment of debt(13,901) —
 —
Total other expense, net(42,098) (40,268) (37,021)
Loss before income taxes(70,222) (161,689) (261,479)
Income tax provision (benefit)—
 55
 (182)
Net loss$(70,222) $(161,744) $(261,297)
Net loss per share, basic and diluted$(0.28) $(0.77) $(1.34)
Shares used in computing basic and diluted net loss per share250,531
 209,227
 194,299
The accompanying notes are an integral part of these consolidated financial statements.


EXELIXIS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS
(in thousands)
 Year Ended December 31,
 2013 2012 2011
Net (loss) income$(244,760) $(147,645) $75,697
Other comprehensive income (loss), net of tax of $106, $0 and $0 (1)238
 46
 (150)
Comprehensive (loss) income$(244,522) $(147,599) $75,547
 Year Ended December 31,
 2016 2015 2014
Net loss$(70,222) $(161,744) $(261,297)
Other comprehensive loss (1)
(184) (111) (267)
Comprehensive loss$(70,406) $(161,855) $(261,564)
____________________
(1)Other comprehensive income (loss)loss consisted solely of unrealized gains or losses, net on available for saleavailable-for-sale securities arising during the periods presented. There were no reclassification adjustments to net incomeloss resulting from realized gains or losses on the sale of securities.securities and there was no income tax expense related to other comprehensive loss during those years.
The accompanying notes are an integral part of these consolidated financial statements.



6070

EXELIXIS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
Common
Stock
Shares
 
Common
Stock
Amount
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Accumulated
Deficit
 
Total
Stockholders’
Equity (Deficit)
Common
Stock
Shares
 
Common
Stock
Amount
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Accumulated
Deficit
 
Total
Stockholders’
Equity (Deficit)
Balance at December 31, 2010109,287,160
 $109
 $953,608
 $12
 $(1,182,054) $(228,325)
Net income—
 —
 —
 —
 75,697
 75,697
Balance at December 31, 2013184,533,651
 $184
 $1,504,052
 $146
 $(1,489,884) $14,498
Net loss—
 —
 —
 —
 (261,297) (261,297)
Other comprehensive loss—
 —
 —
 (150) —
 (150)—
 —
 —
 (267) —
 (267)
Issuance of common stock under stock plans3,488,669
 3
 15,038
 —
 —
 15,041
Sale of shares of common stock17,250,000
 17
 179,358
 —
 —
 179,375
Issuance of common stock for settlement of convertible loan5,537,906
 6
 36,889
 —
 —
 36,895
Stock-based compensation expense—
 —
 12,099
 —
 —
 12,099
Balance at December 31, 2011135,563,735
 135
 1,196,992
 (138) (1,106,357) 90,632
Net loss—
 —
 —
 —
 (147,645) (147,645)
Other comprehensive income—
 —
 —
 46
 —
 46
Issuance of common stock under stock plans983,478
 1
 2,821
 —
 —
 2,822
Sale of shares of common stock47,150,000
 47
 203,914
 —
 —
 203,961
Equity component of convertible debt issued, net—
 —
 137,785
 —
 —
 137,785
Stock-based compensation expense—
 —
 8,833
 —
 —
 8,833
Balance at December 31, 2012183,697,213
 183
 1,550,345
 (92) (1,254,002) 296,434
Net loss—
 —
 —
 —
 (244,760) (244,760)
Other comprehensive income—
 —
 —
 238
 —
 238
Sale of shares of common stock, net10,000,000
 10
 75,633
 —
 —
 75,643
Issuance of common stock under stock plans836,438
 1
 2,294
 —
 —
 2,295
1,362,118
 2
 2,091
 —
 —
 2,093
Stock-based compensation expense—
 —
 12,031
 —
 —
 12,031
—
 —
 10,006
 —
 —
 10,006
Balance at December 31, 2013184,533,651
 $184
 $1,564,670
 $146
 $(1,498,762) $66,238
Balance at December 31, 2014195,895,769
 196
 1,591,782
 (121) (1,751,181) (159,324)
Net loss—
 —
 —
 —
 (161,744) (161,744)
Other comprehensive loss—
 —
 —
 (111) —
 (111)
Sale of shares of common stock, net28,750,000
 29
 145,620
 —
 —
 145,649
Warrants transferred from other long-term liabilities—
 —
 1,470
 —
 —
 1,470
Issuance of common stock under stock plans3,315,174
 3
 11,274
 —
 —
 11,277
Stock-based compensation expense—
 —
 21,977
 —
 —
 21,977
Balance at December 31, 2015227,960,943
 228
 1,772,123
 (232) (1,912,925) (140,806)
Net loss—
 —
 —
 —
 (70,222) (70,222)
Other comprehensive loss—
 —
 —
 (184) —
 (184)
Issuance of common stock in settlement of convertible notes54,009,279
 54
 253,026
 —
 —
 253,080
Issuance of common stock under stock plans7,953,576
 8
 24,530
 —
 —
 24,538
Stock-based compensation expense—
 —
 22,912
 —
 —
 22,912
Balance at December 31, 2016289,923,798
 $290
 $2,072,591
 $(416) $(1,983,147) $89,318
The accompanying notes are an integral part of these consolidated financial statements.


61
71

EXELIXIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,Year Ended December 31,
2013 2012 20112016 2015 2014
Cash flows from operating activities:          
Net (loss) income$(244,760) $(147,645) $75,697
Adjustments to reconcile net (loss) income to net cash used in operating activities:     
Net loss$(70,222) $(161,744) $(261,297)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:     
Depreciation and amortization3,147
 5,717
 6,822
1,002
 1,406
 2,391
Stock-based compensation expense12,031
 8,833
 12,099
22,912
 21,977
 10,006
Restructuring (credit) charge for property and equipment—
 (204) 497
Accretion of debt discount26,290
 14,752
 7,989
Gain on sale of property and equipment—
 (950) —
Gain on sale of businesses—
 —
 (2,254)
Loss on extinguishment of debt13,901
 —
 —
Amortization of debt discounts and debt issuance costs8,432
 17,041
 22,289
Accrual of interest paid in kind8,008
 3,817
 —
Gain on sale of business and other equity investment(2,494) (112) (838)
Changes in the fair value of warrants—
 548
 (1,840)
Other6,787
 4,989
 4,801
(2,510) 1,327
 4,161
Changes in assets and liabilities:          
Other receivables(1,190) 27,038
 (24,294)
Trade and other receivables(37,002) (646) (941)
Inventory(2,890) —
 —
(722) (235) 509
Prepaid expenses and other current assets1,034
 (1,764) 10,553
(1,610) (325) 1,526
Other assets—
 (1,966) 405
Accounts payable and other accrued liabilities8,691
 5,149
 (14,801)
Clinical trial liability14,398
 1,169
 9,246
Restructuring liability(5,750) 5,244
 (303)
Other long-term liabilities(1,690) (1,588) (1,162)
Other long-term assets1,077
 1,340
 (2,149)
Accounts payable164
 (12) (2,932)
Accrued compensation and benefits16,705
 279
 (9,447)
Accrued clinical trial liabilities(3,940) (23,474) 6,587
Accrued collaboration liability(10,938)
10,206
 732
Deferred revenue(14,871) (41,920) (244,528)256,759
 (2,582) 1,133
Net cash used in operating activities(198,773) (123,146) (159,233)
Other current and long-term liabilities6,774
 (10,396) (5,295)
Net cash provided by (used in) operating activities206,296
 (141,585) (235,405)
Cash flows from investing activities:          
Purchases of property and equipment(2,171) (2,717) (991)(1,703) (447) (474)
Proceeds from sale of property and equipment143
 1,943
 1,526
97
 1,346
 392
Proceeds from sale of businesses—
 —
 3,010
Proceeds from sale of business and other equity investments2,494
 95
 838
Proceeds from maturities of restricted cash and investments17,268
 5,499
 8,099
7,150
 19,789
 20,354
Purchase of restricted cash and investments(6,085) (41,485) (5,899)(8,650) (5,650) (8,143)
Proceeds from sale of investments—
 —
 55,205
2,266
 —
 —
Proceeds from maturities of investments325,171
 310,765
 124,800
151,485
 178,936
 252,891
Purchases of investments(189,975) (533,475) (237,213)(369,187) (143,992) (119,528)
Net cash provided by (used in) investing activities144,351
 (259,470) (51,463)
Net cash (used in) provided by investing activities(216,048) 50,077
 146,330
Cash flows from financing activities:          
Proceeds from issuance of common stock, net—
 203,479
 179,375
—
 145,649
 75,643
Proceeds from exercise of stock options and warrants72
 929
 12,436
Proceeds from exercise of stock options25,327
 10,911
 120
Proceeds from employee stock purchase plan1,429
 1,217
 1,734
2,187
 568
 1,438
Proceeds from debt issuance, net—
 277,673
 2,589
Principal payments on debt(13,170) (4,870) (8,621)—
 (4,381) (11,709)
Net cash (used in) provided by financing activities(11,669) 478,428
 187,513
Redemption of convertible notes(575) —
 —
Payments on conversion of convertible notes(7,135) —
 —
Net cash provided by financing activities19,804
 152,747
 65,492
Net increase (decrease) in cash and cash equivalents(66,091) 95,812
 (23,183)10,052
 61,239
 (23,583)
Cash and cash equivalents at beginning of year170,069
 74,257
 97,440
141,634
 80,395
 103,978
Cash and cash equivalents at end of year$103,978
 $170,069
 $74,257
$151,686
 $141,634
 $80,395
Supplemental cash flow disclosure:     
Cash paid for interest$19,160
 $6,982
 $6,835
Cash paid for taxes$—
 $1,118
 $—
Non-cash financing activity:     
Issuance of common stock for settlement of convertible loan, including accrued interest$—
 $—
 $36,895
(Continued on next page)


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EXELIXIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
 Year Ended December 31,
 2016 2015 2014
Supplemental cash flow disclosure:     
Cash paid for interest$21,044
 $19,822
 $19,109
Cash paid for taxes$190
 $192
 $60
Non-cash financing activity:     
Issuance of common stock in settlement of convertible notes$286,925
 $—
 $—
Issuance of warrants in connection with amendment to convertible notes$—
 $—
 $2,762
The accompanying notes are an integral part of these consolidated financial statements

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73

EXELIXIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Exelixis, Inc. (“Exelixis,” “we,” “our” or “us”) is a biotechnologybiopharmaceutical company committed to developing small molecule therapiesthe discovery, development and commercialization of new medicines to improve care and outcomes for people with cancer. Since its founding in 1994, three products discovered at Exelixis have progressed through clinical development, received regulatory approval, and entered the treatment of cancer. Our two most advanced assets, COMETRIQ® (cabozantinib), our wholly-ownedcommercial marketplace. Two are derived from cabozantinib, an inhibitor of multiple receptor tyrosine kinases including MET, AXL, and VEGF receptors: CABOMETYX™ tablets approved for previously treated advanced kidney cancer and COMETRIQ® capsules approved for progressive, metastatic medullary thyroid cancer. The third product, Cotellic®, is a formulation of cobimetinib, (GDC-0973/XL518), a potent, highly selective inhibitor of MEK, which we out-licensed tomarketed under a collaboration with Genentech Inc. (a wholly-owned member of the Roche Group) (“Genentech”) are currently the subject, and is approved as part of six ongoing phase 3 pivotal trials. Top-line results from four of these pivotal trials are expected in 2014.
We are focusing our proprietary resources and development and commercialization efforts primarily on COMETRIQ® (cabozantinib), which was approved on November 29, 2012, by the U.S. Food and Drug Administration for the treatment of progressive, metastatic medullary thyroid cancer (“MTC”) in the United States, where it became commercially available in late January 2013. In December 2013, the European Committee for Medicinal Products for Human Use (“CHMP”) issued a positive opinion on the Marketing Authorization Application submittedcombination regimen to the European Medicines Agency for COMETRIQ for the proposed indication of progressive, unresectable, locallytreat advanced or metastatic MTC. The CHMP’s positive opinion will be reviewed by the European Commission, which has the authority to approve medicines for the European Union.melanoma.
Cabozantinib is being evaluated in a broad development program, including two ongoing phase 3 pivotal trials in metastatic castration-resistant prostate cancer (“CRPC”) an ongoing phase 3 pivotal trial in metastatic renal cell cancer and an ongoing phase 3 pivotal trial in advanced hepatocellular cancer. We believe cabozantinib has the potential to be a high-quality, broadly-active and differentiated anti-cancer agent that can make a meaningful difference in the lives of patients. Our objective is to develop cabozantinib into a major oncology franchise, and we believe that the approval of COMETRIQ (cabozantinib) for the treatment of progressive, metastatic MTC provides us with the opportunity to establish a commercial presence in furtherance of this objective. We currently expect top-line data from our two phase 3 pivotal trials of cabozantinib in CRPC and the overall survival analysis of our phase 3 pivotal trial of cabozantinib in progressive, metastatic MTC in 2014.
Cobimetinib is also being evaluated in a broad development program, including a multicenter, randomized, double-blind, placebo-controlled phase 3 clinical trial evaluating the combination of cobimetinib with vemurafenib versus vemurafenib in previously untreated BRAFV600 mutation positive patients with unresectable locally advanced or metastatic melanoma that was initiated on November 1, 2012. Roche and Genentech have provided guidance that they expect top-line data from this trial in 2014.
Basis of Consolidation
The consolidated financial statements include the accounts of Exelixis and those of our wholly-owned subsidiaries, including Exelixis International (Bermuda) Ltd. (“Exelixis Bermuda”). Effective July 2013, Exelixis engaged in intercompany transactions whereby Exelixis Bermuda acquired the existing and future intellectual property rights to exploit cabozantinib in jurisdictions outside of the United States. Exelixis Bermuda’ssubsidiaries. These entities’ functional currency is the U.S. Dollar.dollar. All intercompany balances and transactions have been eliminated.
Basis of Presentation
Exelixis hasWe have adopted a 52- or 53-week fiscal year policy that generally ends on the Friday closest to December 31st. Fiscal year 2011,2014, a 53-week year, ended on January 2, 2015; fiscal year 2015, a 52-week year, ended on January 1, 2016; fiscal year 2016, a 52-week year, ended on December 30, 2011, fiscal year 2012, a 52-week year, ended on December 28, 2012, fiscal year 2013, a 52-week year, ended on December 27, 2013,2016; and fiscal year 2014,2017, a 53-week52-week year, will end on January 2, 2015.December 29, 2017. For convenience, references in this report as of and for the fiscal years ended January 2, 2015, January 1, 2016, and December 30, 2011, December 28, 2012 and December 27, 2013,2016 are indicated on a calendar year basis,as being as of and for the years ended December 31, 2011, 20122014, 2015, and 2013,2016, respectively.
Segment Information
We operate as The quarterly period ended January 2, 2015 is a single reportable segment.14-week fiscal quarter; all other interim periods presented are 13-week fiscal quarters.
Use of Estimates
The preparation of our consolidated financial statements is in conformity with accounting principles generally accepted in the United States (“U.S.”) which requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. On an ongoing basis, management

63

evaluates its estimates including, but not limited to, those related to inventory, revenue recognition, valuationincluding deductions from revenues (such as rebates, chargebacks, sales returns and sales allowances), the period of long-lived assets,performance, identification of deliverables and evaluation of milestones with respect to our collaborations, the amounts of revenues and expenses under our profit and loss sharing agreement, recoverability of inventory, certain accrued liabilities including the accrued clinical trial accruals and restructuring liability, share-based compensation and the valuation of the debt and equity components of our convertible debt at issuance.and stock-based compensation. 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. Our senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results could differ materially from those estimates.
Correction of an Immaterial Error
During the third quarter of 2016, we identified errors in the Consolidated Balance Sheets and Consolidated Statements of Operations, Comprehensive Loss and Cash Flows for 2015, 2014, 2013, and 2012, and in the unaudited interim Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations, Comprehensive Loss and Cash Flows for all prior interim fiscal periods from September 30, 2012 through June 30, 2016. Specifically, in 2012 we incorrectly calculated 1) the allocation between Additional paid-in capital and Convertible notes of the $287.5 million aggregate principal amount from our 4.25% Convertible Senior Subordinated Notes due 2019 (“2019 Notes”); and 2) the amortization of the debt discount associated with the 2019 Notes during 2012 and all subsequent periods.
Having evaluated the materiality of these errors from a quantitative and qualitative perspective, management concluded that although the accumulation of these errors was significant to the three and nine months ended September 30, 2016, the correction of these errors was not material to any individual prior period, and did not have an effect on the trend of financial results, taking into account the requirements of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 99, Materiality and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. Because management has concluded that these errors are not


74

material, we will correct them prospectively when the consolidated balance sheets, statements of operations, comprehensive loss and cash flows for such periods are included in future filings.
Following are the amounts (in thousands, except per share amounts) that should have been reported for the affected line items of the statements of operations, statements of comprehensive loss and statements of cash flows:
 Year ended December 31,
 2015 2014 2013 2012
Statements of Operations:
Interest expense, overstated by $7,993, $7,245, $6,568, $2,310 for the years ended December 31, 2015, 2014, 2013 and 2012, respectively$(40,680) $(41,362) $(38,779) $(24,778)
Total other expense, net, overstated by $7,993, $7,245, $6,568, $2,310 for the years ended December 31, 2015, 2014, 2013 and 2012, respectively$(40,268) $(37,021) $(37,556) $(22,792)
Net loss, overstated by $7,993, $7,245, $6,568, $2,310 for the years ended December 31, 2015, 2014, 2013 and 2012, respectively$(161,744) $(261,297) $(238,192) $(145,335)
Net loss per share, basic and diluted, overstated by $0.04, $0.04, $0.04, $0.01 for the years ended December 31, 2015, 2014, 2013 and 2012, respectively$(0.77) $(1.34) $(1.29) $(0.91)
Statements of Comprehensive Loss:
Comprehensive loss, overstated by $7,993, $7,245, $6,568, $2,310 for the years ended December 31, 2015, 2014, 2013 and 2012, respectively$(161,855) $(261,564) $(237,954) $(145,289)
Statements of Cash Flows(1):
Net loss, overstated by $7,993, $7,245, $6,568, $2,310 for the years ended December 31, 2015, 2014, 2013 and 2012, respectively$(161,744) $(261,297) $(238,192) $(145,335)
Accretion of debt discount and debt issuance costs, overstated by $7,993, $7,245, $6,568, $2,310 for the years ended December 31, 2015, 2014, 2013 and 2012, respectively$17,041
 $22,289
 $19,722
 $12,442
____________________
(1)The error did not impact our net cash provided by or used in operating activities, financing activities or investing activities for any of the periods presented.


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Following are the amounts (in thousands) that should have been reported for the affected line items of the balance sheets and statements of stockholders’ (deficit) equity:
 December 31,
 2015 2014 2013 2012
Balance Sheets:
Long-term portion of convertible notes, understated by $36,502, $44,494, $51,739, $58,307 as of December 31, 2015, 2014, 2013 and 2012, respectively$337,937
 $223,629
 $301,550
 $291,828
Liabilities, understated by $36,502, $44,494, $51,739, $58,307 as of December 31, 2015, 2014, 2013 and 2012, respectively$473,148
 $482,592
 $483,452
 $476,015
Additional paid-in capital, overstated by $60,618 as of all dates presented$1,772,123
 $1,591,782
 $1,504,052
 $1,489,727
Accumulated deficit, overstated by $24,116, $16,124, $8,879, $2,310 as of December 31, 2015, 2014, 2013 and 2012, respectively$(1,912,925) $(1,751,181) $(1,489,884) $(1,251,692)
Stockholders’ equity (deficit), misstated by $36,502, $44,494, $51,739, $58,307 as of December 31, 2015, 2014, 2013 and 2012, respectively$(140,806) $(159,324) $14,498
 $238,127
Statements of Stockholders’ Equity (Deficit):
Net loss, overstated by $7,993, $7,245, $6,568, $2,310 for the years ended December 31, 2015, 2014, 2013 and 2012, respectively$(161,744) $(261,297) $(238,192) $(145,335)
Additional paid-in capital, overstated by $60,618 as of all dates presented$1,772,123
 $1,591,782
 $1,504,052
 $1,489,727
Accumulated deficit, overstated by $24,116, $16,124, $8,879, $2,310 as of December 31, 2015, 2014, 2013 and 2012, respectively$(1,912,925) $(1,751,181) $(1,489,884) $(1,251,692)
Stockholders’ equity (deficit), misstated by $36,502, $44,494, $51,739, $58,307 as of December 31, 2015, 2014, 2013 and 2012, respectively$(140,806) $(159,324) $14,498
 $238,127
These errors did not affect any other caption or total in our annual consolidated financial statements.
Reclassifications
Certain prior period amounts in the Consolidated Financial Statements have been reclassified to conform to current period presentation. We reclassified $3.2 million and $1.4 million of Current portion of restructuring and Long-term portion of restructuring as of December 31, 2015 to Other current liabilities and Other long-term liabilities, respectively, in the accompanying Consolidated Balance Sheets. We have also reclassified balances between line items within the Changes in assets and liabilities in the accompanying Statements of Cash Flows for the years ended December 31, 2015 and 2014 to conform the presentation of those line items to the corresponding presentation of assets and liabilities in our accompanying Balance Sheets.
Segment Information
We operate as a single reportable segment.
Cash and Investments
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents include investments in high-grade, short-term money market funds, commercial paper and municipal securities, which are subject to minimal credit and market risk.
We have designated all investments as available-for-sale and therefore, such investments are reported at fair value, with unrealized gains and losses recorded in accumulated other comprehensive income.loss. For securities sold prior to maturity, the cost of securities sold is based on the specific identification method. Realized gains and losses on the sale of investments are recorded in interest and other income, net.


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We classify those investments we do not require for use in current operations that mature in more than 12 months as Long-term investments on our Consolidated Balance Sheets. Additionally, those investments that collateralize loan balances with terms that extend 12 months or longer were classified as long-term investments even if the investment’s remaining term to maturity was one year or less; they are not restricted to withdrawal.
All of our investments are subject to a quarterly impairment review. We recognize an impairment charge when a decline in the fair value of its investmentsan investment below theits cost basis is judged to be other-than-temporary. Factors considered in determining whether a loss is temporary includedinclude the length of time and extent to which the investments fair value has been less than thetheir cost basis, the financial condition and near-term prospects of the investee,issuer, extent of the loss related to credit of the issuer, the expected cash flows from the security, our intent to sell the security and whether or not we will be required to sell the security before thewe are able to recovery of its amortized cost.our carrying value. During the years ended December 31, 2013, 2012,2016, 2015 and 2011,2014, we did not record any significant other-than-temporary impairment charges on our available-for-sale securities.
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 (exit price). We disclose the fair value of financial instruments for assets and liabilities for which the value is practicable to estimate. For those financial instruments measured and recorded at fair value on a recurring basis, we also provide fair value hierarchy information in these Notes to Consolidated Financial Statements. The fair value hierarchy has the following three levels:
Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities that the reporting entity can access at the measurement date.
Level 2 – observable inputs, other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly. These inputs include using prices from independent pricing services based on 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—3 – unobservable inputs.
A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain investments within the fair value hierarchy. During the years ended December 31, 2016, 2015 and 2014, there were no such reclassifications.
Inventory
Inventory is valuedWe value inventory at the lower of cost or net realizable value. We determine the cost of inventory using the standard-cost method, which approximates actual cost based on a first-in, first-out method. We analyze our inventory levels quarterly and write down inventory subject to expiry in excess of expected requirements, or that has become obsolete, or has a cost basis in excess of its expected net realizable value and inventory quantities in excess of expected requirements. Expired inventory is disposed of and thevalue. The related costs are recognized as cost of goods sold in the Consolidated Statements of Operations.

64On a quarterly basis, we analyze our estimated production levels for the following twelve month period, which is our normal operating cycle and reclassify inventory we do not expect to use within the next twelve months into Other long-term assets in the Consolidated Balance Sheets.

We consider regulatory approval of product candidates to be uncertain and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for product candidates incurred prior to regulatory approval wereare not capitalized as inventory but wereare expensed as research and development costs. When regulatory approval is obtained, we begin capitalization of inventory related costs. We received regulatory approval for our first product, COMETRIQ, on November 29, 2012.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the following estimated useful lives: 
Equipment and furniture5 years
Computer equipment and software3 years
Leasehold improvementsShorter of lease life or 7 years
Capitalized software includes certain internal use computer software development costs.


