
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM 10-Q~~


ýFORM			10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 29, 2017~~July 2, 2021


¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-30235




EXELIXIS, INC.
(Exact name of registrant as specified in its charter)



Delaware			04-3257395
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

~~210 East Grand Ave.~~

~~South San Francisco,~~1851 Harbor Bay Parkway

Alameda, CA ~~94080~~94502

(650) 837-7000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock $.001 Par Value per Share	EXEL	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days). Yes ý No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

ý☒

Accelerated filer

¨☐

Non-accelerated filer

¨ ~~(Do not check if a smaller reporting company)~~

☐

Smaller reporting company

¨☐

Emerging growth company

¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section ~~7(a)(2)(B)~~13(a) of the Securities Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ ☐No ý

As of ~~October 24, 2017,~~July 26, 2021, there were ~~295,853,210~~315,048,788 shares of the registrant’s common stock outstanding.

Table of Contents

EXELIXIS, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX


		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets ~~– September 30, 2017 and December 31, 2016~~(Unaudited)	3
	Condensed Consolidated Statements of ~~Operations – Three and Nine Months Ended September 30, 2017 and 2016~~Income (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income ~~(Loss) – Three and Nine Months Ended September 30, 2017 and 2016~~(Unaudited)	4
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows ~~– Nine Months Ended September 30, 2017 and 2016~~(Unaudited)	57
	Notes to Condensed Consolidated Financial Statements (Unaudited)	68
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2321
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3235
Item 4.	Controls and Procedures	3335
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	3436
Item 1A.	Risk Factors	3436
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5355
Item 3.	Defaults Upon Senior Securities	5355
Item 4.	Mine Safety Disclosures	5355
Item 5.	Other Information	5355
Item 6.	Exhibits	5356
SIGNATURES

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

EXELIXIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except ~~share and~~ per share ~~data)~~amounts)

(unaudited)

September 30,
2017 December 31, 2016*
ASSETS
Current assets:
Cash and cash equivalents $ 149,357
$ 151,686
Short-term investments 217,741
268,117
Trade and other receivables 90,005
40,444
Inventory, net 5,806
3,338
Prepaid expenses and other current assets 8,012
5,416
Total current assets 470,921
469,001
Long-term investments 50,569
55,601
Long-term restricted cash and investments 4,650
4,150
Property and equipment, net 19,256
2,071
Goodwill 63,684
63,684
Other long-term assets 692
1,232
Total assets $ 609,772
$ 595,739
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 5,988
$ 6,565
Accrued compensation and benefits 19,914
20,334
Accrued clinical trial liabilities 16,181
14,131
Accrued collaboration liabilities 9,137
2,046
Current portion of deferred revenue 31,377
19,665
Convertible notes —
109,122
Term loan payable —
80,000
Other current liabilities 26,356
16,923
Total current liabilities 108,953
268,786
Long-term portion of deferred revenue 246,092
237,094
Other long-term liabilities 16,012
541
Total liabilities 371,057
506,421
Commitments

Stockholders’ equity
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: 295,700,576 and 289,923,798 at September 30, 2017 and December 31, 2016, respectively 296
290
Additional paid-in capital 2,106,132
2,072,591
Accumulated other comprehensive loss (52 ) (416 )
Accumulated deficit (1,867,661 ) (1,983,147 )
Total stockholders’ equity 238,715
89,318
Total liabilities and stockholders’ equity $ 609,772
$ 595,739


*	~~The condensed consolidated balance sheet as of December 31, 2016 has been derived from the audited financial statements as of that date.~~

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~EXELIXIS, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(in thousands, except per share data)~~

~~(unaudited)~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenues:
Net product revenues $ 96,416
$ 42,742
$ 253,297
$ 83,459
Collaboration revenues 56,094
19,452
79,108
30,414
Total revenues 152,510
62,194
332,405
113,873
Operating expenses:
Cost of goods sold 4,658
2,455
10,875
4,700
Research and development 28,543
20,256
79,967
72,166
Selling, general and administrative 38,129
32,463
113,116
103,143
Restructuring (recovery) charge —
(244 ) (32 ) 871
Total operating expenses 71,330
54,930
203,926
180,880
Income (loss) from operations 81,180
7,264
128,479
(67,007 )
Other income (expense), net:
Interest income and other, net 3,408
3,059
6,098
4,010
Interest expense —
(7,834 ) (8,679 ) (28,575 )
Loss on extinguishment of debt —
(13,773 ) (6,239 ) (13,773 )
Total other income (expense), net 3,408
(18,548 ) (8,820 ) (38,338 )
Income (loss) before income taxes 84,588
(11,284 ) 119,659
(105,345 )
Income tax expense 3,206
—
3,921
—
Net income (loss) $ 81,382
$ (11,284 ) $ 115,738
$ (105,345 )
Net income (loss) per share, basic $ 0.28
$ (0.04 ) $ 0.39
$ (0.44 )
Net income (loss) per share, diluted $ 0.26
$ (0.04 ) $ 0.37
$ (0.44 )
Shares used in computing net income (loss) per share, basic 294,269
256,319
292,776
238,024
Shares used in computing net income (loss) per share, diluted 312,940
256,319
311,555
238,024