77

Repairs and maintenance costs are charged to expense as incurred.
Goodwill
Goodwill amounts have been recorded as the excess purchase price over tangible assets, liabilities and intangible assets acquired based on their estimated fair value, by applying the purchase method.value. Goodwill is not subject to amortization. We evaluateassess the recoverability of our goodwill for impairment on an annual basis and on an interim basis ifannually, or more frequently whenever events or changes in circumstances between annual impairment tests indicate that the asset mightcarrying amount of a reporting unit may exceed its fair value. The assessment of recoverability may first consider qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. A quantitative assessment is performed if the qualitative assessment results in a more-likely-than-not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the carrying amount of the reporting unit’s goodwill exceeds its implied fair value. We continue to operate in one segment, which is also considered to be impaired. When evaluatingour sole reporting unit and therefore, goodwill was tested for impairment we must determineat the reporting units that exist within Exelixis. We have determined that we have one reporting unit consistent with our single business segmententerprise level as of December 31, 20132016 and 2012.2015. We did not recognize any impairment charges in any of the periods presented.
Long-Lived Assets
Long-lived assets include property and equipment and identified intangible assets.equipment. The carrying value of our long-lived assets is reviewed for impairment whenever events or changes in circumstances indicate that the asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount.
See “Note 4 - Restructurings” for further information on write-downs of property and equipment resulting from our Restructurings.
Revenue Recognition
We recognize revenue from the sale of COMETRIQproduct sales and from license fees, milestones and contingent paymentsroyalties earned on research and collaboration arrangements.
License, Contract and Collaboration Reimbursement Revenues
License, research commitment and other non-refundable payments received in connection with research collaboration agreements are deferred and recognized on a straight-line basis over the period of continuing involvement, generally the research term specified in the agreement. Contract research revenues are recognized as services are performed pursuant to the terms of the agreements. Any amounts received in advance of performance are recorded as deferred revenue. Payments are not refundable if research is not successful. License fees are classified as license revenues in our Consolidated Statements of Operations.
We enter into corporate collaborations under which we may obtain upfront license fees, research funding, contingent, milestone and royalty payments. Our deliverables under these arrangements typically consist of intellectual property rights and research and development services. We evaluate whether the delivered elements under these arrangements have value to our collaboration partner on a stand-alone basis and whether objective and reliable evidence of fair value of the undelivered item exists. If we determine that multiple deliverables exist, the consideration is allocated to one or more units of accounting based upon the best estimate of the selling price of each deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. Deliverables that do not meet these criteria are not evaluated separately for the purpose of revenue recognition. For a combined unit of accounting, non-refundable upfront

65

fees and milestones are recognized in a manner consistent with the final deliverable, which has generally been ratably over the period of the research and development obligation.
Contingency payments (received upon the achievement of certain events by our collaborators) and milestone payments (received upon the achievement of certain events by us) are non-refundable and recognized as revenues over the period of the research arrangement. This typically results in a portion of the payments being recognized at the date the contingency or milestone is achieved, which portion is equal to the applicable percentage of the research term that has elapsed at the date of achievement, and the balance being recognized over the remaining research term of the agreement. In certain situations, we may receive contingent payments after the end of our period of continued involvement. In such circumstances, we would recognize 100% of the contingent revenues when the contingency is achieved. Contingency and milestones payments, when recognized as revenue, are classified as contract revenues in our Consolidated Statements of Operations.
Collaborative agreement reimbursement revenues or collaboration cost-sharing expenses are recorded as earned or owed based on the performance requirements by both parties under the respective contracts. For arrangements in which we and our collaborative partner are active participants in the agreement and for which both parties are exposed to significant risks and rewards depending on the commercial success of the activity, we present payments between the parties on a net basis. On an annual basis, to the extent that net research and development funding payments are received, we will record the net cash inflow as revenue. In annual periods when the net research and development funding payments result in a payable, these amounts are presented as collaboration cost-sharing expense. Agreement reimbursements are classified as either contract revenues or collaboration reimbursement in our Consolidated Statements of Operations, depending on the terms of the agreement.
Revenues and expenses from collaborations that are not co-development agreements are recorded as contract revenues or research and development expenses in the period incurred.
Net Product Revenues
We recognize revenue when it is both realized or realizable and earned, meaning persuasive evidence of an arrangement exists, delivery has occurred, title has transferred, the price is fixed or determinable, there are no remaining customer acceptance requirements, and collectability of the resulting receivable is reasonably assured. For product sales to specialty pharmacies and distributors in the United States,U.S., this generally occurs upon shipmentdelivery of the product to the patient by our distributor.product. For product sales in Europe, this occurs whento our Europeanformer distribution partner, hasSwedish Orphan Biovitrum (“Sobi”), this generally occurred when Sobi accepted the product.
WeIn the U.S., we sell our product,products, CABOMETYX and COMETRIQ, in the United States to a specialty pharmacypharmacies and distributors that benefitsbenefit from customer incentives and hashave a right of return. We have areturn under certain circumstances. Prior to 2015, COMETRIQ had limited sales history and cannotwe could not reliably estimate expected future returns, discounts and rebates of the product nor the discounts and rebates due to payors at the time of shipmentthe product was sold to the specialty pharmacy. Accordingly, upon shipment to thea single specialty pharmacy, therefore we record deferred revenue on our Consolidated Balance Sheets. We recognizerecognized revenue when the specialty pharmacy providesprovided the product to a patient based on the fulfillment of a prescription. We record revenue using an analysis of prescription data from our specialty pharmacy to ascertain the date of shipment and the payor mix. This approach is frequently referred to as the “sell-through” revenue recognition model. OnceIn January 2015, we established that we had sufficient historical experience and data to reasonably estimate expected future returns of COMETRIQ and the prescription has been provided to the patient, it is not subject to return unless the product is damaged.
Product sales to our European distribution partner are not subject to customer incentives, rights of return or discounts and allowances. We record revenuerebates due to payers at the time our European distribution partner has acceptedof shipment to the product, a method also knownspecialty pharmacy. Accordingly, beginning in January 2015 we began to recognize revenue upon delivery to the specialty pharmacy. This approach is frequently referred to as the “sell-in” revenue recognition model. In connection with the change in the timing of recognition of COMETRIQ sales in the U.S., we recorded a one-time adjustment to recognize revenue that had previously been deferred under the “sell-through” revenue recognition model, resulting in the additional recognition of gross product revenues of $2.6 million for the year ended December 31, 2015; there were no such additional amounts recorded during 2016 or 2014.
In determining discounts and allowances for the initial launch and sale of CABOMETYX, in addition to using payer data received from the specialty pharmacies and distributors that sell CABOMETYX and historical data for COMETRIQ, we also utilized claims data from third party sources for competitor products for the treatment of advanced renal cell carcinoma (“RCC”). Based in part on the availability of this third party data, we made the determination that we had sufficient experience and data to reasonably estimate expected future returns and the discounts and allowances due to payers at the time of shipment to the specialty pharmacy or distributor, and therefore record revenue for the product using the “sell-in” revenue recognition model. Net product revenues during the year ended December 31, 2016 were impacted by the build of channel inventory related to the initial launch period for CABOMETYX.


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We also utilized the “sell-in” revenue recognition model for product sales to Sobi for all periods presented. As described further in “Note 2 - Collaboration Agreements”, under the terms of our collaboration and license agreement with Ipsen for the commercialization and further development of cabozantinib, we provided Sobi with a notice of termination of our commercialization agreement for COMETRIQ which became effective November 1, 2016.
Product Sales Discounts and Allowances
We calculate gross product revenues based on the price that we charge our United Statesto the specialty pharmacypharmacies and our European distribution partner.distributors in the U.S. We estimate our domestic net product revenues by deducting from our gross product revenues (a) trade allowances, such as discounts for prompt payment, (b) estimated government rebates and chargebacks, (c) certain other fees paid to specialty pharmacies and (c) estimated costsdistributors and (d) returns. Discounts and allowances for foreign sales for the years ended December 31, 2015 and 2014 included portions of patient assistance programs. a one-time $2.4 million project management fee payable to our European distribution partner upon its achievement of a cumulative revenue goal. During 2014, we determined that the achievement of the revenue goal was probable and therefore we recorded $2.3 million of the $2.4 million project management fee, of which $0.7 million would have been recorded in 2013 had the cumulative revenue goal been determined to be probable in that period. During 2015 we recorded an additional $0.1 million of the project management fee.
We initially record estimates for these deductions at the time we recognize the gross revenue. We update our estimates on a recurring basis as new information becomes available. These discounts and allowances apply only to gross product revenues earned in the United States.
Customer Credits: The United States specialty pharmacy receivespharmacies and distributors in the U.S. receive a discount of 2% for prompt payment. We expect thisthe specialty pharmacypharmacies and distributors will earn 100% of its prompt payment discounts and, therefore, we deduct the full amount of these discounts from total product sales when revenues are recognized.
Mandated Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and other government programs. Rebate amounts owed after the final dispensing of the product to a benefit plan participant are based upon contractual agreements or legal requirements with public sector benefit providers, such as Medicaid. The allowance

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for rebates is based on statutory discount rates and expected utilization. Our estimates for the expected utilization of rebates are based on third party market research data and customer and payorpayer data received from the United States specialty pharmacy.pharmacies and distributors and historical utilization rates. Rebates are generally invoiced by the payorpayer and paid in arrears, such that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s shipments to patients,our customers, plus an accrual balance for known prior quarter’s unpaid rebates. If actual future rebates vary from estimates, we may need to adjust our accruals, which would affect net revenue in the period of adjustment.
Chargebacks: Chargebacks are discounts that occur when contracted customers purchase directly from a specialty pharmacy.pharmacy or distributor. Contracted customers, which currently consist primarily of Public Health Service institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule and Group Purchasing Organizations, generally purchase the product at a discounted price. The United States specialty pharmacy or distributor, in turn, charges back to us the difference between the price initially paid by the specialty pharmacy and the discounted price paid to the specialty pharmacy by the customer. The allowance for chargebacks is based on an estimate of sales to contracted customers.
Medicare Part D Coverage Gap: In the United States,U.S., the Medicare Part D prescription drug benefit mandates manufacturers to fund 50% of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients. Our estimates for expected Medicare Part D coverage gap are based in part on third party market research data and on customer and payorpayer data received from the United States specialty pharmacy.pharmacies and distributors. Funding of the coverage gap is invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter'squarters’ shipments to patients, plus an accrual balance for prior sales. If actual future funding varies from estimates, we may need to adjust our accruals, which would affect net revenue in the period of adjustment.
Co-payment Assistance: Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. We accrue a liability for co-payment assistance based on actual program participation and estimates of program redemption using customer data provided by the specialty pharmacies and distributors.
Collaboration Revenues
We enter into collaboration agreements under which we may obtain upfront license fees, milestone, royalty and/or product supply payments. These arrangements have multiple elements and our United States specialty pharmacy.deliverables may include intellectual property rights, distribution rights, delivery of manufactured product, commercial and development activities and participation on joint steering, commercial and development committees. In order to account for these arrangements, we identify the deliverables and evaluate whether the delivered elements have value to our collaboration partner on a stand-alone basis and represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may


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be an obligation to deliver future goods or services, a right or license to use an asset, or another performance obligation. If we determine that multiple deliverables exist, the consideration is allocated to one or more units of accounting based upon the best estimate of the selling price of each deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. A delivered item or items that do not qualify as a separate unit of accounting within the arrangement shall be combined with the other applicable undelivered items within the arrangement. The allocation of arrangement consideration and the recognition of revenue then shall be determined for those combined deliverables as a single unit of accounting. For a combined unit of accounting, non-refundable upfront fees are recognized in a manner consistent with the final deliverable, which has generally been ratably over the period of our continued involvement. Amounts received in advance of performance are recorded as deferred revenue. Upfront fees are classified as Collaboration revenues in our Consolidated Statements of Operations.
Royalty revenues, and U.S. profits and losses under the collaboration agreement with Genentech, are based on amounts reported to us by our collaboration partners and are recorded when such information becomes available to us; for Ipsen, this occurs in the current quarter, and for Genentech, this occurs in the following quarter. We base our estimates on the best information available at the time provided to us by our collaboration partners. However, additional information may subsequently become available to us, which may allow us to make a more accurate estimate in future periods. In this event, we are required to record adjustments to collaboration revenue in future periods when the actual level of activity becomes more certain. Such increases or decreases in revenue are generally considered to be changes in estimates and will be reflected in collaboration revenues in the period they become known. We consider sales-based contingent payments to be royalty revenue which is generally recognized at the date the contingency is achieved. Royalty revenue is included in Collaboration revenues in our Consolidated Statements of Operations.
For product supplied to Ipsen, which began during the year ended December 31, 2016, we record revenue at the time the product is delivered. Once title has transferred to Ipsen, the product is generally no longer subject to return. See “Note 2. Collaboration Agreements - Ipsen Collaboration” for a description of our product supply agreement with Ipsen.
For certain milestone payments under collaboration agreements, we have made a policy election to recognize revenue using the milestone method. Under the milestone method a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is an event: (i) that can be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to us. The determination that a milestone is substantive requires estimation and judgment and is made at the inception of the arrangement. Milestones are considered substantive when the consideration earned from the achievement of the milestone is: (i) commensurate with either our performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome resulting from our performance to achieve the milestone, (ii) relates solely to past performance and (iii) reasonable relative to all deliverables and payment terms in the arrangement. In making the determination as to whether a milestone is substantive or not, we consider all facts and circumstances relevant to the arrangement, including factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether any portion of the milestone consideration is related to future performance or deliverables.
Non-substantive milestone payments are recognized as revenues over the estimated period of our continued involvement. We may also receive milestone payments after the end of our continued involvement. In such circumstances, we would recognize 100% of the milestone revenues when the contingency is achieved. Milestones payments, when recognized as revenue, are classified as Collaboration revenues in our Consolidated Statements of Operations.
Under the terms of our collaboration agreement with Genentech for cobimetinib, we are also entitled to a share of U.S. profits and losses received in connection with commercialization of cobimetinib. We are entitled to low double-digit royalties on ex-U.S. net sales. See “Note 2. Collaboration Agreements” for additional information about our collaboration agreement with Genentech. We have determined that we are an agent under the agreement and therefore revenues are recorded net of costs incurred. We record U.S. profits and losses under the collaboration agreement in the period earned based on our estimate of those amounts. As of December 31, 2016, we have not recognized a profit for any year to date period from the commercialization of cobimetinib in the U.S. Until we have recognized a profit under the agreement, losses are recognized as Selling, general and administrative expenses in our Consolidated Statements of Operations. In connection with our agreement to co-promote with Genentech, we are responsible for providing up to 25% of the sales force necessary to assist with the promotion of cobimetinib. Genentech reimburses us for these costs which we include as a reduction of our Selling, general and administrative costs when the obligations are incurred or we become entitled to the cost recovery.


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Patient Assistance ProgramPrograms
We provide CABOMETYX and COMETRIQ at no cost to eligible patients who have no insurance and meet certain financial and clinical criteria through our Patient Assistance Program (“PAP”).patient assistance programs. We record the cost of the product as a selling, general and administrative expense at the time the product is designated as PAP inventory.shipped to the specialty pharmacy for patient assistance use.
Cost of Goods Sold
Cost of goods sold is related to our product revenues and in 2013 consistedconsists primarily of a 3% royalty we are requiredon net sales of any product incorporating cabozantinib payable to pay GlaxoSmithKline, and indirect labor costs, and to a lesser extent, the cost of manufacturing, write-downs related to expiring and excess inventory, and other third party logistics costs of our product. A significant portion of the manufacturing costs for 2013 product sales were incurred prior to regulatory approval of COMETRIQ for the treatment of progressive, metastatic MTCand CABOMETYX and therefore, were expensed as research and development costs when those costs were incurred, rather than capitalized as inventory.
In accordance with our 2002 collaborationproduct development and commercialization agreement with GlaxoSmithKline, we are required to pay GlaxoSmithKline a 3% royalty on the Net Sales of any product incorporating cabozantinib, including COMETRIQ.COMETRIQ and CABOMETYX. Net Sales is defined in the collaborationproduct development and commercialization agreement generally as the gross invoiced sales price less customer credits, rebates, chargebacks, shipping costs, customs duties, and sales tax and other similar tax payments we are required to make.
Research and Development Expenses
Research and development costs are expensed as incurred and include costs associated with research performed pursuant to collaborative agreements. Research and development costs consist of direct and indirect internal costs related to specific projects as well as fees paid to other entities that conduct certain research activities on our behalf.
Substantial portions of our preclinical studies and all of our clinical trials have been executed with support from by third-party contract research organizations (“CROs”) and other vendors. We accrue expenses for preclinical studies performed by our vendors based on certain estimates over the term of the service period and adjust our estimates as required. We accrue expenses for clinical trial activities performed by CROs based upon the estimated amount of work completed on each trial. For clinical trial expenses, the significant factors used in estimating accruals include the number of patients enrolled, the number of active clinical sites, and the duration for which the patients will be enrolled in the trial. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, correspondence with CROs and review of contractual terms. We base our estimates on the best information available at the time. However, additional information may become available to us which may allow us to make a more accurate estimate in future periods. In this event, we may be required to record adjustments to research and development expenses in future periods when the actual level of activity becomes more

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certain. Such increases or decreases in cost are generally considered to be changes in estimates andcosts will be reflected in research and development expenses in the period first known. For example, during the years ended December 31, 2013, 2012 and 2011, we recorded a reduction related to prior periods of approximately $0.8 million, $2.7 million, and $1.6 million, respectively, to our accrued clinical trial liabilities and research and development expenses primarily related to our phase 2 and phase 3 clinical trials for cabozantinib.
Net Income (Loss) Income Per Share
Basic net income (loss) income per share is computed by dividing the net income (loss) incomeallocated to common shares for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) income per share gives effect to potential incremental common shares issuable upon the exercise of stock options and warrants, and shares issuable pursuant to restricted stock units (“RSUs”) (calculated based on the treasury stock method), and upon conversion of our convertible debt (calculated using an as-if-converted method) as long as such shares are not anti-dilutive.
Foreign Currency Translation and Remeasurement
Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured using exchange rates in effect at the end of the period and related gains or losses are recorded in interest income and other, net. Gains and losses on the remeasurement of monetary assets and liabilities were not material for any of the years presented. We do not have any nonmonetary assets or liabilities denominated in currencies other than the U.S. dollar.
Stock-Based Compensation
Stock-based compensation expense for all stock-based compensation awards is based on the grant date fair value; the grant date fair value of RSUs is estimated as the value of the underlying shares of our common stock and the grant date fair value of stock-options is estimated using the Black-Scholes Merton option pricing model. Because there is a market for options on our common stock, we have considered implied volatilities as well as our historical realized volatilities when developing an estimate of expected volatility. We estimate the term using historical data and peer data. We recognize compensation expense on a straight-line basis over the requisite service period. Compensation expense relating to awards subject to performance conditions is recognized if it is probable that the performance goals will be achieved.achieved on a straight-line basis through the anticipated achievement date of the performance objectives. The


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probability of achievement is assessed on a quarterly basis. The total number of awards expected to vest is adjusted for estimated forfeitures. We have elected to use the simplified method to calculate the beginning pool of excess tax benefits.
Need to Raise Additional Capital
We have incurred annual net losses since inception through the year ended December 31, 2013, with the exception of the fiscal year ended December 31, 2011. In 2011, we had net income primarily as a result of the acceleration of revenue recognized under our 2008 collaboration agreement with Bristol-Myers Squibb Company (“Bristol-Myers Squibb”) that terminated in October 2011 and under our 2009 discovery collaboration agreement with Sanofi that terminated in December 2011. We anticipate net losses and negative operating cash flow for the foreseeable future. For the year endedDecember 31, 2013, we had a net loss of $244.8 million; as of December 31, 2013, we had an accumulated deficit of $1.5 billion. We commercially launched COMETRIQ for the treatment of progressive, metastatic MTC in the United States in late January 2013. From the commercial launch through December 31, 2013, we have generated $15.0 million in net revenues from the sale of COMETRIQ. We have derived substantially all of our revenues since inception from collaborative research and development agreements. Revenues from research and development collaborations depend on research funding, the achievement of milestones, and royalties we earn from any future products developed from the collaborative research. If we are unable to successfully achieve milestones or our collaborators fail to develop successful products, we will not earn the revenues contemplated under such collaborative agreements. The amount of our net losses will depend, in part, on the rate of growth, if any, in our sales of COMETRIQ for progressive, metastatic MTC, license and contract revenues and on the level of our expenses. These losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Our research and development expenditures and general and administrative expenses have exceeded our revenues for each year other than 2011, and we expect to spend significant additional amounts to fund the continued development of cabozantinib. As a result, we expect to continue to incur substantial operating expenses, and, consequently, we will need to generate significant additional revenues to achieve future profitability. Because of the numerous risks and uncertainties associated with developing drugs, we are unable to predict the extent of any future losses or when we will become profitable, if at all.
Recently AdoptedRecent Accounting Pronouncements
In July 2012,May 2014, the Financial Accounting Standards CodificationBoard (“ASC”FASB”) Topic 350,issued Accounting Standards Update (“ASU”) No. 2014-09, Testing Indefinite-Lived Intangible AssetsRevenue from Contracts with Customers (Topic 606), (“ASU 2014-09”). In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. ASU 2014-09, as amended, becomes effective for Impairment was amendedus in the first quarter of fiscal year 2018, but allows us to permitadopt the standard one year earlier. We currently plan to adopt ASU 2014-09 in the first quarter of fiscal year 2018. ASU 2014-09 also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). We currently anticipate adopting ASU 2014-09 using the modified retrospective method.
The core principle of ASU 2014-09 is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a reporting entityfive step process to first assess qualitative factors to determine whetherachieve this core principle and, in doing so, it is necessarypossible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. generally accepted accounting pronouncements. We do not expect that ASU 2014-09 will have a material impact on the recognition of revenue from product sales. We are still in the process of evaluating the effect that this guidance will have on revenue recognition from our collaboration agreements such as our arrangements with Ipsen and Genentech. We expect our evaluation to be completed by the end of the second quarter of 2017.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, (“ASU 2015-05”). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 was effective for all interim and annual reporting periods beginning after December 15, 2015 and therefore we adopted ASU 2015-05 in 2016 on a prospective basis. The adoption of ASU 2015-05 did not have a material impact on our Consolidated Financial Statements during the period of adoption and is not expected to have a material effect on our Consolidated Financial Statements in future periods.
In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory, (“ASU No. 2015-11”). ASU No. 2015-11 requires inventory measurement at the lower of cost and net realizable value. ASU No. 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted by all entities as of the beginning of an interim or annual reporting period. We are in the process of assessing the impact, if any, of ASU No. 2015-11 on our Consolidated Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), (“ASU 2016-02”). Under ASU 2016-02, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. ASU 2016-02 will require both types of leases to be recognized on the balance sheet. The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. ASU 2016-02 is effective for us for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. We are in the process of assessing the impact of ASU No. 2016-02 on our Consolidated Financial Statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, (“ASU 2016-09”). ASU 2016-09 is aimed at the simplification of several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for all interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. We do not expect the adoption of ASU 2016-09 to have a material impact on our Consolidated Financial Statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force), (“ASU 2016-15”). ASU 2016-15 addresses eight specific cash flow issues including debt prepayment or debt extinguishment costs, settlement of zero-coupon

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debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing and contingent consideration payments made after a business combination. ASU 2016-15 is effective for all interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted. We do not expect the adoption of ASU 2016-15 to have a material impact on our Consolidated Statements of Cash Flows.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for all interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted. We do not expect the adoption of ASU 2016-18 to have a material impact on our Consolidated Statements of Cash Flows.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, (“ASU 2017-04”). ASU 2017-04 eliminated Step 2 from the goodwill impairment test. Instead, under the amendments in ASU 2017-04, an entity should perform theits annual, quantitativeor interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for indefinite-lived intangible assets. This guidance wasthe amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective January 1, 2013. Thefor all interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. We do not expect the adoption of this amendment did not affectASU 2017-04 to have a material impact on our financial position or results of operations.Consolidated Financial Statements.
In February 2013, ASC Topic 220, Comprehensive Income was amended to require additional information about amounts reclassified out of accumulated other comprehensive income. We adopted this guidance beginning January 1, 2013, and will provide the additional information when such reclassifications occur. The adoption of this amendment did not affect our financial position or results of operations.
NOTE 2. RESEARCH AND COLLABORATION AGREEMENTS
CobimetinibIpsen Collaboration
In February 2016, we entered into a collaboration and license agreement with Ipsen for the commercialization and further development of cabozantinib. Pursuant to the terms of the collaboration agreement, Ipsen received exclusive commercialization rights for current and potential future cabozantinib indications outside of the U.S., Canada and Japan. The collaboration agreement was subsequently amended in December 2016 to include commercialization rights in Canada (the “Amendment”). We have also agreed to collaborate with Ipsen on the development of cabozantinib for current and potential future indications.
In consideration for the exclusive license and other rights contained in the collaboration and license agreement, Ipsen paid us an upfront nonrefundable payment of $200.0 million in March 2016. Additionally, as a result of the Amendment, we received a $10.0 million upfront nonrefundable payment from Ipsen in December 2016. As a result of the approval of cabozantinib in second-line RCC by the European Commission in September 2016, we received a $60.0 million milestone in November 2016. We are also eligible to receive additional development and regulatory milestones, totaling up to $254.0 million, including, milestone payments of $10.0 million and $40.0 million upon the filing and the approval of cabozantinib in second-line hepatocellular carcinoma (“HCC”) with the European Medicines Agency (“EMA”), and additional milestones for other future indications and/or jurisdictions. In the fourth quarter of 2016 we achieved two $10.0 million milestones for the first commercial sales of CABOMETYX in Germany and the United Kingdom. The collaboration agreement also provides that we will be eligible to receive contingent payments of up to $544.7 million associated with the achievement of specified levels of Ipsen sales to end users. We will also receive royalties on net sales of cabozantinib outside of the U.S. and Japan. We will receive a 2% royalty on the initial $50.0 million of net sales, and a 12% royalty on the next $100.0 million of net sales. After the initial $150.0 million of sales, we will receive a tiered royalty of 22% to 26% on annual net sales; these tiers will reset each calendar year. We are primarily responsible for funding cabozantinib related development costs for existing trials; global development costs for potential future trials will be shared between the parties, with Ipsen to reimburse us for 35% of such costs. Pursuant to the terms of the collaboration agreement, we will remain responsible for the manufacture and supply of cabozantinib for all development and commercialization activities under the collaboration agreement. As part of the collaboration agreement, we entered into a supply agreement which provides that through the end of the second quarter of 2018, we will supply finished, labeled product to Ipsen for distribution in the territories outside of the U.S. and Japan at our cost, as defined in the agreement, which excludes, among other items, the 3% royalty we are required to pay GlaxoSmithKline on Ipsen’s Net Sales of any product incorporating cabozantinib. From the end of the second quarter of 2018 forward, we will continue to manufacture cabozantinib tablets and capsules while Ipsen will be responsible for packaging and labeling the products in territories where they have been approved outside of the U.S. and Japan, as applicable.


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The collaboration agreement contains multiple elements, and the deliverables under the collaboration agreement consist of intellectual property licenses, delivery of products and/or materials containing cabozantinib to Ipsen for all development and commercial activities, research and development services, and participation on the joint steering and development committees (as defined in the collaboration agreement). These deliverables are non-contingent in nature. We determined that these deliverables do not have stand-alone value, because each one of them has value only if we meet our obligation to provide Ipsen with cabozantinib, which is deemed to be the predominant deliverable under the collaboration agreement. We also determined that the level of effort required of us to meet our obligations under the collaboration agreement is not expected to vary significantly over the life of the collaboration agreement. Accordingly, we combined these deliverables into a single unit of accounting and allocated the entire arrangement consideration to that combined unit of accounting. As a result, the upfront payment of $200.0 million, received in the first quarter of 2016 and the $10.0 million upfront payment received in December 2016 in consideration for the development and commercialization rights in Canada are being recognized ratably over the remaining term of the collaboration agreement. The collaboration agreement continues through early 2030, which is the current estimated patent expiration of cabozantinib in the European Union. At the time we entered into the agreement, we also determined that the $60.0 million milestone we achieved upon the approval of cabozantinib by the EC in second-line RCC was not substantive due to the relatively low degree of uncertainty and relatively low amount of effort required on our part to achieve the milestone as of the date of the collaboration agreement; the $60.0 million was deferred as of the date of the EMA’s approval of cabozantinib in second-line RCC in September 2016 and is being recognized ratably over the remaining term of the collaboration agreement. The two $10.0 million milestones for the first commercial sales of CABOMETYX in Germany and the United Kingdom were determined to be substantive at the time we entered into the collaboration agreement and were recognized as collaboration revenues in the fourth quarter of 2016. We determined that the remaining development and regulatory milestones are substantive and will be recognized as revenue in the periods in which they are achieved. We consider the contingent payments due to us upon the achievement of specified sales volumes to be similar to royalty payments. Subsequent to February 29, 2016, we transferred the intellectual property rights to Ipsen, and participated in regulatory filing activities and planning for the production, delivery and distribution of manufactured product. As a result of these activities, we began to recognize of the upfront payment under the collaboration agreement at that time.
During the year ended December 31, 2016, collaboration revenues under the collaboration agreement were as follows (in thousands):
 Year Ended December 31, 2016
Milestones achieved$20,000
Amortization of upfront payments and deferred milestone13,284
Royalty revenue175
Product supply agreement revenue1,612
Cost of supplied product(1,555)
Royalty payable to GlaxoSmithKline on net sales by Ipsen(264)
Collaboration revenues under the collaboration agreement$33,252
As of December 31, 2016, short-term and long-term deferred revenue relating to the collaboration agreement was $19.6 million and $237.1 million, respectively.
In connection with the establishment of the collaboration agreement, we provided Sobi with a notice of termination of our distribution and commercialization agreement for COMETRIQ. Effective November 1, 2016, Ipsen became responsible for the distribution and commercialization of COMETRIQ for the approved medullary thyroid carcinoma indication in territories previously supported by Sobi. Pursuant to our commercialization agreement with Sobi, we were required to pay a $2.9 million termination fee during the year ended December 31, 2016, which was included in Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations. Additionally, we were also required to issue a $0.4 million credit for unsold product to Sobi during the year ended December 31, 2016, which is included as a reduction of Net product revenues in the accompanying Consolidated Statements of Operations.


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Genentech Collaboration
In December 2006, we entered into a worldwide co-development agreement with Genentech forout-licensed the development and commercialization of cobimetinib. Cobimetinibcobimetinib to Genentech pursuant to a worldwide collaboration agreement. The FDA approved cobimetinib in the U.S. under the brand name Cotellic on November 10, 2015. It is indicated in combination with Zelboraf as a potent, highly selective inhibitor of MEK, a serine/threonine kinase that is a component oftreatment for patients with BRAF V600E or V600K mutation-positive advanced melanoma. Cotellic in combination with Zelboraf has also been approved in Switzerland, the RAS/RAF/MEK/ERK pathway. This pathway mediates signaling downstream of growth factor receptors,European Union, Canada, Australia and is prominently activatedBrazil for use in a wide variety of human tumors. In preclinical studies, oral dosing of cobimetinib resulted in potent and sustained inhibition of MEK in RAS- or BRAF-mutant tumor models. Exelixis discovered cobimetinib internally and advanced the compound to investigational new drug (“IND”), status.
Genentech paid upfront and milestone payments of $25.0 million in December 2006 and $15.0 million in January 2007 upon signing of the co-development agreement and with the submission of the IND for cobimetinib.same indication. Under the terms of the agreement, we were responsible for developing cobimetinib through the enddetermination of the maximum-tolerated dose in a phase 1 clinical trial, and Genentech had the option to co-develop cobimetinib, which Genentech could exercise after receipt of certain phase 1 data from us. In March 2008, Genentech exercised its option triggering a payment to us of $3.0 million, which we received in April 2008. We were responsible for the phase 1 clinical trial until the point that a maximum tolerated dose (“MTD”) was determined. After MTD was determined,co-develop cobimetinib. In March 2009, we granted to Genentech an exclusive worldwide revenue-bearing license to cobimetinib, in March 2009, at which point Genentech became responsible for completing the phase 1 clinical trial and subsequent clinical development. We received an additional $7.0 million payment in March 2010.
Preliminary results from BRIM7, an ongoing phase 1b dose escalation study conducted by Roche and Genentech of the BRAF inhibitor vemurafenib in combination with cobimetinib in patients with locally advanced/unresectable or metastatic melanoma carrying a BRAFV600 mutation were presented at the 2012 European Society of Medical Oncologists Annual Meeting. Updated data from BRIM7 reported at the European Cancer Congress 2013 suggest that the preliminary safety profile and activity of the investigational combination of cobimetinib and vemurafenib are encouraging in BRAF inhibitor-naïve patients. Although the phase 1b dose escalation study was designed to evaluate the safety and tolerability of cobimetinib in combination with vemurafenib, objective responses (comprising complete or partial responses) were observed in 85% of the patients who had not been previously treated with a BRAF inhibitor.
As disclosed on ClinicalTrials.gov (NCT01689519), a multicenter, randomized, double-blind, placebo-controlled phase 3 clinical trial evaluating the combination of vemurafenib with cobimetinib versus vemurafenib in previously untreated BRAFV600 mutation positive patients with unresectable locally advanced or metastatic melanoma was initiated on November 1, 2012. On January 14, 2013, we received notice from Genentech that the first patient was dosed in this phase 3 pivotal trial. Roche and Genentech have provided guidance that they expect top-line data from this trial in 2014.
In addition, as disclosed on ClinicalTrials.gov, on the basis of strong scientific rationale and encouraging preclinical data, Genentech is initiating the following new clinical trials of cobimetinib in combination with other agents under the agreement:
A Phase 1b, Open-Label, Dose-Escalation Study of the Safety, Tolerability, and Pharmacokinetics of MEHD7945A and Cobimetinib in Patients with Locally Advanced or Metastatic Solid Tumors with Mutant KRAS (NCT01986166);
A Phase 1b, Open-Label Study Evaluating the Safety, Tolerability, and Pharmacokinetics of Onartuzumab in Combination with Vemurafenib and/or Cobimetinib in Patients with Advanced Solid Malignancies (NCT01974258); and
A Phase 1b Study of the Safety and Pharmacology of MPDL3280A Administered with Cobimetinib in Patients with Locally Advanced or Metastatic Solid Tumors (NCT01988896).
Under the terms of our collaboration agreement with Genentech for cobimetinib, we are entitled to an initial equala share of U.S. profits and losses for cobimetinib, which will decrease as sales increase,received in connection with commercialization of cobimetinib. The profit and will share equally in the U.S. marketing and commercialization costs. The profitloss share has multiple tiers--wetiers: we are entitled to 50% of profits and losses from the first $200$200.0 million of U.S. actual sales, decreasing to 30% of profits and losses from U.S. actual sales in excess of $400$400.0 million. WeIn addition, we are entitled to low double-digit royalties on

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ex-U.S. net sales. In November 2013, we exercised ouran option under the collaboration agreement to co-promote in the U.S. We will provide up toFollowing the approval of Cotellic in the U.S. in November 2015, we began fielding 25% of the total sales force promoting Cotellic in combination with Zelboraf as a treatment for cobimetinibpatients with BRAF V600E or V600K mutation-positive advanced melanoma.
On June 3, 2016, following a 30 day dispute resolution period, we filed a demand for arbitration asserting claims against Genentech related to its clinical development, pricing and commercialization of Cotellic, and cost and revenue allocations in connection with Cotellic’s commercialization in the U.S. if commercialized,United States. Soon thereafter, Genentech asserted a counterclaim for breach of contract seeking monetary damages and will call on customers and otherwise engageinterest related to the cost allocations under the collaboration agreement. On December 29, 2016, Genentech withdrew its counterclaim against us in promotional activities using that sales force, consistent with the termsongoing JAMS arbitration concerning alleged breaches of the co-development agreementparties’ collaboration agreement. When notifying the arbitral panel and us of this unilateral action, Genentech further stated that it changed, both retroactively and prospectively, the manner in which it allocates promotional expenses of the Cotellic plus Zelboraf combination therapy. As a co-promotion agreementresult of Genentech’s decision to be entered intochange its cost allocation approach, we are relieved of our obligation to pay $18.7 million of disputed costs that had been accrued by us as of September 30, 2016. We have invoiced Genentech for certain expenses, with interest, that we had previously paid. Accordingly, during the parties. If Genentech terminatesyear ended December 31, 2016, we offset Selling, general and administrative expenses with a $13.3 million recovery for disputed losses that had been recognized prior to 2016. During the co-development agreement without cause, all licenses that were granted to Genentechyear ended December 31, 2016, we also recognized a loss under the collaboration agreement terminate and revert to us. Additionally,of $4.5 million for 2016 activities under the collaboration agreement as computed under Genentech’s revised cost allocation approach. Taken together, we would receive, subject to certain conditions, licenses from Genentech to research, develop and commercialize reverted product candidates.
We did not any recognize any revenue under our current agreement with Genentechhave recorded a net cost recovery of $8.8 million during the threeyear ended December 31, 2016 under the collaboration agreement.
During the years ended December 31, 2013.2016, 2015 and 2014, collaboration revenues and (loss) net cost recovery under the collaboration agreement were as follows (in thousands):
 Year Ended December 31,
 2016 2015 2014
Collaboration revenues:     
Royalty revenues on ex-U.S. sales of COTELLIC$2,827
 $14
 $—
(Loss) net cost recovery under the collaboration agreement included in Selling, general and administrative expenses$8,771
 $(16,600)
$(2,916)
The (loss) net cost recovery under the collaboration agreement includes personnel and other costs we have incurred to co-promote Cotellic plus Zelboraf in the U.S. As of December 31, 2015, a portion of the liability for those costs, identified as Accrued collaboration liability on the accompanying Consolidated Balance Sheets, included commercialization expenses that Genentech had allocated to the collaboration but remained under discussion between us and Genentech.
Other Collaborations
We have established collaborations with other leading pharmaceutical and biotechnology companies, including GlaxoSmithKline, Bristol-Myers Squibb, Sanofi,Daiichi Sankyo Company Limited (“Daiichi Sankyo”), Merck (known as MSD outside of the United StatesU.S. and Canada), Bristol-Myers Squibb Company (“BMS”), Sanofi and Daiichi Sankyo Company Limited, (“Daiichi Sankyo”),GlaxoSmithKline, for various compounds and programs in our portfolio.


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Pursuant to these collaborations, we have fully out-licensed compounds or programs to a partner for further development and commercialization, have no further development cost obligations related to such compounds or programs and may becommercialization. Under each of our collaborations, we are entitled to receive contingent paymentsmilestones and royalties or a share of profits from commercialization. Several of these out-licensed compounds are in multiple phase 2 studies. These partnered compounds could potentially be of significant value to us if their development progresses successfully.royalties.
With respect to theseour partnered compounds, other than cabozantinib and cobimetinib, we are eligible to receive potential contingent payments under our collaborations totaling approximately $2.4$2.2 billion in the aggregate on a non-risk adjusted basis, of which approximately 10%9% are related to clinical development milestones, approximately 41%42% are related to regulatory milestones and approximately 49% are related to commercial milestones, all to be achieved by the various licensees.
GlaxoSmithKline
In October 2002, we established a collaboration with GlaxoSmithKline to discover and develop novel therapeutics in the areas of vascular biology, inflammatory disease and oncology. The collaboration involved three agreements: (1) a product development and commercialization agreement, (2) a stock purchase and stock issuance agreement and (3) a loan and security agreement. During the term of the collaboration, we received $65.0 million in upfront and milestone payments, $85.0 million in research and development funding and loans in the principal amount of $85.0 million. In connection with the collaboration, GlaxoSmithKline purchased a total of three million shares of our common stock.
In October 2008, the development term under the collaboration concluded as scheduled. Under the terms of the collaboration, GlaxoSmithKline had the right to select up to two of the compounds in the collaboration for further development and commercialization. GlaxoSmithKline selected foretinib (XL880), an inhibitor of MET and VEGFR2, and had the right to choose one additional compound from a pool of compounds,licensees, which consisted of cabozantinib, XL281, XL228, XL820 and XL844 as of the end of the development term.
In July 2008, we achieved proof-of-concept for cabozantinib and submitted the corresponding data report to GlaxoSmithKline. In October 2008, GlaxoSmithKline notified us in writing that it decidedmay not to select cabozantinib for further development and commercialization and that it waived its right to select XL281, XL228, XL820 and XL844 for further development and commercialization. As a result, we retained the rights to develop, commercialize, and/or licensebe paid, if at all, of the compounds, subject to payment to GlaxoSmithKline of a 3% royalty on net sales of any product incorporating cabozantinib. We have discontinued development of XL820, XL228 and XL844.
GlaxoSmithKline continues to develop foretinib (XL880), and as disclosed on ClinicalTrials.gov, is currently recruiting patients into phase 1/2 trials studying the activity of foretinib in metastatic breast cancer both as a single agent
(NCT01147484) and in combination with lapatinib (NCT01138384), and in NSCLC as a single agent and in combination with erlotinib (NCT02034097).
In connection with the sales of COMETRIQ, during the year ended December 31, 2013 we recorded $0.4 million in royalty expense, which is included in Cost of Goods Sold on our Consolidated Statements of Operations. We did not recognize any revenue under our agreement with GlaxoSmithKline during the three years ended December 31, 2013.
The $85.0 million loan we received from GlaxoSmithKline was repayable in three annual installments. We paid the final installment of principal and accrued interest under the loan in shares of our common stock on October 27, 2011 and GlaxoSmithKline subsequently released its related security interest inuntil certain of our patents.

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Bristol-Myers Squibb
ROR Collaboration Agreement
In October 2010, we entered into a worldwide collaboration with Bristol-Myers Squibb pursuant to which each party granted to the other certain intellectual property licenses to enable the parties to discover, optimize and characterize ROR antagonists that may subsequently be developed and commercialized by Bristol-Myers Squibb. In November 2010 we received a nonrefundable upfront cash payment of $5.0 million from Bristol-Myers Squibb. Additionally, for each product developed by Bristol-Myers Squibb under the collaboration, we will be eligible to receive payments upon the achievement by Bristol-Myers Squibb of development and regulatory milestones of up to $255.0 million in the aggregate and commercialization milestones of up to $150.0 million in the aggregate, as well as royalties on commercial sales of any such products. The collaboration agreement was amended and restated in April 2011 in connection with an assignment of patents to a wholly-owned subsidiary.
Under the terms of the collaboration agreement, we were responsible for activities related to the discovery, optimization and characterization of the ROR antagonists during the collaborative research period. In July 2011, we earned a $2.5 million milestone payment for achieving certain lead optimization criteria. The collaborative research period began on October 8, 2010 and ended on July 8, 2013. Since the end of the collaborative research period, Bristol-Myers Squibb has and will continue to have sole responsibility for any further research, development, manufacture and commercialization of products developed under the collaboration and will bear all costs and expenses associated with those activities.
Bristol-Myers Squibb may, at any time, terminate the collaboration agreement upon certain prior notice to us on a product-by-product and country-by-country basis. In addition, either party may terminate the agreement for the other party’s uncured material breach. In the event of termination by Bristol-Myers Squibb at will or by us for Bristol-Myers Squibb’s uncured material breach, the license granted to Bristol-Myers Squibb would terminate, the right to such product would revert to us and we would receive a royalty-bearing license for late-stage reverted compounds and a royalty-free license for early-stage reverted compounds from Bristol-Myers Squibb to develop and commercialize such product in the related country. In the event of termination by Bristol-Myers Squibb for our uncured material breach, Bristol-Myers Squibb would retain the right to such product, subject to continued payment of milestones and royalties.
We recognized license and contract revenues of $1.5 million, $2.9 million and $2.8 million during the years ended December 31, 2013, 2012 and 2011, respectively, under our ROR collaboration agreement with Bristol-Myers Squibb.
LXR CollaborationAgreement
In December 2005, we entered into a collaboration agreement with Bristol-Myers Squibb for the discovery, development and commercialization of novel therapies targeted against LXR, a nuclear hormone receptor implicated in a variety of cardiovascular and metabolic disorders. This agreement became effective in January 2006, at which time we granted Bristol-Myers Squibb an exclusive worldwide license with respect to certain intellectual property primarily relating to compounds that modulate LXR, including BMS-852927 (XL041). During the research term, we jointly identified drug candidates with Bristol-Myers Squibb that were ready for IND-enabling studies. After the selection of a drug candidate for further clinical development by Bristol-Myers Squibb, Bristol-Myers Squibb agreed to be solely responsible for further preclinical development as well as clinical development, regulatory, manufacturing and sales/marketing activities for the selected drug candidate. We do not have rights to reacquire the drug candidates selected by Bristol-Myers Squibb. The research term expired in January 2010 and we transferred the technology to Bristol-Myers Squibb in 2011 to enable it to continue the LXR program. BMS has terminated development of XL041 and we have been advised that BMS is continuing additional preclinical research on the program. The collaboration agreement was amended and restated in April 2011 in connection with an assignment of patents to a wholly-owned subsidiary.
Under the collaboration agreement, Bristol-Myers Squibb paid us a nonrefundable upfront cash payment in the amount of $17.5 million and was obligated to provide research and development funding of $10.0 million per year for an initial research period of two years. In September 2007, the collaboration was extended at Bristol-Myers Squibb’s request through January 12, 2009, and in November 2008, the collaboration was further extended at Bristol-Myers Squibb’s request through January 12, 2010. Under the collaboration agreement, Bristol-Myers Squibb is required to pay us contingent amounts associated with development and regulatory milestones of up to $138.0 million per product for up to two products from the collaboration. In addition, weconditions are also entitled to receive payments associated with sales milestones of up to $225.0 million and royalties on sales of any products commercialized under the collaboration. In connection with the extension of the collaboration through January 2009 and subsequently through January 2010, Bristol-Myers Squibb paid us additional research funding of approximately $7.7 million and approximately $5.8 million, respectively. In December 2007, we received $5.0 million in connection with the achievement by Bristol-Myers Squibb, of a development milestone with respect to BMS-852927 (XL041).

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We did not any recognize any revenue under our LXR collaboration agreement with Bristol-Myers Squibb during the three years ended December 31, 2013.
Terminated Agreements
During 2013 and 2011, a number of additional license and collaboration agreements with Bristol-Myers Squibb were terminated or concluded, including a October 2010 license agreement for our small-molecule TGR5 agonist program, a December 2008 collaboration to develop and commercialize cabozantinib and XL281 (BMS-908662), a RAF inhibitor, and a January 2007 agreement to discover, develop and commercialize novel targeted therapies for the treatment of cancer. As a result of the termination, Bristol-Myers Squibb’s license relating to cabozantinib terminated and its rights to cabozantinib reverted to us, and we received, subject to certain terms and conditions, licenses from Bristol-Myers Squibb to research, develop and commercialize cabozantinib. We have no continuing obligations under these terminated agreements.
We recognized license and contract revenues of $14.8 million, $28.4 million and $168.9 million during the years ended December 31, 2013, 2012 and 2011, respectively, under these terminated agreements with Bristol-Myers Squibb.
Sanofi
In May 2009, we entered into a global license agreement with Sanofi for SAR245408 (XL147) and SAR245409 (XL765), leading inhibitors of phosphoinositide-3 kinase (“PI3K”), and a broad collaboration for the discovery of inhibitors of PI3K for the treatment of cancer. The license agreement and collaboration agreement became effective on July 7, 2009. In connection with the effectiveness of the license and collaboration, on July 20, 2009, we received upfront payments of $140.0 million ($120.0 million for the license and $20.0 million for the collaboration), less applicable withholding taxes of $7.0 million, for a net receipt of $133.0 million. We received a refund payment in December 2011 with respect to the withholding taxes previously withheld.
Under the license agreement, Sanofi received a worldwide exclusive license to SAR245408 (XL147) and SAR245409 (XL765), which are in phase 1, phase 1b/2 and phase 2 clinical trials, and has sole responsibility for all subsequent clinical, regulatory, commercial and manufacturing activities. Sanofi is responsible for funding all development activities with respect to SAR245408 (XL147) and SAR245409 (XL765), including our activities. Following the effectiveness of the license agreement, we conducted the majority of the clinical trials for SAR245408 (XL147) and SAR245409 (XL765) at the expense of Sanofi. As provided for under the license agreement, however, the parties transitioned all development activities for these compounds to Sanofi in 2011. As disclosed on ClinicalTrials.gov, SAR245408 (XL147) is currently being studied in a clinical trial evaluating pharmacokinetics of a tablet formulation in patients with solid tumors or lymphoma (NCT01943838). As disclosed on ClinicalTrials.gov, SAR245409 (XL765) is currently being studied in clinical trials in patients with lymphoma either as a single agent (NCT01403636) or in combination with bendamustine and/or rituximab (NCT01410513). In addition SAR245409 (XL765) is being studied in combination with a MEK inhibitor in patients with locally advanced or metastatic solid tumors (NCT01390818).
We will be eligible to receive contingent payments associated with development, regulatory and commercial milestones under the license agreement of $745.0 million in the aggregate, as well as royalties on sales of any products commercialized under the license.
Sanofi may, upon certain prior notice to us, terminate the license as to products containing SAR245408 (XL147) and SAR245409 (XL765). In the event of such termination election, Sanofi’s license relating to such product would terminate and revert to us, and we would receive, subject to certain terms, conditions and potential payment obligations, licenses from Sanofi to research, develop and commercialize such products.
In December 2011, we and Sanofi entered into an agreement pursuant to which the parties terminated the discovery collaboration agreement and released each other from any potential liabilities arising under the collaboration agreement prior to effectiveness of the termination in December 2011. Each party retains ownership of the intellectual property that it generated under the collaboration agreement, and we granted Sanofi covenants not-to-enforce with respect to certain of our intellectual property rights. The termination agreement also provided that Sanofi would make a payment to us of $15.3 million, which we received in January 2012. If either party or its affiliate or licensee develops and commercializes a therapeutic product containing an isoform-selective PI3K inhibitor that arose from such party’s work (or was derived from such work) under the collaboration agreement, then such party will be obligated to pay royalties to the other party based upon the net sales of such products. The termination agreement provides that Sanofi will make a one-time payment to us upon the first receipt by Sanofi or its affiliate or licensee of marketing approval for the first therapeutic product containing an isoform-selective PI3K inhibitor that arose from Sanofi’s work (or was derived from such work) under the collaboration agreement.

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We recognized license, contract and collaboration reimbursement revenues of $113.9 million during the year ended December 31, 2011 under our collaboration agreement with Sanofi. We did not any recognize any revenue during the years ended December 31, 2013 or 2012.
Merck
In December 2011, we entered into an agreement with Merck pursuant to which we granted Merck an exclusive worldwide license to our PI3K-delta (“PI3K-d”) program, including XL499 and other related compounds. Pursuant to the terms of the agreement, Merck has sole responsibility to research, develop, and commercialize compounds from our PI3K-d program. The agreement became effective in December 2011.
Merck paid us an upfront cash payment of $12.0 million in January 2012 in connection with the agreement. We will be eligible to receive payments associated with the successful achievement of potential development and regulatory milestones for multiple indications of up to $239.0 million. We will also be eligible to receive payments for combined sales performance milestones and royalties on net-sales of products emerging from the agreement. Contingent payments associated with milestones achieved by Merck and royalties are payable on compounds emerging from our PI3K-d program or from certain compounds that arise from Merck’s internal discovery efforts targeting PI3K-d during a certain period.
Merck may at any time, upon specified prior notice to us, terminate the license. In addition, either party may terminate the agreement for the other party’s uncured material breach. In the event of termination by Merck at will or by us for Merck’s uncured material breach, the license granted to Merck would terminate. In the event of a termination by us for Merck’s uncured material breach, we would receive a royalty-free license from Merck to develop and commercialize certain joint products. In the event of termination by Merck for our uncured material breach, Merck would retain the licenses from us, and we would receive reduced royalties from Merck on commercial sales of products.
We recognized license revenues of $10.7 million and $1.3 million during the years ended December 31, 2012 and 2011, respectively, under our collaboration agreement with Merck. We did not any recognize any revenue during the year ended December 31, 2013.met.
Daiichi Sankyo
In March 2006, we entered into a collaboration agreement with Daiichi Sankyo for the discovery, development and commercialization of novel therapies targeted against the mineralocorticoid receptor (“MR”), a nuclear hormone receptor implicated in a variety of cardiovascular and metabolic diseases. Under the terms of the agreement, we granted to Daiichi Sankyo an exclusive, worldwide license to certain intellectual property primarily relating to compounds that modulate MR, including CS-3150 (XL550)CS-3150/esaxerenone (a specific rotational isomer of XL550). Daiichi Sankyo is responsible for all further preclinical and clinical development, regulatory, manufacturing and commercialization activities for the compounds and we do not have rights to reacquire such compounds, except as described below.
Daiichi Sankyo paid us a nonrefundable upfront payment in the amount of $20.0 million and was obligated to provide research and development funding of $3.8 million over a 15-month research term. In June 2007, our collaboration agreement with Daiichi Sankyo was amended to extend the research term by six months over which Daiichi Sankyo was required to provide $1.5 million in research and development funding. In November 2007, the parties decided not to further extend the research term. For each product from the collaboration, we are also entitled to receive payments upon attainment of pre-specified development, regulatory and commercialization milestones. In December 2010, we received a milestone payment of $5.0 million in connection with an IND filing made by Daiichi Sankyo for CS-3150 (XL550) and, in August 2012, we received a milestone of $5.5 million in connection with the initiation of a phase 2 clinical trial for CS-3150 (XL550). We are eligible to receive additional development, regulatory and commercialization milestonesmilestone payments of up to $145.0 million.$130.0 million. In addition, we are also entitled to receive royalties on any sales of certain products commercialized under the collaboration. Daiichi Sankyo may terminate the agreement upon 90ninety days’ written notice in which case Daiichi Sankyo’s payment obligations would cease, its license relating to compounds that modulate MR would terminate and revert to us and we would receive, subject to certain terms and conditions, licenses from Daiichi Sankyo to research, develop and commercialize compounds that were discovered under the collaboration.
We recognized contract revenues of $5.5$15.0 million from milestone payments during the year ended December 31, 20122016 under our collaboration agreement with Daiichi Sankyo. We did not any recognize any such revenue during the years ended December 31, 2015 and 2014.
Merck
In December 2011, we entered into an agreement with Merck pursuant to which we granted Merck an exclusive worldwide license to our PI3K-delta (“PI3K-d”) program, including XL499 and other related compounds. Pursuant to the terms of the agreement, Merck has sole responsibility to research, develop, and commercialize compounds from our PI3K-d program. The agreement became effective in December 2011.
We will be eligible to receive payments associated with the successful achievement of potential development and regulatory milestones for multiple indications of up to $231.0 million. We will also be eligible to receive payments for combined sales performance milestones of up to $375.0 million and royalties on net-sales of products emerging from the agreement. Contingent payments associated with milestones achieved by Merck and royalties are payable on compounds emerging from our PI3K-d program or from certain compounds that arise from Merck’s internal discovery efforts targeting PI3K-d during a certain period.
We recognized contract revenues of $5.0 million and $3.0 million from milestone payments during the years ended December 31, 2016 and 2015, respectively, under our collaboration agreement with Merck. We did not recognize any such revenue during the year ended December 31, 2014.
Bristol-Myers Squibb
ROR Collaboration Agreement
In October 2010, we entered into a worldwide collaboration with BMS pursuant to which each party granted to the other certain intellectual property licenses to enable the parties to discover, optimize and characterize ROR antagonists that may subsequently be developed and commercialized by BMS. Since the collaborative research period ended in July 2013, or 2011.BMS has and will continue to have sole responsibility for any further research, development, manufacture and commercialization of products developed under the collaboration and will bear all costs and expenses associated with those activities.
For each product developed by BMS under the collaboration, we will be eligible to receive payments upon the achievement by BMS of development and regulatory milestones of up to $252.5 million in the aggregate and

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NOTE 3. DISPOSITION OF ARTEMIS PHARMACEUTICALScommercialization milestones of up to $150.0 million in the aggregate, as well as royalties on commercial sales of any such products.
We did not any recognize any revenue under our ROR collaboration agreement with BMS during the three years ended December 31, 2016.
LXR CollaborationAgreement
In November 2007December 2005, we entered into a share sale and transfercollaboration agreement with Taconic Farms, Inc.BMS for the discovery, development and commercialization of novel therapies targeted against LXR, a nuclear hormone receptor implicated in a variety of cardiovascular and metabolic disorders. This agreement became effective in January 2006, at which time we granted BMS an exclusive worldwide license with respect to certain intellectual property primarily relating to compounds that modulate LXR. The research term expired in January 2010 and we transferred the technology to BMS in 2011 to enable it to continue the LXR program. We have been advised that BMS is continuing additional preclinical research on the program.
Under the collaboration agreement, BMS is required to pay us contingent amounts associated with development and regulatory milestones of up to $53.0 million per product for up to two products from the collaboration. In addition, we are also entitled to receive payments associated with sales milestones of up to $310.0 million and royalties on sales of any products commercialized under the collaboration.
We did not recognize any revenue under our LXR collaboration agreement with BMS during the three years ended December 31, 2016.
Sanofi
In May 2009, we entered into a global license agreement with Sanofi for SAR245408 (XL147) and SAR245409 (XL765), leading inhibitors of phosphoinositide-3 kinase (“Taconic”PI3K”), pursuantand a broad collaboration for the discovery of inhibitors of PI3K for the treatment of cancer. The license agreement and collaboration agreement became effective on July 7, 2009.
We will be eligible to which Taconic acquired from us, for $19.8receive contingent payments associated with development, regulatory and commercial milestones under the license agreement of $745.0 million in cash, 80.1%the aggregate, as well as royalties on sales of any products commercialized under the license.
We did not recognize any revenue under our collaboration agreement with Sanofi during the three years ended December 31, 2016.
GlaxoSmithKline
In October 2002, we established a collaboration with GlaxoSmithKline to discover and develop novel therapeutics in the areas of vascular biology, inflammatory disease and oncology. Under the terms of the outstanding share capital in our wholly-owned subsidiary, Artemis Pharmaceuticals GmbH (“Artemis”), located in Cologne, Germany. Subsequent toproduct development and commercialization agreement, GlaxoSmithKline had the transaction, Artemis was renamed TaconicArtemis GmbH. In September 2011 we exercised our right to sell our remaining 19.9% interestchoose cabozantinib for further development and commercialization, but notified us in ArtemisOctober 2008 that it had waived its right to Taconic. We received $3.0select the compound for such activities. As a result, we retained the rights to develop, commercialize, and license cabozantinib, subject to payment to GlaxoSmithKline of a 3% royalty on net sales of any product incorporating cabozantinib. The product development and commercialization agreement was terminated during 2014, although GlaxoSmithKline will continue to be entitled to a 3% royalty on net sales of any product incorporating cabozantinib, including COMETRIQ and CABOMETYX.
In connection with the sales of COMETRIQ and CABOMETYX, during the years ended December 31, 2016, 2015 and 2014 we recorded $4.3 million, $1.0 million and $0.7 million, respectively, in considerationroyalties payable to GlaxoSmithKline. Royalty expense is included in Cost of our remaining 19.9% interestgoods sold for sales by us and as a reduction of Collaboration revenue for sales by Ipsen in December 2011, and we recognized a gainthe accompanying Consolidated Statements of $2.3 million after consideration of the impact of foreign currency exchange rates and the write off of the carrying value of our investment in Artemis.Operations.
NOTE 4.3. RESTRUCTURINGS
Between March 2010 and May 2013, we implemented five restructurings which(which we refer to collectively as the Restructurings,“2010 Restructurings”) to manage costs and as a consequence of our decision in 2010 to focus our proprietary resources and development efforts on the development and commercialization of cabozantinib and strategy to manage costs.cabozantinib. The aggregate reduction in headcount from the 2010 Restructurings was 429 employees. We recorded chargesCharges and credits related to the 2010 Restructurings were recorded in periods other than those in which the 2010 Restructurings were implemented as a result of sublease activities for certain of our buildings in South San Francisco, California, changes in assumptions regarding anticipated sublease activities, the effect of the passage of time on our discounted cash flow computations, previously planned employee terminations, and sales of excess equipment and other assets.
We have recorded aggregate restructuring charges of $53.3 million from inception through December 31, 2013 in connection with the Restructurings, of which $29.2 million related to facility charges, $21.7 million related to termination benefits, $2.3 million related to the impairment of excess equipment and other assets, and an additional minor amount related to legal and other fees. Asset impairment charges, net were partially offset by cash proceeds of $2.7 million from the sale of such assets.
For the years ended December 31, 2013, 2012, and 2011 we recorded restructuring charges of $1.2 million, $9.2 million, and $10.1 million, respectively, which related primarily to termination benefits and facility charges in connection with the exit of portions of certain of our buildings in South San Francisco.