	June 30, 2021		December 31, 2020




ASSETS
Current assets:
Cash and cash equivalents	$	492,462	$	319,217
Short-term investments	854,171		887,319
Trade receivables, net	171,753		160,875
Inventory	24,982		20,973

Prepaid expenses and other current assets	49,878		57,011
Total current assets	1,593,246		1,445,395
Long-term investments	345,613		330,751
Property and equipment, net	95,133		67,384
Deferred tax assets, net	134,667		156,711
Goodwill	63,684		63,684
Other long-term assets	134,928		73,408
Total assets	$	2,367,271	$	2,137,333
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	20,450	$	23,632
Accrued compensation and benefits	48,324		51,189
Accrued clinical trial liabilities	67,075		52,251
Rebates and fees due to customers	31,197		20,683
Accrued collaboration liabilities	24,428		12,456

Other current liabilities	63,852		44,447
Total current liabilities	255,326		204,658
Long-term portion of deferred revenues	8,577		3,755
Long-term portion of operating lease liabilities	53,223		49,086
Other long-term liabilities	7,068		721
Total liabilities	324,194		258,220
Commitments and contingencies	0		0
Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000 shares authorized and 0 shares issued	0		0
Common stock, $0.001 par value; 400,000 shares authorized; issued and outstanding: 314,822 and 311,627 at June 30, 2021 and December 31, 2020, respectively	315		312
Additional paid-in capital	2,390,654		2,321,895
Accumulated other comprehensive income	1,985		4,476
Accumulated deficit	(349,877)		(447,570)
Total stockholders’ equity	2,043,077		1,879,113
Total liabilities and stockholders’ equity	$	2,367,271	$	2,137,333

The accompanying notes are an integral part of these ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

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EXELIXIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE~~ INCOME ~~(LOSS)~~

(in ~~thousands)~~thousands, except per share amounts)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenues:
Net product revenues	$	284,248	$	178,730	$	511,460	$	372,610
License revenues	39,640		59,234		67,168		80,113
Collaboration services revenues	61,289		21,515		76,779		33,671
Total revenues	385,177		259,479		655,407		486,394
Operating expenses:
Cost of goods sold	14,884		9,221		28,082		18,510
Research and development	148,790		114,933		308,078		216,810
Selling, general and administrative	98,495		59,791		200,846		122,731
Total operating expenses	262,169		183,945		537,006		358,051
Income from operations	123,008		75,534		118,401		128,343
Interest income	1,891		5,162		4,573		12,382
Other income (expense), net	(11)		0		(101)		6
Income before income taxes	124,888		80,696		122,873		140,731
Provision for income taxes	28,796		13,875		25,180		25,298
Net income	$	96,092	$	66,821	$	97,693	$	115,433
Net income per share:
Basic	$	0.31	$	0.22	$	0.31	$	0.38
Diluted	$	0.30	$	0.21	$	0.30	$	0.36
Weighted-average common shares outstanding:
Basic	314,117		307,807		313,295		306,598
Diluted	322,941		318,144		322,114		316,992

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income (loss) $ 81,382
$ (11,284 ) $ 115,738
$ (105,345 )
Other comprehensive income (loss) ⁽¹⁾
67
(209 ) 364
152
Comprehensive income (loss) $ 81,449
$ (11,493 ) $ 116,102
$ (105,193 )

~~____________________~~


~~(1)~~	Other comprehensive income (loss) consisted solely of unrealized gains or losses, net, on available-for-sale securities arising during the periods presented. There were nominal or no reclassification adjustments to net income (loss) resulting from realized gains or losses on the sale of securities and there was no income tax expense related to other comprehensive income during those periods.