7487

In September 2014, as a consequence of the failure of COMET-1, one of our two phase 3 pivotal trials of cabozantinib in metastatic castration-resistant prostate cancer, we initiated a restructuring (which we refer to as the “2014 Restructuring”) to reduce our workforce. The aggregate reduction in headcount from the 2014 Restructuring was 143 employees. The principal objective of the 2014 Restructuring was to enable us to focus our financial resources on the phase 3 pivotal trials of cabozantinib in advanced RCC and advanced HCC.
The total outstanding current and long-term restructuring liability related to the Restructurings is included in Other current liabilities and Other long-term portion of restructuringliabilities, respectively, on ourthe accompanying Consolidated Balance Sheets. The components and changes of these liabilities duringand the annual periodscumulative restructuring charge from inception of the restructuring activities through December 31, 2013to date are summarized in the following table (in thousands):
 
Employee 
Severance
And Other Benefits
 
Facility
Charges
 
Asset
Impairment
 
Legal and
Other Fees
 Total
Restructuring charge$17,677
 $11,814
 $3,173
 $80
 $32,744
Cash payments(10,528) (3,739) —
 (10) (14,277)
Adjustments or non-cash credits including stock compensation expense(1,626) 613
 (3,341) —
 (4,354)
Proceeds from sale of assets—
 —
 168
 —
 168
Ending accrual balance as of December 31, 20105,523
 8,688
 —
 70
 14,281
Restructuring charge2,566
 8,480
 (907) (3) 10,136
Cash payments(7,366) (3,469) —
 (16) (10,851)
Adjustments or non-cash credits including stock compensation expense(717) 222
 (619) —
 (1,114)
Proceeds from sale of assets—
 —
 1,526
 —
 1,526
Ending accrual balance as of December 31, 20116
 13,921
 —
 51
 13,978
Restructuring charge970
 8,276
 (47) (28) 9,171
Cash payments(965) (5,299) —
 (3) (6,267)
Adjustments or non-cash credits including stock compensation expense(11) 2,304
 (891) —
 1,402
Proceeds from sale of assets—
 —
 938
 —
 938
Restructuring liability as of December 31, 2012—
 19,202
 —
 20
 19,222
Restructuring charge (credit)496
 662
 88
 (15) 1,231
Cash payments(434) (6,331) —
 —
 (6,765)
Adjustments or non-cash credits including stock compensation expense(55) (73) (183) —
 (311)
Proceeds from sale of assets—
 —
 95
 —
 95
Restructuring liability as of
December 31, 2013		$7
 $13,460
 $—
 $5
 $13,472
 2010 Restructurings 2014 Restructuring  
 Facility
Charges		 
Other 
 
Employee
Severance
and Other Benefits
 Facility
Charges		 
Other 
 Total
Restructuring liability as of December 31, 2013$13,460
 $12
 $—
 $—
 $—
 $13,472
Restructuring charge (recovery)1,626
 (117) 5,775
 65
 247
 7,596
Proceeds from sale of assets—
 199
 —
 —
 100
 299
Other cash payments, net(5,644) (8) (4,507) (65) (12) (10,236)
Other items12
 (86) 22
 —
 (288) (340)
Restructuring liability as of December 31, 20149,454
 —
 1,290
 —
 47
 10,791
Restructuring charge (recovery)757
 —
 (269) 1,582
 (1,028) 1,042
Proceeds from sale of assets—
 —
 —
 —
 1,325
 1,325
Other cash payments, net(6,449) —
 (1,021) (1,357) —
 (8,827)
Other items325
 —
 —
 278
 (344) 259
Restructuring liability as of December 31, 20154,087
 —
 —
 503
 —
 4,590
Restructuring charge902
 —
 —
 12
 —
 914
Other cash payments, net(4,039) —
 —
 (500) (34) (4,573)
Other items975
 —
 —
 —
 34
 1,009
Restructuring liability as of December 31, 2016$1,925
 $—
 $—
 $15
 $—
 $1,940
            
Restructuring charge (recovery) from implementation to date$32,517
 $23,933
(1) 
$5,506
 $1,659
 $(781)
(1) 
$62,834
We expect____________________
(1)Other restructuring charge from implementation to date for the 2010 Restructurings includes $21.7 million in charges related to employee severance and other benefits for periods ended prior to December 31, 2013. The remainder of Other activity for both restructurings relates primarily to the impairment and sale of property and equipment.
The restructuring charge for the year ended December 31, 2016 included $0.8 million in charges related to pay accrued facilitya tenant’s default on an existing sublease which was partially offset by a $0.1 million recovery related to a new sublease executed in July 2016. The restructuring charge for the year ended December 31, 2015 included $1.6 million in additional charges due to the partial termination of one of our building leases and additional facility-related charges related to the decommissioning and exit of certain buildings, which was partially offset by $1.0 million in recoveries recorded in connection with the sale of excess equipment and other assets that had previously been fully depreciated and the reversal of severance charges recorded in 2014 for employees that were recalled in 2015. The restructuring charge for the year ended December 31, 2014 includes $5.8 million of employee severance and other benefits and we recorded charges of $13.5$0.3 million, net of cash received from our subtenants, through for property and equipment write-downs and other charges. The charges for all periods presented include the end of our lease termseffect of the buildings, the lastpassage of which ends in 2017. With respect totime on our Restructurings, we expect to incur additional restructuring charges of approximately $0.9 million which relate todiscounted cash flow computations (“accretion expense”) for the exit, in prior periods, of certain of our South San Francisco buildings. Thesebuildings and changes in estimates regarding future subleases.


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We expect to pay accrued facility charges will be recordedof $1.9 million, net of cash received from our subtenants, through the end of the building lease terms of the lastbuildings, all of which endsend in May 2017.
The Restructurings have resulted in aggregate cash expenditures of $35.4 million, net of $10.2 million in cash received from subtenants and $2.7 million in cash received in connection with the sale of excess equipment and other assets. Net cash expenditures for the Restructurings were $6.7 million, $5.3 million and $9.3 million for the years ended December 31, 2013, 2012, and 2011, respectively.
The restructuring charges that we expect to incur in connection with the Restructurings are subject to a number of assumptions, and actual results may materially differ. We may also incur other material charges not currently contemplated due to events that may occur as a result of, or associated with, the Restructurings.

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NOTE 5.4. CASH AND INVESTMENTS
Cash and Investments Available-for-Sale
The following table summarizestables summarize cash and cash equivalents, investments, and restricted cash and investments by balance sheet line item as of December 31, 20132016 and 20122015 (in thousands):
 December 31, 2013
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
As reported:       
Cash and cash equivalents$103,978
 $—
 $—
 $103,978
Short-term investments138,403
 94
 (22) 138,475
Short-term restricted cash and investments12,173
 40
 —
 12,213
Long-term investments144,226
 106
 (33) 144,299
Long-term restricted cash and investments16,837
 60
 —
 16,897
Total cash and investments$415,617
 $300
 $(55) $415,862
December 31, 2012December 31, 2016
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
As reported:       
Cash and cash equivalents$170,070
 $—
 $(1) $170,069
$151,686
 $—
 $—
 $151,686
Short-term investments241,391
 46
 (66) 241,371
268,234
 13
 (130) 268,117
Short-term restricted cash and investments12,242
 4
 —
 12,246
Long-term investments182,407
 28
 (124) 182,311
55,792
 1
 (192) 55,601
Long-term restricted cash and investments27,943
 21
 —
 27,964
Long-term restricted investments4,150
 —
 —
 4,150
Total cash and investments$634,053
 $99
 $(191) $633,961
$479,862
 $14
 $(322) $479,554
 December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
Cash and cash equivalents$141,634
 $—
 $—
 $141,634
Short-term investments25,484
 5
 (63) 25,426
Long-term investments83,665
 2
 (67) 83,600
Long-term restricted investments2,650
 —
 —
 2,650
Total cash and investments$253,433
 $7
 $(130) $253,310
Under our loan and security agreement with Silicon Valley Bank, we are required to maintain compensating balances on deposit in one or more investment accounts with Silicon Valley Bank or one of its affiliates. The total collateral balances were $81.6 millionas of both December 31, 20132016 and 20122015 were $83.7 million and $87.0 million, respectively and are reflected in our Consolidated Balance Sheets in Short-short-term investments as of December 31, 2016 and Long-term investments.long-term investments as of December 31, 2015; the change in classification from long-term to short-term was the result of a corresponding change in the classification for our term loan payable to Silicon Valley Bank which matures in May 2017. See “Note 8 -7. Debt” for more information regarding the collateral balance requirements under our Silicon Valley Bank loan and security agreement.

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89

All of our cash equivalents and investments are classified as available-for-sale. The following table summarizes our cash equivalents and investments by security type as of December 31, 20132016 and 20122015. The amounts presented exclude cash, but include investments classified as cash equivalents (in thousands):
 December 31, 2013
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
Money market funds$24,813
 $—
 $—
 $24,813
Commercial paper94,682
 —
 —
 94,682
Corporate bonds239,937
 190
 (55) 240,072
U.S. Treasury and government sponsored enterprises44,284
 102
 —
 44,386
Municipal bonds6,005
 8
 

 6,013
Total investments$409,721
 $300
 $(55) $409,966
December 31, 2012December 31, 2016
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
Money market funds$76,048
 $—
 $—
 $76,048
$71,457
 $—
 $—
 $71,457
Commercial paper167,223
 10
 —
 167,233
165,375
 —
 —
 165,375
Corporate bonds222,106
 30
 (187) 221,949
152,712
 3
 (308) 152,407
U.S. Treasury and government sponsored enterprises132,933
 59
 (1) 132,991
70,730
 11
 (14) 70,727
Municipal bonds30,047
 —
 (3) 30,044
Total investments$628,357
 $99
 $(191) $628,265
$460,274
 $14
 $(322) $459,966
 December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 Fair Value
Money market funds$72,000
 $—
 $—
 $72,000
Commercial paper78,155
 —
 —
 78,155
Corporate bonds72,205
 4
 (118) 72,091
U.S. Treasury and government sponsored enterprises28,434
 1
 (12) 28,423
Marketable equity securities16
 2
 —
 18
Total investments$250,810
 $7
 $(130) $250,687
There were no gains or losses on the sales of investments available-for-sale during the years ended December 31, 20132016, 20122015 and 2011.2014.
All of our investments are subject to a quarterly impairment review. During the yearyears ended December 31, 20132016, 2015 and 2012,2014 we did not record any other-than-temporary impairment charges on our available-for-sale securities. As of December 31, 20132016, there were 3886 investments in an unrealized loss position with gross unrealized losses of $322,000 and an aggregate fair value $65.3of $172.1 million. All ofThe investments in an unrealized loss position arecomprise corporate bonds. All investments inbonds with an unrealized loss position have been so for less than one yearaggregate fair value of $143.5 million and the remainder comprises primarily securities issued by U.S. Treasury and government sponsored enterprises. The unrealized losses were not attributed to credit risk, but rather associated with the changes in interest rates. Based on the scheduled maturities of our investments, we concluded that the unrealized losses in our investment securities are not other-than-temporary, as it is more likely than not that we will hold these investments for a period of time sufficient for a recovery of our cost basis.
The following summarizes the fair value of securities classified as available-for-sale by contractual maturity as of December 31, 20132016 (in thousands): 
Mature within One Year After One Year through Two Years Fair ValueMature within One Year After One Year through Two Years Fair Value
Money market funds$24,813
 $—
 $24,813
$71,457
 $—
 $71,457
Commercial paper94,682
 —
 94,682
165,375
 —
 165,375
Corporate bonds155,290
 84,782
 240,072
99,455
 52,952
 152,407
U.S. Treasury and government sponsored enterprises32,216
 12,170
 44,386
68,078
 2,649
 70,727
Municipal bonds—
 6,013
 6,013
Total$307,001
 $102,965
 $409,966
$404,365
 $55,601
 $459,966
Cash is excluded from the table above.
The classification of certain compensating balances and restricted investments are dependent upon the term of the underlying restriction on the asset and not the maturity date of the investment. Therefore, certain long-term investments and long-term restricted cash and investments have contractual maturities within one year.

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Other Cost Method Equity Investments
During the year ended December 31, 2016 we recognized a $2.5 million gain on the sale of our 9% interest in Akarna Therapeutics, Ltd. The gain on the sale is included in Interest income and other, net in our Consolidated Statements of Operations. The gain on sale of other cost method equity investments was either nominal or zero during the years ended December 31, 2015 and 2014.
As of December 31, 2016 and 2015, the carrying values of such investments were $0.
NOTE 6.5. INVENTORY
Inventory consists of the following (in thousands):
December 31,December 31,
20132016 2015
Raw materials$529
$863
 $1,037
Work in process2,280
2,343
 2,251
Finished goods81
738
 583
Total$2,890
3,944
 3,871
Less: non-current portion included in Other long-term assets(606) (1,255)
Inventory$3,338
 $2,616
We receivedgenerally relieve inventory on a first-expiry, first-out basis. A portion of the manufacturing costs for inventory were incurred prior to regulatory approval of CABOMETYX and COMETRIQ and, therefore, were expensed as research and development costs when those costs were incurred, rather than capitalized as inventory. Write-downs related to expiring and excess inventory are charged to cost of goods sold. Such write-downs were $0.5 million and $1.2 million for our first product, COMETRIQ, on November 29, 2012. As ofthe years ended December 31, 20122016 and 2015, ourrespectively. The non-current portion of inventory is recorded inventory balance was $0 as we did not incur any costswithin Other long-term assets on the accompanying Consolidated Balance Sheets and is comprised of a portion of the active pharmaceutical ingredient that would be recorded as inventory subsequent to the receipt of regulatory approvalis included in raw materials and prior to year end.work in process inventories.

NOTE 7.6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands): 
December 31,December 31,
2013 20122016 2015
Laboratory equipment$15,453
 $19,504
$4,310
 $4,749
Computer equipment and software14,462
 11,897
13,738
 11,890
Furniture and fixtures3,691
 3,230
2,240
 2,253
Leasehold improvements17,031
 16,572
6,646
 6,395
Construction-in-progress68
 1,409
19
 456
50,705
 52,612
26,953
 25,743
Less: accumulated depreciation and amortization(45,795) (46,553)(24,882) (24,309)
Property and equipment, net$4,910
 $6,059
$2,071
 $1,434
For the years ended December 31, 20132016, 20122015 and 20112014, we recorded depreciation expense of $3.11.0 million, $4.81.4 million and $6.82.4 million, respectively.
In 2013, 2012 and 2011,For the year ended 2014, we recorded grossan asset impairment charges in the amountscharge of approximately $0.1$0.7 million $0.3 million and $0.5 million, respectively, in connection with the Restructurings. There were no such charges in 2016 or 2015. In 2015 and 2014, the gain on the sale of excess equipment was $1.0 million and $0.6 million, respectively. There were no such gains in 2016. Cash proceeds on sales were $0.1 million, $1.3 million and $0.4 million during 2016, 2015 and 2014, respectively. The amount recordedimpairment and subsequent sale of excess equipment was a result of the 2010 restructurings, as a restructuring charge fordescribed further in “Note 3 - Restructurings”. The asset impairment as presented in “Note 4 - Restructurings,” wascharge, net of the gain on the sale of such assets. In 2012 and 2011, the gain on the sale of such assets was $0.3 million and $1.4 million, respectively. There were no such gainsrecorded as a Restructuring charge (recovery) in 2013. Cash proceeds on those sales were $0.1 million, $0.9 million and $1.5 million during 2013, 2012 and 2011, respectively.our Consolidated Statements of Operations.


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NOTE 8.7. DEBT
The amortized carrying amount of our debt consists of the following (in thousands):
 December 31,
 2013 2012
Convertible Senior Subordinated Notes due 2019$165,296
 $149,800
Secured Convertible Notes due 201599,851
 100,676
Silicon Valley Bank term loan80,000
 80,000
Silicon Valley Bank line of credit2,090
 5,260
Total debt347,237
 335,736
Less: current portion(11,762) (13,170)
Long-term debt$335,475
 $322,566
 December 31,
 2016 2015
Secured Convertible Notes due 2018 (“Deerfield Notes”)$109,122
 $102,727
Term loan payable80,000
 80,000
2019 Notes—
 235,210
Total debt189,122
 417,937
Less: current portion(189,122) —
Long-term debt$—
 $417,937

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TablePrior period balances in this Note reflect revisions due to a correction of Contents

Convertible Senior Subordinated Notes duean immaterial error with regards to the 2019 and Related Concurrent OfferingNotes. The immaterial error resulted in an overstatement of Our Common Stock
On August 14, 2012, we issued and sold $287.5 million aggregate principal amount of 4.25% convertible senior subordinated notes due 2019 (the “2019 Notes”). On that date we completed concurrent registered underwritten public offerings in which we soldthe discount on the 2019 Notes and 34.5 million shares of common stock at a price of $4.25 per share, generating aggregate net proceeds of $416.1 million. The convertible debt offering resulted in net proceeds of $277.7 million after deductingtherefore understated the underwriting discountand offering expenses of $9.3 million and $0.5 million, respectively. The equity offering resulted in net proceeds of $138.4 million after deducting the underwriting discount of$7.7 million and other expenses of $0.5 million.
The 2019 Notes were issued pursuant to an indenture, as supplemented by a supplemental indenture with Wells Fargo Bank, National Association, as trustee (the “Trustee”), and mature on August 15, 2019, unless earlier converted, redeemed or repurchased. The 2019 Notes bear interest at the rate of 4.25% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning February 15, 2013. Subject to certain terms and conditions, at any time on or after August 15, 2016, we may redeem for cash all or a portion of the 2019 Notes. The redemption price will equal 100% of the principalamortized carrying amount of the 2019 Notes to be redeemed, plus accrued and unpaidoverstated the related interest if any, to, but excluding, the redemption date.
Upon the occurrenceexpense. See “Note 1. Organization and Summary of certain circumstances, holders may convert their 2019 Notes prior to the closeSignificant Accounting Policies - Correction of businessan Immaterial Error” for additional information on the business day immediately preceding May 15, 2019. On or after May 15, 2019, until the close of business on the second trading day immediately preceding August 15, 2019, holders may surrender their 2019 Notes for conversion at any time. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The initial conversion rate of 188.2353 shares of common stock per $1,000 principal amount of 2019 Notes is equivalent to a conversion price of approximately $5.31 per share of common stock. The conversion rate is subject to adjustment upon the occurrence of certain events.
If a “Fundamental Change” (as defined in the indenture governing the 2019 Notes) occurs, holderscorrection of the 2019immaterial error.
Deerfield Notes may require us to purchase for cash all or any portion of their 2019 Notes at a purchase price equal to 100% of the principal amount of the Notes to be purchased plus accrued and unpaid interest, if any, to, but excluding, the Fundamental Change purchase date.
In connection with the offering of the 2019 Notes, $36.5 million of the proceeds were deposited into an escrow account which contains an amount of permitted securities sufficient to fund, when due, the total aggregate amount of the first six scheduled semi-annual interest payments on the 2019 Notes. As of December 31, 2013, we have used $12.3 million of the amounts held in the escrow account to pay the required semi-annual interest payments. The short- and long-term amounts held in the escrow account as of December 31, 2013 were $12.2 million and $16.9 million, respectively, and are included in short- and long-term restricted cash and investments. We have pledged our interest in the escrow account to the Trustee as security for our obligations under the 2019 Notes.
The 2019 Notes are accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options.Under ASC Subtopic 470-20, issuers of certain convertible debt instruments that have a net settlement feature and may be settled in cash upon conversion, including partial cash settlement, are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the liability component of any outstanding debt instrument is computed by estimating the fair value of a similar liability without the conversion option. The amount of the equity component is then calculated by deducting the fair value of the liability component from the principal amount of the convertible debt instrument. The effective interest rate used in determining the liability component of the 2019 Notes was 10.09%. This resulted in the recognition of $144.3 million as the liability component and the residual $143.2 million as the debt discount with a corresponding increase to paid-in capital, the equity component, for the 2019 Notes. The underwriting discount of $9.3 million and offering expenses of $0.5 million were allocated between debt issuance costs and equity issuance costs in proportion to the allocation of the proceeds. Debt issuance costs of $4.9 million are included in Other long term assets on our Consolidated Balance Sheets as of the issuance date. Equity issuance costs of $4.9 million related to the convertible debt offering were recorded as an offset to additional paid-in capital.

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The following is a summary of the liability component of the 2019 Notes as of December 31, 2013 and 2012 (in thousands):
 December 31,
 2013 2012
Net carrying amount of the liability component$165,296
 $149,800
Unamortized discount of the liability component122,204
 137,700
Principal amount of the 2019 Notes$287,500
 $287,500
The debt discount and debt issuance costs will be amortized as interest expense through August 15, 2019. During the years ended December 31, 2013 and 2012 total interest expense for the 2019 Notes was $28.4 million, and $10.3 million, respectively, including stated coupon interest of $12.2 million and $4.6 million, respectively, and the amortization of the debt discount and debt issuance costs of $16.2 million and $5.7 million, respectively. The balance of unamortized fees and costs was $4.0 million and $4.7 million as of December 31, 2013 and 2012, respectively, which is recorded in the accompanying Consolidated Balance Sheet as Other assets.
Secured Convertible Notes due June 2015
In June 2010, we entered into a note purchase agreement with Deerfield Private Design Fund, L.P. and Deerfield Private Design International, L.P., (the “Original Deerfield Purchasers”), pursuant to which, on July 1, 2010,, we sold to the Original Deerfield Purchasers an aggregate of $124.0 million initial principal amount of our Secured Convertible Notes due July 1, 2015, (the “Deerfield Notes”)which we refer to as the Original Deerfield Notes, for an aggregate purchase price of $80.0 million, less closing fees and expenses of approximately $2.0 million. As of December 31, 2013 and 2012, the remaining outstanding principal balance on the Deerfield Notes was $114.0 million and $124.0 million, respectively. We refer to the Original Deerfield Purchasers and the New Deerfield Purchasers (identified below) collectively as Deerfield.
The outstanding principal amount of the Deerfield Notes bears interest in the annual amount of $6.0 million, payable quarterly in arrears. During the years ended December 31, 2013, 2012, and 2011, total interest expense for the Deerfield Notes was $16.1 million, $15.9 million, and $14.3 million, respectively, including the stated coupon rate and the amortization of the debt discount and debt issuance costs. The non-cash expense relating to the amortization of the debt discount and debt issuance costs were $10.1 million, $9.9 million, and $8.3 million, respectively, during those periods. The balance of unamortized fees and costs was $1.4 million and $2.3 million as of December 31, 2013 and 2012, respectively, which is recorded in the Consolidated Balance Sheet as Other assets.
On August 6, 2012, the parties amended the note purchase agreement to permit the issuance of the 2019 Notes and modify certain optional prepayment rights. The amendment became effective upon the issuance of the 2019 Notes and the payment to the Original Deerfield Purchasers of a $1.5$1.5 million consent fee. On August 1, 2013, the parties further amended the note purchase agreement to clarify certain of our other rights under the note purchase agreement.
On January 22, 2014, the note purchase agreement was further amended to provide us with an option to extend the maturity date of our indebtedness under the note purchase agreement to July 1, 2018. UnderOn July 10, 2014, the termsparties further amended the note purchase agreement to clarify certain technical provisions. On July 1, 2015, we made a $4.0 million principal payment and then extended the maturity date of the extension option, we haveOriginal Deerfield Notes from July 1, 2015 to July 1, 2018. In connection with the right to requireextension, Deerfield Partners, L.P. and Deerfield International Master Fund, L.P., (the “New Deerfield Purchasers”), acquired the $100.0 million principal amount of the Original Deerfield Notes and we entered into the Restated Deerfield Notes with each of the New Deerfield Purchasers, representing the $100.0 million principal amount. We refer to acquire $100the Original Deerfield Purchasers and the New Deerfield Purchasers collectively as Deerfield, and to the Original Deerfield Notes and Restated Deerfield Notes, collectively as the Deerfield Notes.
As of December 31, 2016 and 2015, the outstanding principal balance on the Deerfield Notes was $109.8 million and $103.8 million, respectively, which, subject to certain limitations, is payable in cash or in stock at our discretion. Beginning on July 2, 2015, the outstanding principal amount of the Deerfield Notes and extend the maturity date thereof to July 1, 2018. We are under no obligation to exercise the extension option. To exercise the extension option, we must provide a notice of exercise to Deerfield prior to March 31, 2015. If we exercise the extension option, the Deerfield Notes would mature on July 1, 2018 and bearbears interest on and after July 2, 2015 at the rate of 7.5% per annum to be paid in cash, quarterly in arrears, and 7.5% per annum to be paid in kind, quarterly in arrears, for a total interest rate of 15% per annum. Through July 1, 2015, the outstanding principal amount of the Deerfield Notes bore interest in the annual amount of $6.0 million, payable quarterly in arrears.
We have classified the Deerfield Notes as a current liability as of December 31, 2016 because we intend to repay the Deerfield Notes on or about July 1, 2017 at a prepayment price equal to 105% of the outstanding principal amount of the notes, plus accrued and unpaid interest to the date of repayment. We expect that cash and cash equivalents and short-term investments held at December 31, 2016 will be used to repay the Deerfield Notes.