The accompanying notes are an integral part of these ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

EXELIXIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income	$	96,092	$	66,821	$	97,693	$	115,433
Other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale debt securities, net of tax impact of ($257), $2,287, ($756) and $1,346, respectively	(755)		8,062		(2,491)		4,771

Comprehensive income	$	95,337	$	74,883	$	95,202	$	120,204

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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EXELIXIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Three Months Ended June 30, 2021
	Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
	Shares		Amount




















Balance at March 31, 2021	313,262		$	313	$	2,354,103	$	2,740	$	(445,969)	$	1,911,187
Net income	—		—		—		—		96,092		96,092
Other comprehensive loss	—		—		—		(755)		—		(755)
Issuance of common stock under equity incentive and stock purchase plans	1,560		2		11,283		—		—		11,285
Stock transactions associated with taxes withheld on equity awards	—		—		(2,767)		—		—		(2,767)
Stock-based compensation	—		—		28,035		—		—		28,035
Balance at June 30, 2021	$	314,822	$	315	$	2,390,654	$	1,985	$	(349,877)	$	2,043,077



	Three Months Ended June 30, 2020
	Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares		Amount




















Balance at March 31, 2020	305,780		$	306	$	2,258,307	$	(222)	$	(510,739)	$	1,747,652
Net income	—		—		—		—		66,821		66,821
Other comprehensive income	—		—		—		8,062		—		8,062
Issuance of common stock under equity incentive and stock purchase plans	3,106		3		13,780		—		—		13,783
Stock transactions associated with taxes withheld on equity awards	—		—		(19,148)		—		—		(19,148)
Stock-based compensation	—		—		16,154		—		—		16,154
Balance at June 30, 2020	$	308,886	$	309	$	2,269,093	$	7,840	$	(443,918)	$	1,833,324

Continued on next page

Table of Contents

EXELIXIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - Continued

(in thousands)

(unaudited)


	Six Months Ended June 30, 2021
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount




















Balance at December 31, 2020	311,627	$	312	$	2,321,895	$	4,476	$	(447,570)	$	1,879,113
Net income	—	—		—		—		97,693		97,693
Other comprehensive loss	—	—		—		(2,491)		—		(2,491)
Issuance of common stock under equity incentive and stock purchase plans	3,195	3		15,484		—		—		15,487
Stock transactions associated with taxes withheld on equity awards	—	—		(9,413)		—		—		(9,413)
Stock-based compensation	—	—		62,688		—		—		62,688
Balance at June 30, 2021	314,822	$	315	$	2,390,654	$	1,985	$	(349,877)	$	2,043,077


	Six Months Ended June 30, 2020
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount




















Balance at December 31, 2019	304,831	$	305	$	2,241,947	$	3,069	$	(559,351)	$	1,685,970
Net income	—	—		—		—		115,433		115,433
Other comprehensive income	—	—		—		4,771		—		4,771
Issuance of common stock under equity incentive and stock purchase plans	4,055	4		17,951		—		—		17,955
Stock transactions associated with taxes withheld on equity awards	—	—		(20,941)		—		—		(20,941)
Stock-based compensation	—	—		30,136		—		—		30,136
Balance at June 30, 2020	308,886	$	309	$	2,269,093	$	7,840	$	(443,918)	$	1,833,324

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Table of Contents

EXELIXIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2021		2020
Net income	$	97,693	$	115,433
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	6,895		4,376
Stock-based compensation	62,688		30,136
Non-cash lease expense	2,586		2,383
Deferred taxes	22,800		22,793
Other, net	22,831		726
Changes in operating assets and liabilities:
Trade receivables, net	(12,313)		(2,014)
Inventory	(8,020)		(7,049)

Prepaid expenses and other assets	(12,296)		(18,954)

Deferred revenue	9,346		9,659
Accounts payable and other liabilities	28,835		262
Net cash provided by operating activities	221,045		157,751
Cash flows from investing activities:
Purchases of property, equipment and other	(33,768)		(9,925)

Purchases of investments	(688,903)		(433,154)
Proceeds from maturities and sales of investments	714,081		548,973
Net cash (used in) provided by investing activities	(8,590)		105,894
Cash flows from financing activities:
Proceeds from issuance of common stock under equity incentive plans	15,487		17,938
Taxes paid related to net share settlement of equity awards	(9,413)		(20,941)


Net cash provided by (used in) financing activities	6,074		(3,003)
Net increase in cash, cash equivalents and restricted cash equivalents	218,529		260,642
Cash, cash equivalents and restricted cash equivalents at beginning of period	320,772		268,137
Cash, cash equivalents and restricted cash equivalents at end of period	$	539,301	$	528,779
Supplemental cash flow disclosures:


Non-cash operating activities:
Right-of-use assets obtained in exchange for lease obligations	$	4,893	$	1,824
Non-cash investing activities:
Unpaid liabilities incurred for purchases of property and equipment	$	5,125	$	804
Unpaid liabilities incurred in asset acquisition	$	9,000	$	0
Unpaid liabilities incurred for unsettled investment purchases	$	7,378	$	0