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The following is a summary of interest expense for the Deerfield Notes (in thousands):
 Year Ended December 31,
 2016 2015 2014
Stated coupon interest$8,008
 $6,792
 $6,000
Interest paid in kind8,008
 3,817
 —
Amortization of debt discount and debt issuance costs457
 5,461
 11,731
Total interest expense$16,473
 $16,070
 $17,731
In eachThe balance of January 2014unamortized fees and 2013, we made mandatory prepaymentscosts was $0.4 million and $0.7 million as of $10.0 millionDecember 31, 2016 and 2015, respectively, which is recorded as a reduction of the carrying amount of the Deerfield Notes on the Deerfield Notes. accompanying Consolidated Balance Sheets. Effective March 4, 2015, upon notification of our election to extend the maturity date to July 1, 2018, we began to amortize the remaining unamortized discount, fees and costs through July 1, 2018 using the effective interest method and an effective interest rate of 15.2%.
We will bewere required to offer to make an additional mandatory prepayment on the Deerfield Notes in January 2016 and 2015 equal to 15% of certain revenues from collaborative arrangements, (“Development/which we refer to as “Development/Commercialization Revenue”), received during the prior fiscal year, subject to a maximum prepayment amount of $27.5 million. There is no minimum prepayment due in 2015. Our obligation to make annual mandatory prepayments equal to 15%$27.5 million. The definition of Development/Commercialization Revenue received by us during the prior fiscal year will apply in each of 2016, 2017 and 2018 if we exercise the extension option. However, we will only be obligated to make any such annual mandatory prepayment after exercise of the extension option if the New Deerfield Purchasers provide notice to us of their election to receive the prepayment. Mandatory prepayments relating to Development/Commercialization Revenue will continue to be subject to a maximum annual prepayment amount of $27.5 million. The definition of “Development/Commercialization Revenue” expressly excludes any sale or distribution of drug or pharmaceutical products in the ordinary course of our business, and any proceeds from any Intellectual Property Sales (as further described below).

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the net profits from the commercialization of cobimetinib in the U.S. and the receipt of royalties from cobimetinib sales outside the U.S. As a result of the January 2014 amendment, we are required to notify the applicable Deerfield entities of certain sales, assignments, grants of exclusive licenses or other transfers of our intellectual property pursuant to which we transfer all or substantially all of our legal or economic interests, defined as an Intellectual Property Sale, and the Deerfield entities may elect to require us to prepay the principal amountextension of the Deerfield Notes in an amount equal to (i) 100% of the cash proceeds of any Intellectual Property Sale relating to cabozantinib and (ii) 50% of the cash proceeds of any other Intellectual Property Sale. Under the note purchase agreement as amended, we may voluntarily prepay the principal amount of the Deerfield Notes as follows (the amount at which we repay in each case below is referred to as the Prepayment Price):
Prior to July 1, 2015: we may prepay all of the principal amount of the Deerfield Notes at any time at a prepayment price equal to the outstanding principal amount, plus accrued and unpaid interest through the date of such prepayment, plus all interest that would have accrued on the principal amount of the Deerfield Notes between the date of such prepayment and the applicable maturity date of the Deerfield Notes to July 1, 2018, our obligation to make annual mandatory prepayments equal to 15% of Development/Commercialization Revenue received by us during the prior fiscal year will continue to apply in January 2017 and January 2018. We are only obligated to offer to make any such annual mandatory prepayment if the outstanding principal amountnote holders provide notice to us of their election to receive the prepayment. We made no such mandatory prepayments due to the fact that Deerfield Notes as ofelected not to receive the mandatory prepayments in January 2017 or 2016 related to Development/Commercialization Revenue received during the years ended December 31, 2016 and 2015 and we received no such prepayment date had remained outstanding throughrevenues during the applicable maturity date, plus all other accrued and unpaid obligations; andfiscal year ended December 31, 2014.
If we exerciseUnder the extension option:note purchase agreement, we may at our sole discretion, prepay all of the principal amount of the Deerfield Notes at a prepayment price equal to 105% of the outstanding principal amount of the Deerfield Notes, plus all accrued and unpaid interest through the date of such prepayment, plus, if prior to July 1, 2017, all interest that would have accrued on the principal amount of the Deerfield Notes between the date of such prepayment and July 1, 2017, if the outstanding principal amount of the Deerfield Notes as of such prepayment date had remained outstanding through July 1, 2017, plus all other accrued and unpaid obligations, collectively referred to as the Prepayment Price.
In lieu of making any portion of the Prepayment Price or mandatory prepayment in cash, subject to certain limitations (including a cap on the number of shares issuable under the note purchase agreement), we have the right to convert all or a portion of the principal amount of the Deerfield Notes into, or satisfy all or any portion of the Prepayment Price amounts or mandatory prepayment amounts with shares of our common stock. Additionally, in lieu of making any payment of accrued and unpaid interest in respect of the Deerfield Notes in cash, subject to certain limitations, we may elect to satisfy any such payment with shares of our common stock. The number of shares of our common stock issuable upon conversion or in settlement of principal and interest obligations will be based upon the discounted trading price of our common stock over a specified trading period. Upon certain changes of control of our company,Exelixis, a sale or transfer of assets in one transaction or a series of related transactions for a purchase price of more than (i) $400$400 million or (ii) 50% of our market capitalization, Deerfield may require us to prepay the Deerfield Notes at the Prepayment Price. Upon an event of default, as defined in the Deerfield Notes, Deerfield may declare all or a portion of the Prepayment Price to be immediately due and payable.
We are required to notify the applicable Deerfield entities of certain sales, assignments, grants of exclusive licenses or other transfers of our intellectual property pursuant to which we transfer all or substantially all of our legal or economic interests, defined as an Intellectual Property Sale, and the Deerfield entities may elect to require us to prepay the principal amount of the Deerfield Notes in an amount equal to (i) 100% of the cash proceeds of any Intellectual Property Sale relating to cabozantinib and (ii) 50% of the cash proceeds of any other Intellectual Property Sale.
In connection with the January 2014 amendment to the note purchase agreement, on January 22, 2014, we issued to the New Deerfield Purchasers two-year warrants, (the “2014 Deerfield Warrants”)which we refer to as the 2014 Warrants, to purchase an aggregate of 1,000,000 shares of our common stock at an exercise price of $9.70 per share. If we exerciseSubsequent to our election to extend the extension option,maturity date of the Deerfield Notes, the exercise price will be reset to the lower of (x) the existing exercise price and (y) 120% of the volume weighted average price of our common stock for the ten trading days immediately following the date of such extension election. The 2014 Deerfield Warrants are exercisable for a term of two years, subject to a two year extension if we exercise the extension option, and contain certain limitations that prevent the holder of the 2014 Deerfield Warrants from acquiring shares upon exercisewas reset to $3.445 per share and the term was extended by


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two years to January 22, 2018. See “Note 8. Common Stock and Warrants” for more information on the number of shares beneficially owned by the holder to exceed 9.98%valuation of the total number of shares of our common stock then issued and outstanding. The number of shares for which the 2014 Deerfield Warrants are exercisable and the associated exercise prices are subject to certain adjustments as set forth in the 2014 Deerfield Warrants. In addition, upon certain changes in control of our company, to the extent the 2014 Deerfield Warrants are not assumed by the acquiring entity, or upon certain defaults under the 2014 Deerfield Warrants, the holder has the right to net exercise the 2014 Deerfield Warrants for shares of common stock, or be paid an amount in cash in certain circumstances where the current holders of our common stock would also receive cash, equal to the Black-Scholes Merton value of the 2014 Deerfield Warrants.
In connection with the issuance of the 2014 Deerfield Warrants, we entered into a registration rights agreement with Deerfield, pursuant to which we agreed to file, no later than February 21, 2014, a registration statement with the Securities and Exchange Commission (“SEC”) covering the resale of the shares of common stock issuable upon exercise of the 2014 Deerfield Warrants.
In connection with the note purchase agreement, we also entered into a security agreement in favor of Deerfield which provides that our obligations under the Deerfield Notes will be secured by substantially all of our assets except intellectual property. On August 1, 2013, the security agreement was amended to limit the extent to which voting equity interests in any of our foreign subsidiaries shall be secured assets.

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The note purchase agreement as amended and the security agreement include customary representations and warranties and covenants made by us, including restrictions on the incurrence of additional indebtedness.
Silicon Valley Bank Loan and Security Agreement
The outstanding principal obligation under the Silicon Valley Bank Loan and Security Agreement, as amended, was $82.1 million and $85.3 million as of December 31, 2013 and 2012, respectively.
Silicon Valley Bank Line of Credit
In December 2007,On May 22, 2002, we entered into a loan modification agreement to a loan and security agreement originally entered into in May 2002 with Silicon Valley Bank. The terms associated with the original line of credit under the May 2002 agreement and the subsequent loan modifications were not modified. The December 2007 loan modification agreement provides for an additional equipment line of credit in the amount of up to $30.0 million with a draw down period of approximately two years (the “Line of Credit”). Each advance must be repaid in 48 equal, monthly installments of principal, plus accrued interest, at an annual rate of 0.75% fixed. In December 2009, we amended the agreement and extended the draw down period on the Line-of-Credit for an additional 18 months through June 2011 and increased the available principal amount under the line of credit from $30.0 million to $33.6 million. Pursuant to the terms of the amendment, we were required to make minimum draws of $2.5 million every 6 months through June 2011, for total additional draws of $7.5 million. The loan facility requires security for the Line of Credit in the form of a non-interest bearing certificate of deposit account with the bank, in an amount equal to at least 100% of the outstanding obligations under the line of credit. In June 2008, we drew down $13.6 million under this agreement, in December 2009, we drew down $5.0 million, and we drew down an additional $2.5 million in each of June 2010, December 2010 and June 2011 in accordance with the terms of the modified agreement. In accordance with the amended loan terms, the Line of Credit has expired and we have no further draw down obligations under the line of credit. The outstanding principal obligation under the Silicon Valley Bank Line of Credit was $2.1 million and $5.3 million as of December 31, 2013 and 2012, respectively.
Silicon Valley Bank Term Loan
In June 2010, we amended our loan and security agreement with Silicon Valley Bank for an equipment line of credit. On December 21, 2004, December 21, 2006 and December 21, 2007, we amended the loan and security agreement to provide for additional equipment lines of credit and on June 2, 2010, we further amended the loan and security agreement to provide for a new seven-year term loan in the amount of $80.0 million. As of both December 31, 2016 and 2015, the outstanding principal balance due under the term loan was $80.0 million and the lines of credit had been repaid in full. The principal amount outstanding under the term loan accrues interest at 1.0% per annum, which interest is due and payable monthly. We are required to repay the term loan in one balloon principal payment, representing 100% of the principal balance and accrued and unpaid interest, on May 31, 2017. We have the option to prepay all, but not less than all, of the amounts advanced under the term loan, provided that we pay all unpaid accrued interest thereon that is due through the date of such prepayment and the interest on the entire principal balance of the term loan that would otherwise have been paid after such prepayment date until the maturity date of the term loan. We
In accordance with the terms of the loan and security agreement, we are required to maintain at all times on deposit in one or more non-interest bearing demand deposit accounts with Silicon Valley Bank or one of its affiliates a compensating balance, constituting support for the obligations under the term loan, with a principal balance in valuean amount equal to at least 100%, but not to exceed 107%, of the outstanding principal balance of the term loan.
In August 2011, we amended our term loan agreement to allow forunder the compensating balance to be maintainedloan and security agreement on deposit in one or more investment accounts with Silicon Valley Bank or one of its affiliates. This compensating balance is to have a value equal to at least 100%, but not to exceed 107%, ofaffiliates as support for our obligations under the outstanding principal balance of the term loan and all lines of credit associated with Silicon Valley Bank. Wesecurity agreement (although we are entitled to retain income earned onor the amounts maintained in such investment account(s)accounts). Any amounts outstanding under the term loan during the continuance of an event of default under the loan and security agreement will, at the election of Silicon Valley Bank, bear interest at a per annum rate equal to 6.0%. If one or more events of default under the loan and security agreement occurs and continues beyond any applicable cure period, Silicon Valley Bank may declare all or part of the obligations under the loan and security agreement to be immediately due and payable and stop advancing money or extending credit to us under the loan and security agreement.
The total collateral balance as of both December 31, 2013 and 2011 was $83.7 million2016 and 2015 was $87.081.6 million, respectively, and is reflected in our Consolidated Balance Sheet in Short-Short-term investments and Long-term Investmentsinvestments as the amounts are not restricted as to withdrawal. However, withdrawal of some or all of this amount such that the collateral balance falls below the required level could result in Silicon Valley Bank declaring the obligation immediately due and payable.
2019 Notes
In August 2012, we issued and sold $287.5 million aggregate principal amount of the 2019 Notes, for net proceeds of $277.7 million. The 2019 Notes bore interest at a rate of 4.25% per annum, payable semi-annually in arrears on February 15 and August 15 of each year.
On August 9, 2016 and August 19, 2016 we entered into separate, privately negotiated exchange agreements with certain holders of the 2019 Notes. Under the terms of the exchange agreements, the holders agreed to exchange an aggregate principal amount of $239.4 million of 2019 Notes held by them for an aggregate of 45,064,455 shares of our common stock. In addition, the holders received inducements of $6.0 million which included an aggregate cash payment of $2.4 million and $3.6 million in interest payments payable on the Deerfield Notes on August 15, 2016. Under the terms of the indenture for the 2019 Notes, subject to certain exceptions, holders who convert between a record date and the related interest payment date would have been required to repay the interest payment received on the related interest payment date. The exchange transactions entered into on August 9, 2016 were structured such that the holders party to those agreements were not required to repay this interest. We have included those payments as an additional inducement and as financing activities in our Consolidated Statement of Cash Flows. Inducements are included in the loss on extinguishment of debt. Following the completion of the exchange transactions, on August 24, 2016, we provided public notice of the redemption of $48.1 million of the 2019 Notes, representing all remaining notes outstanding. During the redemption period, which ended on November 2, 2016, holders of the 2019 Notes had the option to convert their notes into shares of our common stock, plus cash in lieu of any fractional share, at a conversion rate of 188.2353 shares of common stock per $1,000 principal amount of the remaining 2019 Notes at any time before close of business on October 31, 2016. On various dates in August, September, October and November of 2016,

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subsequent to the announcement of the redemption of all remaining 2019 Notes outstanding, $47.5 million of additional aggregate principal amount of 2019 Notes were converted by the holders into an aggregate of 8,944,824 shares of our common stock. We recognized an additional loss on extinguishment of debt of $7.3 million, representing the difference between the total settlement consideration transferred to the holders that was attributed to the liability component of the 2019 Notes, based on the fair value of that component at the time of conversion, and the net carrying value of the liability. The combined issuance of 54,009,279 shares of our common stock pursuant to the conversions of the 2019 Notes resulted in an increase to common stock and additional paid-in capital of $592.7 million. A portion of the settlement consideration transferred was allocated to the reacquisition of the embedded conversion option, which resulted in a $342.7 million reduction of additional paid-in capital. In November 2016 we redeemed the remaining $0.6 million aggregate principal amount of the 2019 Notes in cash for 100% of the principal amount thereof, plus accrued and unpaid interest. Transaction costs incurred with third parties related to the conversion of the 2019 Notes were allocated between the liability and equity components and resulted in an additional $0.5 million of loss on extinguishment of debt and a $0.7 million reduction of additional paid-in capital. The following is a summary of loss on extinguishment of debt for the conversion and redemption of the 2019 Notes for the year ended December 31, 2016 (in thousands):
Inducements included in August 9, 2016 and August 19, 2016 agreements: 
Cash inducements$2,394
Repayments of interest required upon a conversion under the terms of the indenture that were not repaid under the terms of the exchange agreements3,572
Difference between the total settlement consideration attributed to the liability component of the 2019 Notes and the net carrying value of the liability, described above7,338
Unamortized discount on redeemed notes83
Third party costs514
Loss on extinguishment of debt$13,901
The following is a summary of the interest expense for the 2019 Notes (in thousands):
 Year Ended December 31,
 2016 2015 2014
Stated coupon interest$7,799
 $12,218
 $12,253
Amortization of debt discount and debt issuance costs7,975
 11,581
 10,525
Total interest expense$15,774
 $23,799
 $22,778
The balance of unamortized fees and costs was $4.2 million as of December 31, 2015 which is recorded as a reduction of the carrying amount of the 2019 Notes on the accompanying Consolidated Balance Sheets. There were no such unamortized fees and costs as of December 31, 2016 due to the conversion and redemption of 100% of the 2019 Notes in 2016.
Future Principal Payments
Aggregate expectedcontractual future principal payments of our debt wereare as follows as of December 31, 20132016 (in thousands):
 
Year Ending December 31, (1)  
2014$11,762
2015104,328
2016—
201780,000
$80,000
2018—
124,972
Thereafter287,500
—
____________________
(1)Amounts include principal payments associated with the accretion of discounts and debt issuance costs. ForAs described above, we intend to repay the Deerfield Notes, this table is presented based the actual minimum mandatory prepayment we made in January 2014 as required by the note purchase agreement and assuming we do not make the election to extend thewhich have a contractual maturity of those notes and the remaining principal balance will be paid at the current July 2015 maturity date.1, 2018, on or about July 1, 2017. The actual timing of payments made may differ materially.
NOTE 9.8. COMMON STOCK AND WARRANTS
Conversion of Debt into Common Stock
In 2016, we issued 54,009,279 shares of our common stock pursuant to the conversion of $286.9 million of aggregate principal amount of 2019 Notes. The conversions resulted in a $253.1 million increase to shareholder’s equity and a $13.9 million loss on extinguishment of debt. The Deerfield Notes are, under certain circumstances, convertible into shares of our common stock. See “Note 7. Debt” for more information regarding the conversion features of these instruments.


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Sale of Shares of Common Stock
In March 2011,July 2015, we completed a registered underwritten public offering of 17.3 million28,750,000 shares of our common stock, including 3,750,000 shares issued under the underwriters’ 30-day option to buy shares, at a price of $11.00$5.40 per share pursuant to a shelf registration statement previously filed with the SEC, which the SEC declaredwas filed and automatically became effective on May 8, 2009.July 1, 2015. We received approximately $179.4$145.6 million in net proceeds from the offering after deducting the underwriting discount and related offeringother estimated expenses.
In February 2012,January 2014, we completed a registered underwritten public offering of 12.7 million10,000,000 shares of our common stock at a price of $5.17 per share pursuant to a shelf registration statement previously filed with the SEC, which the SEC declared effective on May 8, 2009. We received $65.0 million in net proceeds from the offering after deducting the underwriting discount and related offering expenses.
In August 2012, we completed a registered underwritten public offering of 34.5 million shares of our common stock at a price of $4.25$8.00 per share pursuant to a shelf registration statement previously filed with the SEC, which the SEC declared effective on June 8, 2012. We received $138.4$75.6 million in net proceeds after deducting the underwriting discount of$7.7 million and related offering expenses of $0.5 million. Concurrent with the issuance of the common stock, we sold $287.5 million aggregate principal amount of the Convertible Senior Subordinated Notes due 2019 pursuant to the same registered public offering. See “Note 8 - Debt” for more information regarding the 2019 Notes.
In January 2014, subsequent to date of these financial statements, we completed a registered underwritten public offering of 10.0 million shares of our common stock at a price of $8.00 per share pursuant to a shelf registration statement previously filed with the SEC, which the SEC declared effective on June 8, 2012. We received approximately $75.6 million in net proceeds from the offering after deducting the underwriting discount and related offering expenses. We also granted the underwriter a 30-day option to purchase up to an additional 1,500,000 shares of common stock in
2014 Warrants
In connection with an amendment to the offering which will expire on February 22, 2014.
Conversion of Debt into Common Stock
In October 2011, we elected to repaynote purchase agreement for the third and final installment of an outstanding loan in shares of our common stock. The shares issued in connection with this repayment were valued at $6.66 per share, resulting in the issuance of 5,537,906 shares of our common stock as satisfaction in full of our remaining $36.9 million repayment obligation, including $8.0 million in accrued interest.
The 2019 Notes and theOriginal Deerfield Notes, are, under certain circumstances, convertible into shares of our common stock. See “Note 8 - Debt” for more information regarding the conversion features of these instruments.

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Warrants
At December 31, 2013, the following warrants to purchase common stock were outstanding and exercisable:
Date Issued 
Exercise 
Price per Share
 Expiration Date 
Number 
of Shares
June 4, 2008 $7.40
 June 4, 2014 1,000,000
June 10, 2009 $6.05
 June 10, 2014 441,215
      1,441,215
The warrants issued in June 2008 were granted to Deerfield pursuant to a facility agreement that expired in 2009.
The warrants issued in June 2009 were granted to Symphony Evolution Holdings LLC, the parent company of Symphony Evolution, Inc., in connection with a financing transaction that terminated in June 2009. The rights to those warrants were subsequently transferred to other parties.
On January 22, 2014 we issued to the New Deerfield Purchasers two-year warrants to purchase an aggregate of 1,000,000 shares of our common stock at an exercise price of $9.70 per share in connection with an amendmentshare. Subsequent to our March 2015 notification of our election to extend the note purchase agreement formaturity date of the Deerfield Notes. The term and possiblyNotes, the exercise price of the warrants will be change if we elect2014 Warrants was reset to $3.445 per share and the term was extended by two years to January 22, 2018.
The 2014 Warrants contain certain limitations that prevent the holder from acquiring shares upon exercise that would result in the number of shares beneficially owned by the holder to exceed 9.98% of the total number of shares of our common stock then issued and outstanding. In addition, upon certain changes in control of Exelixis, to the extent the 2014 Warrants are not assumed by the acquiring entity, or upon certain defaults under the 2014 Warrants, the holder has the right to net exercise the extension option under2014 Warrants for shares of common stock, or be paid an amount in cash in certain circumstances where the amendment. See “Note 8 - Debt” for further informationcurrent holders of our common stock would also receive cash, equal to the Black-Scholes Merton value of the 2014 Warrants.
In connection with the issuance of the 2014 Warrants, we entered into a registration rights agreement with Deerfield, pursuant to which we filed a registration statement with the SEC covering the resale of the shares of common stock issuable upon exercise of the 2014 Warrants.
Due to the potential increase in term and decrease of the exercise price, the 2014 Warrants were included in Other long-term liabilities at their current estimated fair value, which was $1.5 million and $0.9 million as of March 18, 2015 and December 31, 2014, respectively. We recorded an unrealized loss of $0.5 million and an unrealized gain of $1.8 million on the warrants, possible changes2014 Warrants during the years ended December 31, 2015 and 2014, respectively, which is included in Interest income and other, net. Subsequent to our March 2015 notification of our election to extend the warrantmaturity date of the Deerfield Notes, the terms of the 2014 Warrants became fixed as of March 18, 2015 and the related amendments2014 Warrants were transferred to the Deerfield Notes.Additional paid-in capital as of that date at their then estimated fair value of $1.5 million.
The warrants granted to Deerfield are Participating Securities, as defined inparticipating securities however the glossary to the ASC. The warrant holders do not have a contractual obligation to share in our losses.losses; thus, they have been excluded from our net loss per share calculations.
NOTE 10.9. FAIR VALUE MEASUREMENTS
The following table sets forth the fair value of our financial assets that were measured and recorded on a recurring basis as of December 31, 20132016 and 20122015. We did not have any Level 3 investments during the periods presented.as of December 31, 2016 or 2015. The amounts presented exclude cash, but include investments classified as cash equivalents (in thousands):
December 31, 2013December 31, 2016
Level 1 Level 2 TotalLevel 1 Level 2 Total
Money market funds$24,813
 $—
 $24,813
$71,457
 $—
 $71,457
Commercial paper—
 94,682
 94,682
—
 165,375
 165,375
Corporate bonds—
 240,072
 240,072
—
 152,407
 152,407
U.S. Treasury and government sponsored enterprises—
 44,386
 44,386
—
 70,727
 70,727
Municipal bonds—
 6,013
 6,013
Total$24,813
 $385,153
 $409,966
Total financial assets$71,457
 $388,509
 $459,966


 December 31, 2012
 Level 1 Level 2 Total
Money market funds$76,050
 $—
 $76,050
Commercial paper—
 167,231
 167,231
Corporate bonds—
 221,949
 221,949
U.S. Treasury and government sponsored enterprises—
 132,991
 132,991
Municipal bonds—
 30,044
 30,044
Total$76,050
 $552,215
 $628,265
There were no transfers between any of the fair value hierarchies, as determined at the end of each reporting period.

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 December 31, 2015
 Level 1 Level 2 Total
Money market funds$72,000
 $—
 $72,000
Commercial paper—
 78,155
 78,155
Corporate bonds—
 72,091
 72,091
U.S. Treasury and government sponsored enterprises—
 28,423
 28,423
Marketable equity securities18
 —
 18
Total financial assets$72,018
 $178,669
 $250,687
The following is a reconciliation of changes in the fair value of warrants which are classified as Level 3 in the fair value hierarchy (in thousands):
Balance at December 31, 2014$921
Unrealized loss at final re-measurement of warrants on March 18, 2015,
included in Interest income and other, net
549
Transfer of warrants from Other long-term liabilities to Additional paid-in capital at their estimated fair value upon warrant repricing on March 18, 2015(1,470)
Balance at December 31, 2015$—
No such activity occurred during the year ended December 31, 2016.
The estimated fair value of our financial instruments that are carried at amortized cost for which it is practicable to determine a fair value was as follows (in thousands):
 December 31, 2013 December 31, 2012
 
Carrying
Amount
 Fair Value 
Carrying
Amount
 Fair Value
2019 Notes$165,296
 $339,883
 $149,800
 $280,111
Silicon Valley Bank Term Loan$80,000
 $79,946
 $80,000
 $79,542
Silicon Valley Bank Line of Credit$2,090
 $2,090
 $5,260
 $5,253
 December 31, 2016 December 31, 2015
 
Carrying
Amount
 Fair Value 
Carrying
Amount
 Fair Value
Deerfield Notes$109,122
 $121,220
 $102,727
 $101,096
Term loan payable$80,000
 $79,784
 $80,000
 $79,815
2019 Notes$—
 $—
 $235,210
 $336,260

There is no practicable method to determine the fair value of the Deerfield Notes due to the unique structure of the instrument that was financed by entities affiliated with Deerfield and the current non-liquid market in structured notes. The carrying amounts of cash, trade and other receivables, accounts payable, andaccrued collaboration liability, accrued clinical trial liabilities, accrued compensation and benefits, and other liabilities approximate their fair values and are excluded from the tables above.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate thata value:
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 of similar assets as observable inputs for pricing, which is a Level 2 input.
The fair value of the 2019 Notes were valued using a third-party pricing model that is based in part on the average trading prices, which is a Level 2 input. The 2019 Notes arewere not carried at fair valuemarked-to-market and are shown at their initial fair value less the unamortized discount; the portion of the value allocated to the conversion option is included in stockholders’Stockholders’ equity in(deficit) on the accompanying Consolidated Balance Sheets. See “Note 8 - Debt” for further information regarding the 2019 Notes.
We have estimatedestimate the fair value of our other debt instruments, where possible, using the net present value of the payments discounted atpayments. For the Silicon Valley Bank term loan and line of credit, we use an interest rate that is consistent with money-market rates that would have been earned on our non-interest-bearing compensating balances as our discount rate, which is a Level 2 input. For the Deerfield Notes, we used a discount rate of 9.5%, which we estimate as our current borrowing rate for similar debt as of December 31, 2016, which is a Level 3 input.


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Financial Assets, Liabilities and Equity Measured on a Nonrecurring Basis
In connection with the conversions for our 2019 Note during 2016, we were required to determine the fair value of the settlement consideration received by the holders and the fair value of the liability component of the 2019 Notes, as of the various settlement dates of the conversions. The following methods and assumptions were used to estimate the fair value of those financial instruments:
The settlement consideration comprises, in part, shares of our Common Stock. The fair value of our Common Stock was determined based on the closing market price of our Common Stock on the various settlement dates of the conversions, which are level 1 inputs;
The carrying value of the remaining settlement consideration, which includes cash and the forgiveness of the repayment of certain prior interest payments, approximates fair value;
We estimated the fair value of the liability component of the 2019 Notes using the net present value of estimated future cash flows through maturity. We used a discount rate of 9.5%, which we estimated as our current borrowing rate for straight debt as of September 30, 2016, which is a Level 3 input.
NOTE 11.10. EMPLOYEE EQUITY AND BENEFIT PLANS
Equity Incentive Plans
We have several equity incentive plans under which we have granted incentive stock options, non-qualified stock options and RSUs to employees, directors and consultants. The Board of Directors or a designated Committee of the Board is responsible for administration of our employee equity incentive plans and determines the term, exercise price and vesting terms of each option. Prior to 2011,Stock options issued to our employees hadhave a four-year vesting term, an exercise price equal to the fair market value on the date of grant, and a ten year life from the date of grant (6.2 years for options issued in exchange for options cancelled under our 2009 option exchange program). On May 18, 2011, at the annual meeting of stockholders, the Exelixis, Inc. 2011 Equity Incentive Plan (the “2011 Plan”) was approved and adopted as the successor plan to the certain other equity incentive plans. Stock options issued under the 2011 Plan have a four-year vesting term, an exercise price equal to the fair market value on the date of grant, and a seven year life from the date of grant. OfStock options issued prior to May 2011 have a ten year life from the stock options outstanding asdate of December 31, 2013, 3,720,752 weregrant. RSUs granted subject to performance objectives tied to the achievement of clinical goals set by the Compensation Committee of our Board of Directors and willemployees vest in full or part based on achievement of such goals. As of December 31, 2013, we expect that achievement of some of those performance objectives is probable and have, therefore, included stock-based compensation for such awards. We have not included any stock-based compensation expense for stock options with performance objectives where the performance goals cannot be reasonably assured of achievement. RSUs vestannually over a four year term; RSUs issued after September 29, 2011 vest annually and the remaining portion of unvested RSUs issued prior to September 29, 2011 vest quarterly.term.
In December 2005, our Board of Directors adopted a Change in Control and Severance Benefit Plan for executives and certain non-executives. Eligible Change in Control and Severance Benefit Plan participants include our employees with the title of vice president and higher.above. If a participant’s employment is terminated without cause during a period commencing one month before and ending thirteen months following a change in control, as defined in the plan document, then the Change in Control and Severance Benefit Plan participant is entitled to have the vesting of all of such participant’s stock options accelerated with the exercise period being extended to no more than one year.

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Employee Stock Purchase Plan
In January 2000, we adopted the 2000 Employee Stock Purchase Plan (the “ESPP”). The ESPP allows for qualified employees (as defined in the ESPP) to purchase shares of our common stock at a price equal to the lower of 85% of the closing price at the beginning of the offering period or 85% of the closing price at the end of each six month purchase period. Compensation expense related to our ESPP was $0.6$1.0 million,, $0.4 $0.4 million,, and $0.7$0.8 million for the years ended December 31, 2013, 20122016, 2015 and 2011,2014, respectively. As of December 31, 2013,2016, we had 2,040,8395,487,023 shares available for grantissuance under our ESPP. We issued 345,828559,936 shares, 298,533324,315 shares, and 375,305669,565 shares of common stock during the years ended December 31, 2013, 20122016, 2015 and 2011,2014, respectively, pursuant to the ESPP at an average price per share of $4.13, $4.08$3.91, $1.75 and $4.62,$2.14, respectively.
Stock-Based Compensation
We recorded and allocated employee stock-based compensation expense for our equity incentive plans and our ESPP as follows (in thousands):
Year Ended December 31,Year Ended December 31,
2013 2012 20112016 2015 2014
Research and development expense$6,021
 $4,536
 $5,935
$9,366
 $11,691
 $3,245
General and administrative expense5,948
 4,245
 5,459
Restructuring-related stock compensation expense49
 —
 625
Selling, general and administrative expense13,546
 10,286
 6,783
Restructuring related recovery—
 —
 (22)
Total employee stock-based compensation expense$12,018
 $8,781
 $12,019
$22,912
 $21,977
 $10,006
In addition, we recognized stock-based compensation expense

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Table of $0.1 million relating to non-employees in each of the years ended December 31, 2012 and 2011. Such expense was nominal for the year ended December 31, 2013.Contents

We use the Black-Scholes Merton option pricing model to value our stock options. The weighted average grant-date fair value of our stock options and ESPP purchases was as follows:
 2016 2015 2014
Stock options$4.77
 $2.55
 $1.46
ESPP$2.17
 $1.20
 $1.28
The fair value of employee stock option awards and ESPP purchases was estimated using the following assumptions:
 Stock Options
 2016 2015 2014
Risk-free interest rate1.15% 1.22% 1.80%
Dividend yield—% —% —%
Volatility76% 93% 85%
Expected life4.4 years
 4.5 years
 5.5 years
 ESPP
 2016 2015 2014
Risk-free interest rate0.55% 0.15% 0.06%
Dividend yield—% —% —%
Volatility65% 98% 69%
Expected life6 months
 6 months
 6 months
The expected life computation for stock options is based on historical exercise patterns and post-vesting termination behavior. We considered implied volatility as well as our historical volatility in developing our estimate of expected volatility. The fair value of employee stock option awards and ESPP purchases was estimated using the following assumptions and weighted average fair values:
 Stock Options
 2013 2012 2011
Weighted average grant-date fair value$2.97
 $3.24
 $3.50
Risk-free interest rate1.51% 0.81% 1.07%
Dividend yield—% —% —%
Volatility61% 69% 70%
Expected life5.6 years
 5.6 years
 5.5 years
 ESPP
 2013 2012 2011
Weighted average grant-date fair value$1.64
 $2.07
 $2.85
Risk-free interest rate0.11% 0.10% 0.11%
Dividend yield—% —% —%
Volatility66% 68% 68%
Expected life6 months
 6 months
 6 months

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A summary of all stock option activity was as follows for the periodsyear endedDecember 31, 2016 is presented below (dollars in thousands, except per share amounts):
Shares 
Weighted 
Average
Exercise Price
 
Weighted 
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
Shares 
Weighted 
Average
Exercise Price
 
Weighted 
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
Options outstanding at December 31, 201019,630,030
 $7.52
  
Options outstanding at December 31, 201527,425,854
 $4.22
  
Granted2,545,625
 $5.86
  4,200,950
 $8.29
  
Exercised(2,161,804) $5.75
  (6,239,022) $4.07
  
Forfeited(1,021,323) $6.22
  (307,601) $4.67
  
Expired(1,556,150) $12.13
  (80,516) $10.49
  
Options outstanding at December 31, 201117,436,378
 $7.16
  
Granted3,442,696
 $5.45
  
Exercised(181,979) $5.09
  
Forfeited(358,360) $5.88
  
Expired(1,890,185) $7.54
  
Options outstanding at December 31, 201218,448,550
 $6.85
  
Granted6,694,174
 $5.44
  
Exercised(13,311) $5.06
  
Forfeited(79,942) $5.27
  
Expired(1,066,196) $6.45
  
Options outstanding at December 31, 201323,983,275
 $6.48
 4.63 years $8,079
Exercisable at December 31, 201313,818,615
 $7.21
 3.44 years $3,458
Options outstanding at December 31, 201624,999,665
 $4.91
 4.54 years $250,996
Exercisable at December 31, 201617,731,361
 $4.01
 3.98 years $193,288
At December 31, 20132016, a total of 1,709,2331,630,271 shares were available for grant under our stock option plans.
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between our closing stock price on the last trading day of fiscal 20132016 and the exercise prices, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 20132016. TotalThe total intrinsic value of options exercised was $4,000, $0.1$50.0 million, and $7.0$2.9 million during 2013, 2012the years ended December 31, 2016 and 2011, respectively. Total2015, respectively, and was nominal in 2014. The total estimated fair value of employee options vested and expensedrecorded as expense during the years ended December 31, 2016, 2015 and 2014 was $13.4 million, $18.9 million and $8.6 million, respectively.
On April 28, 2016, as a result of the FDA’s approval of our New Drug Application “NDA” submission, on March 7, 2016, as a result of the FDA’s acceptance of our NDA submission and on July 20, 2015, as a result of positive top-line results from the primary analysis of METEOR, the Compensation Committee of the Board of Directors of Exelixis convened to


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determine we had met certain performance objectives for performance-based stock options granted to employees in 2013, 2014 and 2015. As a result of these determinations, 5,870,303 and 6,982,613 performance-based stock options vested during the 2013years ended , 2012December 31, 2016 and 2011 was $7.4 million2015, respectively. During the years ended December 31, 2016 and 2015 we recognized $5.64.1 million and $8.413.2 million, respectively. in stock-based compensation expense for those performance-based stock option grants. Prior to 2015, we had not considered achievement of those performance objectives to be probable and therefore, we did not record any stock-based compensation expense for the performance-based stock options during 2014.
The following table summarizes information about stock options outstanding and exercisable at December 31, 20132016:
 Options Outstanding 
Options Outstanding and
Exercisable
Exercise Price RangeNumber 
Weighted 
Average
Remaining
Contractual Life
 
Weighted
Average
Exercise
Price
 
Number of
Exercisable
 
Weighted
Average
Exercise
Price
$3.05 - $5.504,735,373
 5.18 years $5.07
 2,841,746
 $5.04
$5.51 - $5.6310,369,851
 5.25 years $5.55
 3,004,560
 $5.62
$5.65 - $8.863,877,697
 5.06 years $6.97
 2,971,955
 $7.32
$8.88 - $12.105,000,354
 2.50 years $9.34
 5,000,354
 $9.34
 23,983,275
 4.63 years $6.48
 13,818,615
 $7.21
 Options Outstanding 
Options Outstanding and
Exercisable
Exercise Price RangeNumber 
Weighted 
Average
Remaining
Contractual Life
 
Weighted
Average
Exercise
Price
 
Number
Exercisable
 
Weighted
Average
Exercise
Price
$1.46 - $1.908,231,617
 4.64 years $1.77
 8,088,721
 $1.77
$2.57 - $4.052,707,474
 5.57 years $3.56
 1,130,251
 $3.27
$4.16 - $5.555,957,725
 3.58 years3,186,063
$5.18
 4,520,554
 $5.31
$5.61 - $6.214,076,881
6,881
5.17 years $6.08
 1,861,457
 $6.00
$6.25 - $18.254,025,968
 4.42 years $10.67
 2,130,378
 $8.42
 24,999,665
 4.54 years $4.91
 17,731,361
 $4.01
As of December 31, 20132016, $17.123.9 million of total unrecognized compensation expense related to stock options is expected to be recognized over a weighted-average period of 2.622.90 years.
Cash received from option exercises and purchases under the ESPP in the years ended December 31, 2016, 2015 and 2013 and 2012 was $1.5$27.5 million, $11.5 million and $2.1$1.6 million, respectively.

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TableThe fair value of Contents

RSUs is determined based on the value of the underlying common stock on the date of grant. The expenses relating to these RSUs will be recognized over their respective vesting periods. A summary of all RSU activity was as follows for all periods presented (dollars in thousands,, except per share amounts): 
 Shares 
Weighted 
Average
Grant Date
Fair Value
 
Weighted 
Average
Remaining
Contractual 
Term
 
Aggregate
Intrinsic
Value
Awards outstanding at December 31, 20102,172,431
 $7.31
    
Awarded356,498
 $6.17
    
Released(648,437) $7.43
    
Forfeited(488,801) $7.45
    
Awards outstanding at December 31, 20111,391,691
 $6.92
    
Awarded733,958
 $5.50
    
Released(596,397) $7.15
    
Forfeited(234,631) $6.62
    
Awards outstanding at December 31, 20121,294,621
 $6.07
    
Awarded1,119,733
 $5.45
    
Released(517,874) $6.60
    
Forfeited(85,959) $5.49
    
Awards outstanding at December 31, 20131,810,521
 $5.56
 2.05 years $10,736
 Shares 
Weighted 
Average
Grant Date
Fair Value
 
Weighted 
Average
Remaining
Contractual 
Term
 
Aggregate
Intrinsic
Value
Awards outstanding at December 31, 20151,002,188
 $5.16
    
Awarded3,138,236
 $7.58
    
Vested and released(1,640,324) $4.49
    
Forfeited(30,309) $4.77
    
Awards outstanding at December 31, 20162,469,791
 $8.69
 1.93 years $36,825
As of December 31, 20132016, $7.3$13.9 million of total unrecognized compensation expense related to employee RSUs was expected to be recognized over a weighted-average period of 3.28 years.years.
401(k) Retirement Plan
We sponsor a 401(k) Retirement Plan (the “401(k) Plan”) whereby eligible employees may elect to contribute up to the lesser of 50% of their annual compensation or the statutorily prescribed annual limit allowable under Internal Revenue Service regulations. The 401(k) Plan permits us to make matching contributions on behalf of all participants. Beginning in 2002 through 2010, we matched 50% of the first 4% of participant contributions into the 401(k) Plan in the form of our common stock. Beginning in January 2011, weWe matched 100% of the first 3% of participant contributions into the 401(k) Plan in the form of our common stock. We recorded expense of $0.81.1 million, $0.60.4 million, and $0.81.1 million related to the stock match for the years ended December 31, 20132016, 20122015 and 20112014, respectively.As of December 31, 2016, we had 303,187 shares available for issuance under our 401(k) Plan.


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NOTE 12.11. INCOME TAXES
The income tax (benefit) provision is based on the following (loss) incomeloss before income taxes (in thousands):
Year Ended December 31,Year Ended December 31,
2013 2012 20112016 2015 2014
Domestic$(236,076) $(147,538) $76,992
$(70,222) $(150,846) $(230,535)
Foreign(8,780) —
 —
—
 (10,843) (30,944)
Total$(244,856) $(147,538) $76,992
$(70,222) $(161,689) $(261,479)

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Income tax expense (benefit) consists of the following for the periods shown below (in thousands):
Year Ended December 31,Year Ended December 31,
2013 2012 20112016 2015 2014
Current:          
Federal$—
 $32
 $636
$—
 $—
 $—
State12
 75
 659
—
 55
 (182)
Total current tax expense12
 107
 1,295
—
 55
 (182)
Deferred:          
Federal(106) —
 —
—
 —
 —
State(2) —
 —
—
 —
 —
Total deferred tax expense(108) —
 —
—
 —
 —
Income tax (benefit) provision$(96) $107
 $1,295
Income tax provision (benefit)$—
 $55
 $(182)
The $0.1 million2016 income tax provision relates to state minimum and franchise taxes and were nominal. The 2015 income tax provision relates to state minimum and franchise tax expenses as well as true ups related to prior year tax entries. The 2014 income tax benefit in 2013 resulted from the exception to the general intra-period allocation rules required by ASC 740-20-45-7, and is related to the income tax effect of unrealized gains on available-for-sale investments included in other comprehensive income. $0.1 million and $0.6 millionlapse of the 2012 and 2011 incomeapplicable statute of limitations in California for the 2009 tax provision, respectively, related to an adjustment resulting from a further evaluation of qualified expenses for refunds received in 2009 and 2010 as a result of the enactment of the Housing and Economy Recovery Act of 2008 and the American Recovery and Reinvestment Tax Act of 2009. The remaining $0.7 million of the 2011 provision related to a tax deferred revenue adjustment that resulted in a state tax liability due to state net operating loss carryover limitations.
During 2013, Exelixis Bermuda acquired the existing and future intellectual property rights to exploit cabozantinib in jurisdictions outside of the United States. The transfer of the existing rights created a taxable gain in the U.S. and state jurisdictions. For tax purposes, that gain is primarilyyear, offset by current fiscal year losses and the remainder through the utilization of an insignificant amount of net operating loss carry-forwards for which there is a corresponding reduction to our valuation allowance. Because this was an intercompany transaction, ASC 740-10-25-3(e) applies, however, there was no impact tostate income tax expense due to the full valuation allowance and therefore no deferred prepaid charge was recorded to the balance sheet.expense.
A reconciliation of income taxes at the statutory federal income tax rate to our income tax (benefit) provision included in the Consolidated Statements of Operations is as follows (in thousands):
Year Ended December 31,Year Ended December 31,
2013 2012 20112016 2015 2014
U.S. federal income tax (benefit) provision at statutory rate$(83,251) $(50,163) $26,177
U.S. federal income tax benefit at statutory rate$(23,876) $(54,974) $(88,903)
Unutilized net operating losses(3,438) 46,324
 (29,650)6,377
 51,421
 84,985
State tax expense6,520
 55
 (182)
Debt extinguishment4,726
 —
 —
Non-deductible interest3,380
 3,297
 2,809
2,680
 3,308
 3,598
Stock-based compensation393
 504
 627
3,155
 195
 255
State tax expense10
 74
 660
Refundable tax credit—
 32
 636
Available-for-sale investments(106) —
 —
Impact of intellectual property rights transfer82,858
 —
 —
Other58
 39
 36
418
 50
 65
Income tax (benefit) provision$(96) $107
 $1,295
$—
 $55
 $(182)
Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carry-forwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes.

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Our deferred tax assets and liabilities consist of the following (in thousands):
December 31,December 31,
2013 20122016 2015
Deferred tax assets:      
Net operating loss carry-forwards$358,372
 $374,200
$471,327
 $464,504
Tax credit carry-forwards64,635
 65,232
Book over tax depreciation and amortization70,617
 1,752
Tax credit and charitable contribution carry-forwards64,367
 64,350
Amortization of deferred stock compensation – non-qualified24,279
 26,469
14,780
 14,615
Accruals and reserves not currently deductible10,107
 13,732
8,117
 7,775
Deferred revenue502
 6,501
Book over tax depreciation and amortization4,499
 5,140
Other106
 —
Total deferred tax assets462,394
 491,274
629,314
 552,996
Valuation allowance(421,426) (438,266)(629,062) (536,327)
Net deferred tax assets40,968
 53,008
252
 16,669
Deferred tax liabilities:      
Unrealized gain on derivatives(252) (497)
Convertible debt(40,968) (53,008)—
 (16,172)
Total deferred tax liabilities(40,968) (53,008)(252) (16,669)
Net deferred taxes$—
 $—
$—
 $—
Accounting Standards Codification 740 requires that the tax benefit of net operating losses, temporary differences and credit carry forwards be recorded as an asset to the extent that management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carry forward period. Because of the Company's recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is dependent upon future earnings, if any, the timingcurrently not likely to be realized and, amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset byaccordingly, has provided a valuation allowance. The valuation allowance decreased by $16.8 million, increased by $6.8$92.7 million,, $7.9 million and decreased by $49.7$88.8 million during 2013, 20122016, 2015 and 2011,2014, respectively.
At December 31, 2013,2016, we had federal net operating loss carry-forwards of approximately $9881,424 million which expire in the years 20182019 through 20322036, and federal business tax credits of approximately $75 million which expire in the years 2020 through 2029. We also had state net operating loss carry-forwards of approximately $918494 million, which expire in the years 20142017 through 20332036, California research and development tax credits of approximately $25 million which have no expiration, and California Manufacturing Investment Credits of approximately $1 million that expire in 2014.expiration. Included in the federal and state carry-forwards is $15.756.9 million related to deductions from the exercise of stock options and the related tax benefit that will result in an increase in additional paid-in capital if and when realized through a reduction of taxes paid in cash.
Under the Internal Revenue Code and similar state provisions, certain substantial changes in our ownership could result in an annual limitation on the amount of net operating loss and credit carry-forwards that can be utilized in future years to offset future taxable income. The annual limitation may result in the expiration of net operating losses and credit carry-forwards before utilization. We completed a Section 382 study through December 31, 2013,2016, and concluded that an ownership change, as defined under Section 382, had not occurred.
ASCAccounting Standards Codification Topic 740-10 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The following table summarizes the activity related to our unrecognized tax benefits for the years ended December 31, 2013, 2012 and 2011 (in thousands):
Year Ended December 31,Year Ended December 31,
2013 2012 20112016 2015 2014
Beginning balance$47,298
 $39,310
 $46,381
$88,638
 $58,215
 $55,077
(Decrease) increase relating to prior year provision(112) 5,894
 (9,782)
Decrease (increase) relating to prior year provision(29,110) 21,696
 719
Increase relating to current year provision7,891
 2,094
 2,711
2,304
 8,727
 2,706
Reductions based on the lapse of the applicable statutes of limitations(23) —
 (287)
Ending balance$55,077
 $47,298
 $39,310
$61,809
 $88,638
 $58,215
Included in the balance of unrecognized tax benefits as of December 31, 2013, 2012 and 2011 are $0.1 million, $0.1 million and $0.1 million, respectively, of tax benefits that if recognized would affect the effective tax rate. All of our deferred tax assets are subject to a valuation allowance. As of December 31, 2013, 2012 and 2011, we had an accrued interest balance of $20,000, $15,000 and $9,000, respectively, related to tax contingencies. Interest expense related to those tax contingencies was $4,000, $6,000 and $9,000 during the years ended December 31, 2013, 2012 and 2011, respectively. There were no penalties

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recognized or accrued during any of the periods presented. Any tax-related interest and penalties are included in income tax (benefit) provision in the Consolidated Statements of Operations. We do not anticipate that the amount of unrecognized tax benefits existing as of December 31, 20132016 will significantly decrease over the next 12 months.
We file U.S. and state income tax returns in jurisdictions with varying statues of limitations during which such tax returns may be audited and adjusted by the relevant tax authorities. The 19981999 through 20122015 years generally remain subject to examination by federal and most state tax authorities to the extent of net operating losses and credits generated during these periods and are being utilized in the open tax periods.
It is our intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. As of December 31, 2013, there were no undistributed foreign earnings of our only non-U.S. subsidiary, Exelixis Bermuda.
NOTE 13.12. NET (LOSS) INCOMELOSS PER SHARE
The following table sets forth a reconciliation of basic and diluted net income (loss)loss per share (in thousands, except per share amounts):
 Year Ended December 31,
 2013 2012 2011
Numerator:     
Net (loss) income$(244,760) $(147,645) $75,697
Denominator:     
Shares used in computing basic (loss) income per share amounts184,062
 160,138
 126,018
Add effect of dilutive securities:     
Shares issuable upon exercise of outstanding stock options—
 —
 2,064
Shares issuable upon exercise of warrants—
 —
 1,858
Shares issuable upon vesting of RSUs—
 —
 515
Shares issuable upon purchase from ESPP contributions—
 —
 24
Total dilutive securities—
 —
 4,461
Shares used in computing diluted (loss) income per share amounts184,062
 160,138
 130,479
Net (loss) income per share, basic$(1.33) $(0.92) $0.60
Net (loss) income per share, diluted$(1.33) $(0.92) $0.58
 Year Ended December 31,
 2016 2015 2014
Numerator:     
Net loss$(70,222) $(161,744) $(261,297)
Denominator:     
Shares used in computing basic and diluted net loss per share250,531
 209,227
 194,299
Net loss per share, basic and diluted$(0.28) $(0.77) $(1.34)
The following table sets forth outstanding potential shares of common stock outstanding as of the dates presented that are not included in the computation of diluted net loss per share because to do so would be anti-dilutive (in thousands): 
December 31,December 31,
2013 2012 20112016 2015 2014
2019 Notes54,123
 54,123
 —
Convertible debt33,890
 88,008
 75,734
Outstanding stock options, unvested RSUs and ESPP contributions21,401
 16,568
 9,085
27,568
 28,470
 28,930
Warrants1,441
 1,441
 —
1,000
 1,000
 1,000
Total potentially dilutive shares76,965
 72,132
 9,085
62,458
 117,478
 105,664

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NOTE 14.13. COMMITMENTS
Leases
We lease office and research space and certain equipment under operating leases that expire at various dates through the year 2018. Certain operating leases contain renewal provisions and require us to pay other expenses. As a result of the Restructurings, we exited certain facilities in South San Francisco. Aggregate future minimum lease payments under our operating leases are as follows (in thousands):
 
Year Ending December 31,
Operating
Leases (1)
2014$19,896
201520,152
201616,431
20179,104
20182,806
Thereafter—
 $68,389
Year Ending December 31,
Operating
Leases (1)
20178,474
20183,007
 $11,481
____________________
(1)
Minimum payments have not been reduced by minimum sublease rentals of $16.11.2 million due in the future under noncancelable subleases.
The following is a summary of aggregate future minimum lease payments under operating leases at December 31, 20132016, by operating lease agreements (in thousands): 
Original
Term
(Expiration)
Renewal Options
Future
Minimum
Lease
Payments
Original
Term
(Expiration)
Renewal Options
Future
Minimum
Lease
Payments
Building Lease #1 and 2May 20172 additional periods of 5 years$38,483
May 2017none$3,425
Building Lease #3July 20181 additional period of 5 years21,070
July 20181 additional period of 5 years8,056
Building Lease #4December 20151 additional period of 3 years8,692
Other 144
Total $68,389
 $11,481


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Rent expense under operating leases was $9.1$6.1 million, $17.88.7 million, and $21.310.3 million for the years ended December 31, 20132016, 20122015 and 20112014, respectively. Rent expense was recorded net of sublease rentalsrental incomes of $4.1$3.6 million, $3.85.2 million and $1.94.9 million for the years ended December 31, 20132016, 20122015 and 20112014, respectively.
Letters of Credit and Restricted Cash
We entered into a standby letter of credit with a bank in July 2004, which is related to a building lease, with a credit limit of $0.5 million at both December 31, 20132016 and 20122015. We entered into two standby letters of credit with a bank in May 2007, which is related to our workers compensation insurance policy, for a combined credit limit of $0.7$0.6 million and $0.6 millionat both December 31, 20132016 and 20122015, respectively.. All three letters of credit are fully collateralized by long-term restricted cash and investments. As of December 31, 20132016, the full amount of our three letters of credit was still available.
As part of a purchasing card program with a bank we initiated during 2007, we were required to provide collateral in the form of a non-interest bearing certificate of deposit. The collateral at December 31, 20132016 and 20122015 was $3.5$3.0 million and $2.5$1.5 million,, respectively. We recorded these amounts in the Consolidated Balance Sheet as Long-term restricted cash and investments as the certificates of deposit were restricted as to withdrawal.
Indemnification Agreements
In connection with the sale of our plant trait business, we agreed to indemnify the purchaser and its affiliates up to a specified amount if they incur damages due to any infringement or alleged infringement of certain patents. We have certain collaboration licensing agreements that contain standard indemnification clauses. Such clauses typically indemnify the customer or vendor for an adverse judgment in a lawsuit in the event of our misuse or negligence. We consider the likelihood of

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an adverse judgment related to any of our indemnification agreements to be remote. Furthermore, in the event of an adverse judgment, any losses under such an adverse judgment may be substantially offset by applicable corporate insurance.
NOTE 15.14. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject us to concentrations of credit risk are primarily trade and other receivables and investments. Investments consist of money market funds, taxable commercial paper, corporate bonds with high credit quality, U.S. government agency obligations and U.S. Treasury and government sponsored enterprises. All investments are maintained with financial institutions that management believes are creditworthy.
Trade and other receivables are unsecured and are concentrated in the pharmaceutical and biotechnology industries. Accordingly, we may be exposed to credit risk generally associated with pharmaceutical and biotechnology companies. We have incurred no bad debt expense since inception. As of December 31, 2013, 87%2016, 27%, 19%, 16% and 13% of our trade receivables are with Diplomat Specialty Pharmacy, Caremark L.L.C., affiliates of McKesson Corporation, and Accredo Health, Incorporated, respectively. All of these customers have historically paid promptly. As of December 31, 2016, we also had a receivable for a $10.0 million milestone payment from Ipsen which we received subsequent to December 31, 2016.
The following table sets forth the specialty pharmacypercentage of revenues recognized by customer that sells COMETRIQ in the United States. This customer pays promptly and within their respective payment terms.represent 10% or more of total revenues:
 Year Ended December 31,
 2016 2015 2014
Diplomat Specialty Pharmacy33% 83% 99%
Ipsen17% —% —%
We have operations primarilysolely in the United States,U.S., while some of our collaboration partners have headquarters outside of the United StatesU.S. and certainsome of our clinical trials for cabozantinib are also conducted outside of the United States. During the years ended December 31, 2012 and 2011, 100% of our revenues were earned in the United States. During the 2013, we initiated a Named Patient Use (“NPU”) program through our distribution partner, Swedish Orphan Biovitrum, to support the distribution and commercialization of COMETRIQ for metastatic MTC primarily in the European Union and potentially other countries. During the year ended December 31, 2013, 97% of our revenues were earned in the United States; the remainder of our revenues were earned in the European Union under this NPU program.U.S. All of our long-lived assets are located in the United States.U.S.
The following table sets forthshows the percentagerevenues earned by geographic region. Net product revenues are attributed to regions based on ship-to location. Collaboration revenues are attributed to regions based on the location of revenues recognized under ourthe collaboration agreementspartner (dollars in thousands):


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 Year Ended December 31,
 2016 2015 2014
U.S.$140,709
 $33,869
 $24,832
Europe35,745
 3,303
 279
Rest of world15,000
 —
 —
We recorded a $0.2 million loss, a $0.1 million gain and product salesa $0.5 million gain relating to the specialty pharmacy that represent 10% or more of total revenues duringforeign exchange fluctuations for the years endingended December 31, 20132016, 20122015 and 2011:2014, respectively.
Collaborator2013 2012 2011
Bristol-Myers Squibb52% 66% 59%
Diplomat Specialty Pharmacy45% —% —%
Merck—% 22% —%
Daiichi Sankyo—% 12% —%
Sanofi—% —% 39%
NOTE 16.15. SUBSEQUENT EVENTS
Amendment to Deerfield Note Purchase Agreement and Issuance of 2014 Deerfield WarrantsEVENT
On January 22, 2014,30, 2017, we entered into a collaboration and Deerfield amended the note purchaselicense agreement (the “Takeda Collaboration Agreement”) with Takeda Pharmaceutical Company Limited (“Takeda”) for the Deerfield Notescommercialization and further clinical development of cabozantinib in Japan. Pursuant to provide us with an option to extend the maturity date of our indebtedness under the note purchase agreement to July 1, 2018. Under the terms of the extension option,Takeda Collaboration Agreement, Takeda will have exclusive commercialization rights for current and potential future cabozantinib indications in Japan. The companies have also agreed to collaborate on the future clinical development of cabozantinib in Japan. The parties’ efforts will be governed through a joint executive committee and appropriate subcommittees established to guide and oversee the collaboration’s operation and strategic direction.
In consideration for the exclusive license and other rights contained in the Takeda Collaboration Agreement, Takeda paid us an upfront payment of $50.0 million in February 2017. We will be eligible to receive development, regulatory and first-sales milestones of up to $95.0 million related to second-line RCC, first-line RCC and second-line HCC, as well as additional development, regulatory and first-sales milestone payments for potential future indications. The Takeda Collaboration Agreement also provides that we havewill be eligible to receive pre-specified payments of up to $83.0 million associated with potential sales milestones. We will also receive royalties on net sales of cabozantinib in Japan at an initial tiered rate of 15% to 24% on net sales for the rightfirst $300.0 million of cumulative net sales. Thereafter, the royalty rate will be adjusted to require the New Deerfield Purchasers20% to acquire $100 million principal amount30% on annual net sales.
Takeda will be responsible for 20% of the Deerfield Notes and extend the maturity date thereof to July 1, 2018. We are under no obligation to exercise the extension option.
In connectioncosts associated with the January 2014 amendmentglobal cabozantinib development plan, provided Takeda opts in to participate in such trials, and 100% of costs associated with the cabozantinib development activities that are exclusively for the benefit of Japan. Pursuant to the note purchaseterms of the Takeda Collaboration Agreement, we will remain responsible for the manufacture and supply of cabozantinib for all development and commercialization activities under the collaboration. As part of the collaboration, the parties will enter into a supply agreement covering the manufacture and supply of cabozantinib to Takeda and a quality agreement setting forth in detail the quality assurance arrangements and procedures for our manufacture of cabozantinib.
The Takeda Collaboration Agreement may be terminated for cause by either party based on January 22, 2014 we issued Deerfield two-year warrantsuncured material breach by the other party, bankruptcy of the other party or for safety reasons. For clarity, Takeda’s failure to purchase an aggregateachieve specified levels of 1,000,000 sharescommercial performance, based upon sales volume and/or promotional effort, during the first six years of our common stock at an exercise pricethe collaboration shall constitute a material breach of $9.70 per share.the Collaboration Agreement. We may terminate the agreement if Takeda challenges or opposes any patent covered by the Collaboration Agreement. At any time prior to August 1, 2023, the parties may mutually agree to terminate the Collaboration Agreement if Japan’s Pharmaceuticals and Medical Devices Agency is unlikely to grant approval of the marketing authorization application in any cancer indication in Japan. After the commercial launch of cabozantinib in Japan, Takeda may terminate the Collaboration Agreement upon twelve months’ prior written notice following the third anniversary of the first commercial sale of cabozantinib in Japan. Upon termination by either party, all licenses granted by us to Takeda will automatically terminate, and the licenses granted by Takeda to us shall survive such termination and shall automatically become worldwide.
See “Note 8 - Debt” for further information on amended the note purchase agreement the related 2014 Deerfield Warrants.
Issuance of Common Stock

In January 2014, we completed a registered underwritten public offering of 10.0 million shares of our common stock at a price of $8.00 per share pursuant to a shelf registration statement previously filed with the SEC, which the SEC declared effective on June 8, 2012. We received approximately $75.6 million in net proceeds from the offering after deducting the

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underwriting discount and related offering expenses. We also granted the underwriter a 30-day option to purchase up to an additional 1,500,000 shares of common stock in connection with the offering which will expire on February 22, 2014.
NOTE 17.16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables summarize the unaudited quarterly financial data for the last two fiscal years (in thousands, except per share data): 
 Quarter Ended
 December 31, September 30, June 30, March 31,
2013:       
Revenues$4,347
 $5,466
 $11,856
 $9,669
Gross profit$4,084
 $5,176
 $11,571
 $9,389
Loss from operations$(59,514) $(55,913) $(51,295) $(34,010)
Net loss$(70,746) $(67,124) $(62,161) $(44,729)
Net loss per share, basic and diluted$(0.38) $(0.36) $(0.34) $(0.24)
2012:       
Revenues$7,814
 $13,313
 $7,813
 $18,510
Loss from operations$(41,974) $(25,443) $(32,723) $(22,296)
Net loss$(52,193) $(32,814) $(36,487) $(26,151)
Net loss per share, basic and diluted$(0.28) $(0.20) $(0.25) $(0.18)
 Quarter Ended
 December 31, September 30, June 30, March 31,
2016:       
Revenues$77,581
 $62,194
 $36,252
 $15,427
Gross profit$50,064
 $40,287
 $30,058
 $8,414
Income (loss) from operations$38,883
 $7,264
 $(25,136) $(49,135)
Net income (loss)$35,123
 $(11,284) $(34,838) $(59,223)
Net income (loss) per share, basic and diluted$0.12
 $(0.04) $(0.15) $(0.26)
2015:       
Revenues$9,938
 $9,854
 $7,992
 $9,388
Gross profit$8,915
 $8,434
 $7,306
 $8,622
Loss from operations$(31,600) $(35,781) $(31,280) $(22,760)
Net loss (1)
$(41,568) $(45,542) $(41,389) $(33,245)
Net loss per share, basic and diluted (1)
$(0.18) $(0.21) $(0.21) $(0.17)
____________________
(1)
Prior period balances reflect revisions due to a correction of an immaterial error with regards to the 2019 Notes. The immaterial error resulted in an overstatement of the discount on the 2019 Notes and therefore overstated the related interest expense. Therefore, net loss was overstated by $2.2 million, $2.1 million, $2.1 million, $2.0 million, $2.0 million, $1.9 million for the quarters ended June 30 2016 and March 31, 2016, December 31, 2015, September 30, 2015, June 30 2015 and March 31, 2015, respectively, and net loss per share, basic and diluted was overstated by $0.01, for each of those quarters. See “Note 1. Organization and Summary of Significant Accounting Policies - Correction of an Immaterial Error” for additional information on the correction of the immaterial error.
The increase in revenues and gross profit for the quarters ended December 31, 2016, September 30, 2016 and June 30, 2016 reflects the impact of the commercial launch of CABOMETYX in late April 2016. Revenues during 2016 also reflect license revenue for the amortization of deferred revenue on the collaboration and license agreement with Ipsen; the deferred revenue for the agreement relates to the upfront payment of $200.0 million received in the first quarter of 2016, the $60.0 million milestone we achieved upon the approval of cabozantinib by the EC in second-line RCC, and the $10.0 million upfront payment received in December 2016 in consideration for the commercialization rights in Canada. Total revenues also include two $10.0 million milestones achieved during the quarter ended December 31, 2016 for the first commercial sales of CABOMETYX by Ipsen in Germany and the United Kingdom, a $15.0 million milestone achieved during the quarter ended September 30, 2016 under our collaboration agreement with Daiichi Sankyo and a $5.0 million milestone achieved during the quarter ended March 31, 2016 under our collaboration agreement with Merck. See “Note 2. Collaboration Agreements” for more information on these collaboration agreements.
As described further in “Note 2. Collaboration Agreements - Genentech Collaboration”, in December 2016 Genentech stated that it changed, both retroactively and prospectively, the manner in which it allocates promotional expenses of the Cotellic plus Zelboraf combination therapy. As a result of Genentech’s decision to change its cost allocation approach, we are relieved of our obligation to pay $18.7 million of disputed costs that had been accrued by us as of September 30, 2016. We have invoiced Genentech for certain expenses, with interest, that we had previously paid. Accordingly, during the quarter ended December 31, 2016, we offset Selling, general and administrative expenses for a $23.1 million recovery of net losses, which had been recorded from 2013 through September 30, 2016, including $13.3 million for losses that we had recognized and recorded prior to 2016.


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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Based on the evaluation of our disclosure controls and procedures (as defined under Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) required by Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended, our Chief Executive Officer and our Chief Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Limitations on the Effectiveness of Controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our principal executive officer and principal financial officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
As of the end of our 20132016 fiscal year, management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in the original Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 framework) (COSO). Based on this assessment, management has determined that our internal control over financial reporting as of December 31, 201330, 2016 was effective. There were no material weaknesses in internal control over financial reporting identified by management.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
The independent registered public accounting firm Ernst & Young LLP has issued an audit report on our internal control over financial reporting, which is included on the following page.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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Report of Independent Registered Public Accounting Firm
To theThe Board of Directors and Stockholders of Exelixis, Inc.
We have audited Exelixis, Inc.’s internal control over financial reporting as of December 27, 2013,30, 2016, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 framework) (the COSO criteria). Exelixis, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Exelixis, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 27, 2013,30, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Exelixis, Inc. as of December 27, 201330, 2016 and December 28, 2012,January 1, 2016, and the related consolidated statements of operations, comprehensive (loss) income,loss, stockholders’ equity (deficit), and cash flows for each of the three fiscal years in the period ended December 27, 2013,30, 2016 of Exelixis, Inc. and our report dated February 20, 201427, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Redwood City, California
February 20, 201427, 2017



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ITEM 9B.OTHER INFORMATION
Not applicable
PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item relating to our directors and nominees, including information with respect to our audit committee, audit committee financial experts and procedures by which stockholders may recommend nominees to our board of directors, is incorporated by reference to the section entitled “Proposal 1 –Election of Class III Directors” appearing in our Proxy Statement for our 20142017 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission, or SEC, within 120 days after December 27, 2013,30, 2016, which we refer to as our 20142017 Proxy Statement. The information required by this item regarding our executive officers is incorporated by reference to the section entitled “Executive Officers” appearing in our 20142017 Proxy Statement. The information required by this item regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated by reference to the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” appearing in our 20142017 Proxy Statement.
Code of Ethics
We have adopted a Corporate Code of Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. The Corporate Code of Conduct and Ethics is posted on our website at www.exelixis.com under the caption “Investors & Media -- Corporate Governance.”
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this Corporate Code of Conduct and Ethics by posting such information on our website, at the address and location specified above and, to the extent required by the listing standards of the NASDAQ Stock Market, by filing a Current Report on Form 8-K with the SEC, disclosing such information.
ITEM 11.EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the sections entitled “Compensation of Executive Officers,” “Compensation of Directors,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” appearing in our 20142017 Proxy Statement.

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ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item relating to security ownership of certain beneficial owners and management is incorporated by reference to the section entitled “Security Ownership of Certain Beneficial Owners and Management” appearing in our 20142017 Proxy Statement.
Equity Compensation Plan Information
The following table provides certain information about our common stock that may be issued upon the exercise of stock options and other rights under all of our existing equity compensation plans as of December 31, 2013,2016, which consists of our 2000 Equity Incentive Plan, or the 2000 Plan, our 2000 Non-Employee Directors’ Stock Option Plan, or the Director Plan, our 2000 Employee Stock Purchase Plan, or the ESPP, our 2010 Inducement Award Plan, or the 2010 Plan, our 2011 Equity Incentive Plan, or the 2011 Plan, our 2014 Equity Incentive Plan, or the 2014 Plan, our 2016 Inducement Award Plan, or 2016 Plan and our 401(k) Retirement Plan, or the 401(k) Plan: 
Plan Category 
Number of 
securities to be issued upon exercise of outstanding 
options, warrants and rights
 
Weighted-average exercise price of outstanding 
options, warrants and 
rights (1)
 
Number of securities remaining 
available for future issuance under equity 
compensation plans (excluding securities reflected in column (a))
 
Number of 
securities to be issued upon exercise of outstanding 
options, warrants and rights
 
Weighted-average exercise price of outstanding 
options, warrants and 
rights (1)
 Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 (a) (b) (c) (a) (b) (c)
Equity compensation plans approved by stockholders (2) 25,779,649
 $6.48
 3,750,072
 28,433,956
 $4.84
 5,670,544
Equity compensation plans not approved by stockholders (3) 14,147
 n/a
 857,396
 35,500
 $14.91
 1,749,937
Total 25,793,796

$6.48
 4,607,468
 28,469,456
 $4.86
 7,420,481
____________________
(1)The weighted average exercise price does not take into account the shares subject to outstanding restricted stock units, or RSUs, which have no exercise price.
(2)Represents shares of our common stock issuable pursuant to the 2000 Plan, the 2011 Plan, the 2014 Plan, the Director Plan and the ESPP.
The 2000 Plan was originally adopted by our Board of Directors in January 2000 and approved by our stockholders in March 2000. The 2000 Plan was amended and restated by our Board of Directors in December 2006 to require that the exercise price for options granted pursuant to the 2000 Plan be equal to the fair market value as of the determination date. The 2000 Plan is administered by the Compensation Committee of our Board of Directors. The 2000 Plan expired in January 2010 and there are no shares available for future issuance. As of December 31, 2013, there were options outstanding to purchase 10,812,808 shares of our common stock under the 2000 Plan at a weighted average exercise price of $7.47 per share. The weighted average exercise price does not take into account the shares subject to outstanding RSUs which have no exercise price. As of December 31, 2013, there were 68,081 shares reserved for issuance upon the vesting of outstanding RSUs under the 2000 Plan.
The Director Plan was originally adopted by our Board of Directors in January 2000 and approved by our stockholders in March 2000. The Director Plan provides for the automatic grant of options to purchase shares of common stock to non-employee directors. The Director Plan was amended by our Board of Directors in February 2004 to increase the annual automatic option grant to each non-employee director from 5,000 shares to 10,000 shares, which amendment was approved by our stockholders in April 2004. The Director Plan was further amended by our Board of Directors in February 2008 to increase the annual automatic option grant to each non-employee director from 10,000 shares to 15,000 shares and again in December 2010 to extend the post-termination exercise period for future granted options. Stockholder approval of the February 2008 and December 2010 amendments was not required. The Director Plan was further amended by our Board of Directors in February 2011 to reduce the number of shares available for future grant to 1,227,656 shares, which amendment became effective in May 2011 in connection with stockholder approval of the 2011 Plan. The Director Plan was further amended by our Board of Directors in February 2013 to increase the initial grant to new non-employee directors from 25,000 shares to 50,000 shares and the annual automatic option grant to each non-employee director from 15,000 shares to 30,000 shares. Stockholder approval of the February 2013 amendments was not required. The Director Plan was further amended by our Board of Directors in December 2013 to provide for discretionary grants. Stockholder approval of the December 2013 amendment was not required. The Director Plan is administered by the Compensation Committee of our Board of Directors. As of December 31, 2013, there were no shares available for future issuance under the Director Plan. As of December 31, 2013, there were options outstanding to purchase 2,113,906 shares of our common stock under the Director Plan at a weighted average exercise price of $6.70.
The ESPP was originally adopted by our Board of Directors in January 2000 and approved by our stockholders in March 2000. The ESPP allows for qualified employees to purchase shares of our common stock at a price equal to the lower of 85% of the closing price at the beginning of the offering period or 85% of the closing price at the end of each purchase period. The ESPP is implemented by one offering period during each six-month period; provided, however, our Board of Directors may alter the duration of an offering period

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without stockholder approval. Employees may authorize up to 15% of their compensation for the purchase of stock under the ESPP; provided, that an employee may not accrue the right to purchase stock at a rate of more than $25,000 of the fair market value of our common stock for each calendar year in which the purchase right is outstanding. The ESPP was amended by our Board of Directors in January 2005 and February 2009, each time to increase the number of shares available for issuance under the ESPP. Each increase in the ESPP share reserve was approved by our stockholders in April 2005 and May 2009, respectively. As of December 31, 2013, there were 2,040,839 shares available for future issuance under the ESPP.
The 2011 Plan was originally adopted by our Board of Directors on February 16, 2011 and amended by the Compensation Committee on March 18, 2011, subject to stockholder approval. The 2011 Plan was approved by our stockholders in May 2011. As of December 31, 2013, there were 1,709,233 shares available for future issuance under the 2011 Plan. As of December 31, 2013, there were options outstanding to purchase 11,056,561 shares of our common stock under the 2011 Plan at a weighted average exercise price of $5.47 per share. The weighted average exercise price does not take into account the shares subject to outstanding RSUs which have no exercise price. As of December 31, 2013, there were 1,728,293 shares reserved for issuance upon the vesting of outstanding RSUs under the 2011 Plan.
(3)Represents shares of our common stock issuable pursuant to the 20102016 Plan and 401(k) Plan. We sponsor a 401(k) Plan whereby eligible employees may elect to contribute up to the lesser of 50% of their annual compensation or the statutorily prescribed annual limit allowable under Internal Revenue Service regulations. The 401(k) Plan permits us to make matching contributions on behalf of all participants. We match 100% of the first 3% of participant contributions into the 401(k) Plan.Plan in the form of our common stock.
In December 2009, we adopted the 2010 Plan to replace the 2000 Plan, which expired in January 2010. A total of 1,000,000 shares of our common stock were authorized for issuance under the 2010 Plan. Following stockholder approval of the 2011 Plan in May 2011, no further stock awards have been or will be granted under the 2010 Plan. The 2010 Plan is administered by the Compensation Committee. As of December 31, 2013, there were 14,147 shares reserved for issuance upon the vesting of outstanding RSUs under the 2010 Plan. As of December 31, 2013, there were no remaining options outstanding under the 2010 Plan.
We sponsor a 401(k) Plan whereby eligible employees may elect to contribute up to the lesser of 50% of their annual compensation or the statutorily prescribed annual limit allowable under Internal Revenue Service regulations. The 401(k) Plan permits us to make matching contributions on behalf of all participants. From 2002 through 2010, we matched 50% of the first 4% of participant contributions into the 401(k) Plan in the form of our common stock. Beginning in 2011, we match 100% of the first 3% of participant contributions into the 401(k) Plan in the form of our common stock.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to the sections entitled “Certain Relationships and Related Party Transactions” and “Proposal 1 – Election of Class III Directors” appearing in our 20142017 Proxy Statement.
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to the section entitled “Proposal 2 – Ratification of Selection of Independent Registered Public Accounting Firm” appearing in our 20142017 Proxy Statement.

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PART IV
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
(a)The following documents are being filed as part of this report:
(1) The following financial statements and the Report of Independent Registered Public Accounting Firm are included in Part II, Item 8:
 Page
Report of Independent Registered Public Accounting Firm
5868
Consolidated Balance Sheets
5969
Consolidated Statements of Operations
6070
Consolidated Statements of Comprehensive (Loss) IncomeLoss
6070
Consolidated Statements of Stockholders’ Equity (Deficit)
6171
Consolidated Statements of Cash Flows
6272
Notes to Consolidated Financial Statements
6374
(2) All financial statement schedules are omitted because the information is inapplicable or presented in the Notes to Consolidated Financial Statements.
(3) See Index to Exhibits at the end of this Report, which is incorporated herein by reference. The Exhibits listed in the accompanying Index to Exhibits are filed as part of this report.
ITEM 16.FORM 10-K SUMMARY
 None provided.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized in the City of South San Francisco, State of California, on
Date: February 20, 201427, 2017.
 
  
EXELIXIS, INC.
By: 
/s/    MICHAEL M. MORRISSEY        
  Michael M. Morrissey, Ph.D.
  President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints MICHAEL M. MORRISSEYFRANK KARBE, CHRISTOPHER SENNER and JAMES B. BUCHERJEFFREY J. HESSEKIEL and each or any one of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report on Form 10-K has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures Title Date
   
/s/    MICHAEL M. MORRISSEY        
 Director, President and February 20, 201427, 2017
Michael M. Morrissey, Ph.D. Chief Executive Officer (Principal Executive Officer)  
   
/s/    FCRANKHRISTOPHER  KSARBEENNER       
 Executive Vice President and Chief Financial Officer February 20, 201427, 2017
Frank KarbeChristopher Senner (Principal Financial and Accounting Officer)  
   
/s/    STELIOS PAPADOPOULOS        
 Chairman of the Board February 20, 201427, 2017
Stelios Papadopoulos, Ph.D.    
   
/s/    CHARLES COHEN        
 Director February 20, 201427, 2017
Charles Cohen, Ph.D.    
   
/s/    CARL B. FELDBAUM        
 Director February 20, 201427, 2017
Carl B. Feldbaum, Esq.    
   
/s/    ALAN M. GARBER        
  Director February 20, 201427, 2017
Alan M. Garber, M.D., Ph.D.    
/s/    VINCENT T. MARCHESI        
DirectorFebruary 20, 2014
Vincent T. Marchesi, M.D., Ph.D.


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Signatures  Title Date
   
/s/    FVRANKINCENT T. MCCORMICKARCHESI        
  Director February 20, 201427, 2017
Frank McCormick,Vincent T. Marchesi, M.D., Ph.D.    
   
/s/    GEORGE POSTE        
  Director February 20, 201427, 2017
George Poste, D.V.M., Ph.D.    
   
/s/    GEORGE A. SCANGOS        
  Director February 20, 201427, 2017
George A. Scangos, Ph.D.
/s/    JULIE A. SMITH    
DirectorFebruary 27, 2017
Julie A. Smith    
   
/s/    LANCE WILLSEY        
  Director February 20, 201427, 2017
Lance Willsey, M.D.    
   
/s/    JACK L. WYSZOMIERSKI       
  Director February 20, 201427, 2017
Jack L. Wyszomierski    


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INDEX TO EXHIBITS
Exhibit
Number
 Exhibit Description Incorporation by Reference 
Filed
Herewith
Form File Number 
Exhibit/
Appendix
Reference
 Filing Date 
3.1 Amended and Restated Certificate of Incorporation of Exelixis, Inc. 10-K 000-30235 3.1 3/10/2010  
3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Exelixis, Inc. 10-K 000-30235 3.2 3/10/2010  
3.3 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Exelixis, Inc. 8-K 000-30235 3.1 5/25/2012  
3.4 Amended and Restated Bylaws of Exelixis, Inc. 8-K 000-30235 3.1 12/5/2011  
4.1 Specimen Common Stock Certificate. 
S-1,
as amended
 333-96335 4.1 4/7/2000  
4.2 Form of Warrant, dated June 10, 2009, to purchase 500,000 shares of Exelixis, Inc. common stock in favor of Symphony Evolution Holdings LLC. 
10-Q,
as amended
 000-30235 4.4 7/30/2009  
4.3 Warrant Purchase Agreement, dated June 9, 2005, between Exelixis, Inc. and Symphony Evolution Holdings LLC. 10-Q 000-30235 4.4 8/5/2010  
4.4* Form Warrant to Purchase Common Stock of Exelixis, Inc. issued to Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners, L.P. and Deerfield International Limited 8-K 000-30235 4.9 6/9/2008  
4.5 Form of Note, dated July 1, 2010, in favor of Deerfield Private Design International, L.P. 10-Q 000-30235 10.1 (Exhibit A-1) 8/5/2010  
4.6 Form of Note, dated July 1, 2010, in favor of Deerfield Private Design Fund, L.P. 10-Q 000-30235 10.1 (Exhibit A-2) 8/5/2010  
4.7 Form of Amended and Restated Secured Convertible Note issuable to entities affiliated with Deerfield Management Company, L.P. 8-K 000-30235 10.1 (Exhibit A) 1/22/2014  
4.8 Registration Rights Agreement dated January 22, 2014 by and among Exelixis, Inc., Deerfield Partners, L.P. and Deerfield International Master Fund, L.P. 8-K 000-30235 4.2 1/22/2014  
4.9 Form of Warrant to Purchase Common Stock of Exelixis, Inc. issued to Deerfield Partners, L.P. and Deerfield International Master Fund, L.P. 8-K 000-30235 4.1 1/22/2014  
4.10 Indenture dated August 14, 2012 by and between Exelixis, Inc. and Wells Fargo Bank, National Association 8-K 000-30235 4.1 8/14/2012  
4.11 First Supplemental Indenture dated August 14, 2012 to Indenture dated August 14, 2012 by and between Exelixis, Inc. and Wells Fargo Bank, National Association 8-K 000-30235 4.2 8/14/2012  
4.12 Form of 4.25% Convertible Senior Subordinated Note due 2019 8-K 000-30235 4.2 (Exhibit A) 8/14/2012  
Exhibit
Number
 Exhibit Description Incorporation by Reference 
Filed
Herewith
Form File Number 
Exhibit/
Appendix
Reference
 Filing Date 
3.1 Amended and Restated Certificate of Incorporation of Exelixis, Inc. 10-K 000-30235 3.1 3/10/2010  
3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Exelixis, Inc. 10-K 000-30235 3.2 3/10/2010  
3.3 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Exelixis, Inc. 8-K 000-30235 3.1 5/25/2012  
3.4 Certificate of Ownership and Merger Merging X-Ceptor Therapeutics, Inc. with and into Exelixis, Inc. 8-K 000-30235 3.2 10/15/2014  
3.5 Certificate of Change of Registered Agent and/or Registered Office of Exelixis, Inc. 8-K 000-30235 3.1 10/15/2014  
3.6 Amended and Restated Bylaws of Exelixis, Inc. 8-K 000-30235 3.1 12/5/2011  
4.1 Specimen Common Stock Certificate. 
S-1,
as amended
 333-96335 4.1 4/7/2000  
4.2 Amended and Restated Secured Convertible Note dated July 1, 2015 in favor of Deerfield Partners, L.P. 10-Q 000-30235 4.2 8/11/2015  
4.3 Amended and Restated Secured Convertible Note dated July 1, 2015 in favor of Deerfield International Master Fund, L.P. 10-Q 000-30235 4.3 8/11/2015  
4.4 Registration Rights Agreement dated January 22, 2014 by and among Exelixis, Inc., Deerfield Partners, L.P. and Deerfield International Master Fund, L.P. 8-K 000-30235 4.2 1/22/2014  
4.5 Form of Warrant to Purchase Common Stock of Exelixis, Inc. issued to OTA LLC 10-Q 000-30235 4.5 11/10/2015  
10.1† Form of Indemnity Agreement. 
S-1,
as amended
 333-96335 10.1 3/17/2000  
10.2†
 2000 Equity Incentive Plan. 10-Q 000-30235 10.1 5/3/2007  
10.3†
 Form of Stock Option Agreement under the 2000 Equity Incentive Plan (early exercise permissible). 10-Q 000-30235 10.2 11/8/2004  
10.4†
 Form of Stock Option Agreement under the 2000 Equity Incentive Plan (early exercise may be restricted). 8-K 000-30235 10.1 12/15/2004  
10.5†
 2000 Non-Employee Directors’ Stock Option Plan. 10-K 000-30235 10.6 2/20/2014  
10.6†
 Form of Stock Option Agreement under the 2000 Non-Employee Directors’ Stock Option Plan. 10-K 000-30235 10.7 2/22/2011  
10.7†
 2000 Employee Stock Purchase Plan. Schedule 14A 000-30235 A 4/13/2016  
10.8†
 2011 Equity Incentive Plan. 8-K 000-30235 10.1 5/24/2011  

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Exhibit
Number
 Exhibit Description Incorporation by Reference 
Filed
Herewith
Form File Number 
Exhibit/
Appendix
Reference
 Filing Date 
10.1†Form of Indemnity Agreement.
S-1,
as amended
333-9633510.13/17/2000
10.2†
2000 Equity Incentive Plan.10-Q000-3023510.15/3/2007
10.3†
Form of Stock Option Agreement under the 2000 Equity Incentive Plan (early exercise permissible).10-Q000-3023510.211/8/2004
10.4†
Form of Stock Option Agreement under the 2000 Equity Incentive Plan (early exercise may be restricted).8-K000-3023510.112/15/2004
10.5†
Form of Restricted Stock Unit Agreement under the 2000 Equity Incentive Plan.10-K000-3023510.63/10/2010
10.6†
2000 Non-Employee Directors’ Stock Option Plan.X
10.7†
Form of Stock Option Agreement under the 2000 Non-Employee Directors’ Stock Option Plan.10-K000-3023510.72/22/2011
10.8†
2000 Employee Stock Purchase Plan.Schedule 14A000-30235A4/13/2009
10.9†
2010 Inducement Award Plan10-K000-3023510.103/10/2010
10.10†
Form of Stock Option Agreement under the 2010 Inducement Award Plan.10-K000-3023510.113/10/2010
10.11†
Form of Restricted Stock Unit Agreement under the 2010 Inducement Award Plan.10-K000-3023510.123/10/2010
10.12†
2011 Equity Incentive Plan.8-K000-3023510.15/24/2011
10.13†
 Form of Stock Option Agreement under the 2011 Equity Incentive Plan 10-Q 000-30235 10.3 8/4/2011  
10.1410.10†
 Form of Restricted Stock Unit Agreement under the 2011 Equity Incentive Plan 10-Q 000-30235 10.4 8/4/2011  
10.1510.11†
 Exelixis, Inc. 401(k) Plan.2014 Equity Incentive Plan 10-K8-K 000-30235 10.1310.1 3/10/20105/29/2014
10.12†
Form of Stock Option Agreement under the Exelixis, Inc. 2014 Equity Incentive Plan10-Q000-3023510.27/31/2014
10.13†
Form of Stock Option Agreement (International) under the Exelixis, Inc. 2014 Equity Incentive Plan10-Q000-3023510.37/31/2014
10.14†
Form of Stock Option Agreement (Non-Employee Director) under the Exelixis, Inc. 2014 Equity Incentive Plan10-Q000-3023510.47/31/2014
10.15†
Form of Restricted Stock Unit Agreement under the Exelixis, Inc. 2014 Equity Incentive Plan10-Q000-3023510.57/31/2014  
10.16†
 Form of Restricted Stock Unit Agreement (Non-Employee Director) under the Exelixis, Inc. 401(k)2014 Equity Incentive Plan Adoption Agreement. 10-K8-K 000-30235 10.1410.1 3/10/201016/2014  
10.17†
Non-Employee Director Equity Compensation Policy under the Exelixis, Inc. 2014 Equity Incentive PlanX
10.18†
Exelixis, Inc. 2016 Inducement Award Plan8-K000-3023510.111/22/2016
10.19†
Form of Stock Option Agreement under the 2016 Inducement Award Plan8-K000-3023510.211/22/2016
10.20†
Form of Restricted Stock Unit Agreement under the 2016 Inducement Award Plan8-K000-3023510.211/22/2016
10.21†
 Offer Letter Agreement, dated February 3, 2000, between Michael Morrissey, Ph.D., and Exelixis, Inc. 10-Q 000-30235 10.43 8/5/2004  
10.1810.22†
 Offer Letter Agreement, dated November 20, 2003,June 30, 2015, between Frank KarbeChristopher Senner, and Exelixis, Inc. 10-Q 000-30235 10.4610.5 8/5/200411/10/2015  
10.19†
Employment Agreement, dated September 19, 2013, between Pamela Simonton, J.D., L.L.M. and Exelixis, Inc.10-Q000-3023510.310/30/2013
10.2010.23†
 Offer Letter Agreement, dated June 20, 2006, between Exelixis, Inc. and Gisela M. Schwab, M.D. 8-K 000-30235 10.1 6/26/2006  
10.2110.24†
 Offer Letter Agreement, dated October 6, 2011,February 10, 2014, between Exelixis, Inc. and Jeffrey J. Scott Garland.Hessekiel.10-Q000-3023510.45/1/2014
10.25†
Offer Letter Agreement, dated August 11, 2000, between Exelixis, Inc. and Peter Lamb. 10-K 000-30235 10.2110.24 2/22/201229/2016  
10.2210.26†
 ResignationOffer Letter Agreement, dated July 22,August 19, 2010, by and between Exelixis, Inc. and George A. Scangos10-Q000-3023510.111/4/2010

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Exhibit
Number
 Exhibit Description Incorporation by Reference 
Filed
Herewith
Form File Number 
Exhibit/
Appendix
Reference
 Filing Date 
10.23†
 Special One-Time Cash Bonus Information for Named Executive Officers 8-K 000-30235 10.1 12/7/2012  
10.24†
 Compensation Information for Named Executive Officers. 8-K 000-30235 10.1 2/8/2013  
10.25†
 Compensation Information for Non-Employee Directors. 10-K 000-30235 10.25 2/21/2013  
10.26†
 Exelixis, Inc. Change in Control and Severance Benefit Plan, as amended and restated. 10-Q 000-30235 10.2 10/27/2011  
10.27 Product Development and Commercialization Agreement, dated as of October 28, 2002, by and between SmithKlineBeecham Corporation and Exelixis, Inc. 10-Q 000-30235 10.1 8/6/2013  
10.28* First Amendment, dated January 10, 2005, to the Product Development and Commercialization Agreement, dated October 28, 2002, by and between SmithKlineBeecham Corporation and Exelixis, Inc. 10-K 000-30235 10.24 3/15/2005  
10.29* Second Amendment, dated June 13, 2008, to the Product Development and Commercialization Agreement, dated October 28, 2002, by and between SmithKlineBeecham Corporation d/b/a GlaxoSmithKline and Exelixis, Inc. 10-Q 000-30235 10.3 8/5/2008  
10.30* Letter Agreement, dated February 17, 2009, between Exelixis, Inc. and SmithKlineBeecham Corporation d/b/a GlaxoSmithKline. 
10-Q,
as amended
 000-30235 10.1 5/7/2009  
10.31* Amended and Restated Collaboration Agreement, dated April 15, 2011, by and between Exelixis, Inc., Exelixis Patent Company, LLC., and Bristol-Myers Squibb Company. 10-Q 000-30235 10.5 8/4/2011  
10.32* Collaboration Agreement, dated December 22, 2006, between Exelixis, Inc. and Genentech, Inc. 10-K 000-30235 10.39 2/27/2007  
10.33* First Amendment, dated March 13, 2008, to the Collaboration Agreement, dated December 22, 2006, between Exelixis, Inc. and Genentech, Inc. 10-Q 000-30235 10.1 5/6/2008  
10.34 Second Amendment, dated April 30, 2010, to the Collaboration Agreement, dated December 22, 2006, between Exelixis, Inc. and Genentech, Inc. 10-Q 000-30235 10.5 8/5/2010  
10.35 Lease, dated May 12, 1999, between Britannia Pointe Grand Limited Partnership and Exelixis, Inc. 
S-1,
as amended
 333-96335 10.11 2/7/2000  
10.36 First Amendment, dated March 29, 2000, to Lease, dated May 12, 1999, between Britannia Pointe Grand Limited Partnership and Exelixis, Inc. 10-Q 000-30235 10.1 5/15/2000  
10.37 Second Amendment, dated January 31, 2001, to Lease dated May 12, 1999, between Britannia Pointe Grand Limited Partnership and Exelixis, Inc. 
S-1,
as amended
 333-152166 10.44 7/7/2008  

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Exhibit
Number
 Exhibit Description Incorporation by Reference 
Filed
Herewith
Form File Number 
Exhibit/
Appendix
Reference
 Filing Date 
10.38 Third Amendment, dated May 24, 2001, to Lease dated May 12, 1999, between Britannia Pointe Grand Limited Partnership and Exelixis, Inc. 10-K 000-30235 10.46 2/22/2011  
10.39 Lease Agreement, dated May 24, 2001, between Britannia Pointe Grand Limited Partnership and Exelixis, Inc. 10-Q 000-30235 10.48 8/5/2004  
10.40 First Amendment, dated February 28, 2003, to Lease, dated May 24, 2001, between Britannia Pointe Grand Limited Partnership and Exelixis, Inc. 
S-1,
as amended
 333-152166 10.46 7/7/2008  
10.41 Second Amendment, dated July 20, 2004, to Lease, dated May 24, 2001, between Britannia Pointe Grand Limited Partnership and Exelixis, Inc. 10-Q 000-30235 10.49 8/5/2004  
10.42 Lease Agreement, dated May 27, 2005, between Exelixis, Inc. and Britannia Pointe Grand Limited Partnership. 8-K 000-30235 10.1 5/27/2005  
10.43 Sublease, dated July 25, 2011, between Exelixis, Inc. and Nodality, Inc. 10-Q 000-30235 10.3 10/27/2011  
10.44 Consent to Sublease, dated August 16, 2011, by and among HCP Life Science REIT, Inc., Exelixis, Inc., and Nodality, Inc. 10-Q 000-30235 10.4 10/27/2011  
10.45 Side Letter dated April 12, 2012 to Sublease between Exelixis, Inc. and Nodality, Inc. 10-Q 000-30235 10.1 8/2/2012  
10.46 First Amendment to Sublease dated effective June 1, 2012 by and between Exelixis, Inc. and Nodality, Inc. 10-Q 000-30235 10.2 8/2/2012  
10.47 Consent of Landlord dated June 1, 2012 to First Amendment to Sublease dated effective June 1, 2012 by and between Exelixis, Inc. and Nodality, Inc. 10-Q 000-30235 10.3 8/2/2012  
10.48 Sublease, dated July 25, 2011, between Exelixis, Inc. and Threshold Pharmaceuticals, Inc. 10-Q 000-30235 10.5 10/27/2011  
10.49 Consent to Sublease, dated August 19, 2011, by and among HCP Life Science REIT, Inc., Exelixis, Inc., and Threshold Pharmaceuticals, Inc. 10-Q 000-30235 10.6 10/27/2011  
10.50 Lease Agreement, dated September 14, 2007, between ARE-San Francisco No. 12, LLC and Exelixis, Inc. 10-Q 000-30235 10.5 11/5/2007  
10.51 First Amendment, dated May 31, 2008, to Lease Agreement, dated September 14, 2007, between ARE-San Francisco No. 12, LLC and Exelixis, Inc. 10-Q 000-30235 10.1 8/5/2008  
10.52 Second Amendment, dated October 23, 2008, to Lease Agreement, dated September 14, 2007, between ARE-San Francisco No. 12, LLC and Exelixis, Inc. 10-K 000-30235 10.62 3/10/2009  

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Exhibit
Number
 Exhibit Description Incorporation by Reference 
Filed
Herewith
Form File Number 
Exhibit/
Appendix
Reference
 Filing Date 
10.53 Third Amendment, dated October 24, 2008, to Lease Agreement, dated September 14, 2007, between ARE-San Francisco No. 12, LLC and Exelixis, Inc. 10-K 000-30235 10.63 3/10/2009  
10.54 Fourth Amendment, dated July 9, 2010, to Lease Agreement, dated September 14, 2007, between ARE-San Francisco No. 12, LLC and Exelixis, Inc. 10-Q 000-30235 10.2 11/4/2010  
10.55 Sublease Agreement, dated July 9, 2010, by and between Exelixis, Inc. and Onyx Pharmaceuticals, Inc. 10-Q 000-30235 10.4 11/4/2010  
10.56 Consent to Sublease dated July 9, 2010 by and among ARE-San Francisco No. 12, LLC, Exelixis, Inc. and Onyx Pharmaceuticals, Inc. 10-Q 000-30235 10.3 11/4/2010  
10.57 Sublease Agreement, dated August 5, 2013, by and between Exelixis, Inc. and Sutro Biopharma, Inc. 10-Q 000-30235 10.2 10/30/2013  
10.58 Consent to Sublease Agreement, dated August 5, 2013, by and among Britannia Pointe Limited Grand Partnership, Exelixis, Inc. and Sutro Biopharma, Inc. 10-Q 000-30235 10.3 10/30/2013  
10.59 Loan and Security Agreement, dated May 22, 2002, by and between Silicon Valley Bank and Exelixis, Inc. 10-Q 000-30235 10.34 8/6/2002  
10.60 Loan Modification Agreement, dated December 21, 2004, between Silicon Valley Bank and Exelixis, Inc. 8-K 000-30235 10.1 12/23/2004  
10.61 Amendment No. 7, dated December 21, 2006, to the Loan and Security Agreement, dated May 22, 2002, between Silicon Valley Bank and Exelixis, Inc. 8-K 000-30235 10.1 12/27/2006  
10.62 Amendment No. 8, dated December 21, 2007, to the Loan and Security Agreement, dated May 22, 2002, between Silicon Valley Bank and Exelixis, Inc. 8-K 000-30235 10.1 12/26/2007  
10.63 Amendment No. 9, dated December 22, 2009, to the Loan and Security Agreement, dated May 22, 2002, between Silicon Valley Bank and Exelixis, Inc. 8-K 000-30235 10.1 12/23/2009  
10.64* Amendment No. 10, dated June 2, 2010, to the Loan and Security Agreement, dated May 22, 2002, by and between Silicon Valley Bank and Exelixis, Inc. 10-Q 000-30235 10.3 8/5/2010  
10.65* Amendment No. 11, dated August 18, 2011, to the Loan and Security Agreement, dated May 22, 2002, by and between Silicon Valley Bank and Exelixis, Inc. 10-Q 000-30235 10.7 10/27/2011  

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Exhibit
Number
 Exhibit Description Incorporation by Reference 
Filed
Herewith
Form File Number 
Exhibit/
Appendix
Reference
 Filing Date 
10.66 Pledge and Escrow Agreement dated August 14, 2012 by and among Exelixis, Inc., Wells Fargo Bank, National Association and Wells Fargo Bank, National Association 8-K 000-30235 10.1 8/14/2012  
10.67* Amended and Restated Collaboration Agreement, dated April 15, 2011, by and between Exelixis, Inc., Exelixis Patent Company, LLC., and Bristol-Myers Squibb Company. 10-Q 000-30235 10.6 8/4/2011  
10.68* License Agreement, dated May 27, 2009, between Exelixis, Inc. and Sanofi. 
10-Q,
as amended
 000-30235 10.1 7/30/2009  
10.69* Collaboration Agreement, dated May 27, 2009, between Exelixis, Inc. and Sanofi. 
10-Q,
as amended
 000-30235 10.2 7/30/2009  
10.70* Termination Agreement, dated December 22, 2011, between Exelixis, Inc. and Sanofi. 10-K 000-30235 10.83 2/22/2012  
10.70 Letter, dated May 27, 2009, relating to regulatory filings for the Collaboration Agreement, dated May 27, 2009, between Exelixis, Inc. and Sanofi. 
10-Q,
as amended
 000-30235 10.3 7/30/2009  
10.71 Note Purchase Agreement, dated June 2, 2010, by and between Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P. and Exelixis, Inc. 10-Q 000-30235 10.1 8/5/2010  
10.72 Consent and Amendment dated as of August 6, 2012 to Note Purchase Agreement, dated as of June 2, 2010, between Exelixis, Inc., Deerfield Private Design Fund, L.P. and Deerfield Private Design International, L.P. 8-K 000-30235 10.1 8/6/2012  
10.73 Amendment No. 2 dated as of August 1, 2013 to Note Purchase Agreement, dated as of June 2, 2010, between Exelixis, Inc., Deerfield Private Design Fund, L.P. and Deerfield Private Design International, L.P. 10-Q 000-30235 10.1 10/30/2013  
10.74 Amendment No. 3 dated as of January 22, 2013 to Note Purchase Agreement, dated as of June 2, 2010, by and among Exelixis, Inc., Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners L.P. and Deerfield International Master Fund, L.P. 8-K 000-30235 10.1 1/22/2014  
10.75 Security Agreement, dated July 1, 2010, by and between Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P. and Exelixis, Inc. 10-Q 000-30235 10.2 8/5/2010  
10.76* Amended and Restated License Agreement, dated April 15, 2011, by and between Exelixis, Inc., Exelixis Patent Company, LLC, and Bristol-Myers Squibb Company. 10-Q 000-30235 10.7 8/4/2011  

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Table of Contents

Exhibit
Number
Exhibit DescriptionIncorporation by Reference
Filed
Herewith
FormFile Number
Exhibit/
Appendix
Reference
Filing Date
10.77*Amended and Restated Collaboration Agreement, dated April 15, 2011, by and between Exelixis, Inc., Exelixis Patent Company, LLC, and Bristol-Myers Squibb Company.10-Q000-3023510.88/4/2011
10.78*Exclusive License Agreement, dated December 20, 2011, between Exelixis, Inc. and Merck.10-K000-3023510.912/22/2012
12.1Statement Re Computation of Earnings to Fixed ChargesX
21.1Subsidiaries of Exelixis, Inc.X
23.1Consent of Independent Registered Public Accounting Firm.X
24.1Power of Attorney (contained on signature page).X
31.1Certification required by Rule 13a-14(a) or Rule 15d-14(a).X
31.2Certification required by Rule 13a-14(a) or Rule 15d-14(a).X
32.1‡Certification by the Chief Executive Officer and the Chief Financial Officer of Exelixis, Inc., as required by Rule 13a-14(b) or 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).X
101.INSXBRL Instance DocumentX
101.SCHXBRL Taxonomy Extension Schema DocumentX
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEFXBRL Taxonomy Extension Definition LinkbaseX
101.LABXBRL Taxonomy Extension Labels Linkbase DocumentX
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentPatrick J. Haley         X


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Table of Contents

Exhibit
Number
 Exhibit Description Incorporation by Reference 
Filed
Herewith
Form File Number 
Exhibit/
Appendix
Reference
 Filing Date 
10.27†
 Resignation Agreement dated July 22, 2010, by and between Exelixis, Inc. and George A. Scangos 10-Q 000-30235 10.1 11/4/2010  
10.28†
 Compensation Information for Named Executive Officers (2016 cash bonus and 2017 compensation) 8-K 000-30235 Item 5.02 disclosure 2/27/2017  
10.29†
 Compensation Information for Non-Employee Directors.         X
10.30†
 Exelixis, Inc. Change in Control and Severance Benefit Plan, as amended and restated. 10-Q 000-30235 10.2 10/27/2011  
10.31 Lease Agreement, dated May 27, 2005, between Exelixis, Inc. and Britannia Pointe Grand Limited Partnership. 8-K 000-30235 10.1 5/27/2005  
10.32 Loan and Security Agreement, dated May 22, 2002, by and between Silicon Valley Bank and Exelixis, Inc. 10-Q 000-30235 10.34 8/6/2002  
10.33 Loan Modification Agreement, dated December 21, 2004, between Silicon Valley Bank and Exelixis, Inc. 8-K 000-30235 10.1 12/23/2004  
10.34 Amendment No. 7, dated December 21, 2006, to the Loan and Security Agreement, dated May 22, 2002, between Silicon Valley Bank and Exelixis, Inc. 8-K 000-30235 10.1 12/27/2006  
10.35 Amendment No. 8, dated December 21, 2007, to the Loan and Security Agreement, dated May 22, 2002, between Silicon Valley Bank and Exelixis, Inc. 8-K 000-30235 10.1 12/26/2007  
10.36 Amendment No. 9, dated December 22, 2009, to the Loan and Security Agreement, dated May 22, 2002, between Silicon Valley Bank and Exelixis, Inc. 8-K 000-30235 10.1 12/23/2009  
10.37* Amendment No. 10, dated June 2, 2010, to the Loan and Security Agreement, dated May 22, 2002, by and between Silicon Valley Bank and Exelixis, Inc. 10-Q 000-30235 10.3 8/5/2010  
10.38* Amendment No. 11, dated August 18, 2011, to the Loan and Security Agreement, dated May 22, 2002, by and between Silicon Valley Bank and Exelixis, Inc. 10-Q 000-30235 10.7 10/27/2011  
10.39 Note Purchase Agreement, dated June 2, 2010, by and between Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P. and Exelixis, Inc. 10-Q 000-30235 10.1 8/5/2010  
10.40 Consent and Amendment dated as of August 6, 2012 to Note Purchase Agreement, dated as of June 2, 2010, between Exelixis, Inc., Deerfield Private Design Fund, L.P. and Deerfield Private Design International, L.P. 8-K 000-30235 10.1 8/6/2012  


116
Table of Contents

Exhibit
Number
 Exhibit Description Incorporation by Reference 
Filed
Herewith
Form File Number 
Exhibit/
Appendix
Reference
 Filing Date 
10.41 Amendment No. 2 dated as of August 1, 2013 to Note Purchase Agreement, dated as of June 2, 2010, between Exelixis, Inc., Deerfield Private Design Fund, L.P. and Deerfield Private Design International, L.P. 10-Q 000-30235 10.1 10/30/2013  
10.42 Amendment No. 3 dated as of January 22, 2013 to Note Purchase Agreement, dated as of June 2, 2010, by and among Exelixis, Inc., Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners L.P. and Deerfield International Master Fund, L.P. 8-K 000-30235 10.1 1/22/2014  
10.43 Amendment No. 4 dated as of July 10, 2014 to Note Purchase Agreement, dated as of June 2, 2010, by and among Exelixis, Inc., Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield Partners L.P. and Deerfield International Master Fund, L.P. 10-Q 000-30235 10.1 11/4/2014  
10.44 Security Agreement, dated July 1, 2010, by and between Deerfield Private Design Fund, L.P., Deerfield Private Design International, L.P. and Exelixis, Inc. 10-Q 000-30235 10.2 8/5/2010  
10.45** Cooperative Research and Development Agreement for Extramural-PHS Clinical Research by and between The U.S. Department of Health and Human Services, as represented by National Cancer Institute, an Institute, Center, or Division of the National Institutes of Health and Exelixis, Inc. dated October 5, 2011         X
10.46 Amendment #1 dated April 16, 2013, to Cooperative Research and Development Agreement for Extramural-PHS Clinical Research by and between The U.S. Department of Health and Human Services, as represented by National Cancer Institute, an Institute, Center, or Division of the National Institutes of Health and Exelixis, Inc. dated October 5, 2011         X
10.47 Amendment #2 dated July 18, 2016, to Cooperative Research and Development Agreement for Extramural-PHS Clinical Research by and between The U.S. Department of Health and Human Services, as represented by National Cancer Institute, an Institute, Center, or Division of the National Institutes of Health and Exelixis, Inc. dated October 5, 2011         X


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Table of Contents

Exhibit
Number
 Exhibit Description Incorporation by Reference 
Filed
Herewith
Form File Number 
Exhibit/
Appendix
Reference
 Filing Date 
10.48* Collaboration and License Agreement dated February 29, 2016 by and between Exelixis, Inc. and Ipsen Pharma SAS 10-Q/A 000-30235 10.3 9/30/2016  
10.49** First Amendment dated December 20, 2016, to the Collaboration and License Agreement dated February 29, 2016, by and between Exelixis, Inc. and Ipsen Pharma SAS         X
10.50* Supply Agreement dated February 29, 2016, by and between Exelixis, Inc. and Ipsen Pharma SAS 10-Q/A 000-30235 10.4 9/30/2016  
10.51** Collaboration Agreement, dated December 22, 2006, between Exelixis, Inc. and Genentech, Inc.         X
10.52** First Amendment, dated March 13, 2008, to the Collaboration Agreement, dated December 22, 2006, between Exelixis, Inc. and Genentech, Inc.         X
10.53 Second Amendment, dated April 30, 2010, to the Collaboration Agreement, dated December 22, 2006, between Exelixis, Inc. and Genentech, Inc. 10-Q 000-30235 10.5 8/5/2010  
12.1 Statement Re Computation of Earnings to Fixed Charges         X
21.1 Subsidiaries of Exelixis, Inc.         X
23.1 Consent of Independent Registered Public Accounting Firm.         X
24.1 Power of Attorney (contained on signature page).         X
31.1 Certification required by Rule 13a-14(a) or Rule 15d-14(a).         X
31.2 Certification required by Rule 13a-14(a) or Rule 15d-14(a).         X
32.1‡ Certification by the Chief Executive Officer and the Chief Financial Officer of Exelixis, Inc., as required by Rule 13a-14(b) or 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).         X
101.INS XBRL Instance Document         X
101.SCH XBRL Taxonomy Extension Schema Document         X
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document         X
101.DEF XBRL Taxonomy Extension Definition Linkbase         X
101.LAB XBRL Taxonomy Extension Labels Linkbase Document         X
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document         X
† 
Management contract or compensatory plan.


118
Table of Contents

*Confidential treatment granted for certain portions of this exhibit.
**Confidential treatment requested for certain portions of this exhibit.
‡This certification accompanies this Annual Report on Form 10-K, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Annual Report on Form 10-K), irrespective of any general incorporation language contained in such filing.




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