Nine Months Ended September 30,
2017 2016
Net income (loss) $ 115,738
$ (105,345 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 842
754
Stock-based compensation expense 15,029
18,346
Loss on extinguishment of debt 6,239
13,773
Amortization of debt discounts and debt issuance costs 182
8,295
Interest paid in kind (11,825 ) 5,939
Gain on other equity investments (2,980 ) (2,494 )
Other 1,530
1,332
Changes in assets and liabilities:
Trade and other receivables (49,241 ) (85,026 )
Inventory, net (2,468 ) (676 )
Prepaid expenses and other current assets (2,530 ) (3,342 )
Other long-term assets 689
535
Accounts payable (577 ) (2,436 )
Accrued compensation and benefits (420 ) 12,357
Accrued clinical trial liabilities 2,050
(3,184 )
Accrued collaboration liabilities 7,091
7,772
Deferred revenue 20,710
251,512
Other current and long-term liabilities 12,199
7,183
Net cash provided by operating activities 112,258
125,295
Cash flows from investing activities:
Purchases of property and equipment (3,449 ) (1,116 )
Proceeds from sale of property and equipment 14
92
Purchases of investments (248,046 ) (258,509 )
Proceeds from maturities of investments 266,335
100,635
Proceeds from sale of investments 37,294
2,266
Purchase of restricted cash and investments (11,150 ) (4,150 )
Proceeds from maturities of restricted cash and investments 10,650
2,650
Proceeds from other equity investments 2,980
2,494
Net cash provided by (used in) investing activities 54,628
(155,638 )
Cash flows from financing activities:
Repayment of convertible notes and term loan payable (185,788 ) —
Payment on conversion of convertible notes
—
(7,134 )
Proceeds from exercise of stock options 16,532
9,296
Proceeds from employee stock purchase plan 3,053
479
Taxes paid related to net share settlement of equity awards (3,012 ) (2,713 )
Net cash used in financing activities (169,215 ) (72 )
Net decrease in cash and cash equivalents (2,329 ) (30,415 )
Cash and cash equivalents at beginning of period 151,686
141,634
Cash and cash equivalents at end of period $ 149,357
$ 111,219
Supplemental cash flow disclosure - non-cash investing and financing activity:
Construction-in-progress deemed to have been acquired under build-to-suit lease

$ 14,530
$ —
Issuance of common stock in settlement of convertible notes $ —
$ 285,308

The accompanying notes are an integral part of these ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

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EXELIXIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Exelixis, Inc. ~~(“Exelixis,” “we,” “our”~~(Exelixis, we, our or ~~“us”)~~us) is aan oncology-focused biotechnology company ~~committed~~that strives to accelerate the discovery, development and commercialization of new medicines for difficult-to-treat cancers. We have invented and brought to ~~improve care~~market novel, effective and ~~outcomes for people~~tolerable therapies using our drug discovery and development resources and capabilities and commercialization platform; we will continue to build on this foundation, working toward providing cancer patients with ~~cancer.~~ additional treatment options.

Since ~~our founding~~we were founded in 1994, ~~three~~4 products ~~discovered at Exelixis~~resulting from our discovery efforts have progressed through clinical development, received regulatory approval and ~~entered~~established a commercial presence in various geographies around the ~~marketplace. Two are derived from~~world. Our flagship molecule, cabozantinib, is an inhibitor of multiple tyrosine kinases including ~~VEGF,~~ MET, AXL, VEGF receptors and RET ~~receptors:~~and has been approved by the U.S. Food and Drug Administration (FDA) and foreign regulatory authorities as two products: CABOMETYX® (cabozantinib) tablets approved for ~~previously treated~~ advanced renal cell carcinoma ~~(“RCC”)~~(RCC), both alone and in combination with Bristol Myers Squibb Company’s OPDIVO® (nivolumab), and for previously treated hepatocellular carcinoma (HCC); and COMETRIQ® (cabozantinib) capsules approved for progressive, metastatic medullary thyroid ~~cancer.~~ cancer (MTC). For these types of cancer, cabozantinib has become or is becoming a standard of care.

The ~~third product,~~other 2 products resulting from our discovery efforts are: COTELLIC® (cobimetinib) ~~tablets, is a reversible~~, an inhibitor of MEK, approved as part of multiple combination regimens to treat specific forms of advanced melanoma and marketed under a collaboration with Genentech, Inc. (a member of the Roche Group) (Genentech); and MINNEBRO® (esaxerenone), an oral, non-steroidal, selective blocker of the mineralocorticoid receptor, approved for the treatment of hypertension in Japan and ~~is approved as part~~licensed to Daiichi Sankyo Company, Limited (Daiichi Sankyo).

Leveraging the revenue stream derived from our cabozantinib franchise and other marketed products, we are expanding our oncology product pipeline through drug discovery efforts, which encompass both small molecule and biologics programs with multiple modalities and mechanisms of ~~a combination regimen to treat advanced melanoma.~~action.

Basis of ~~Consolidation~~Presentation

The ~~condensed consolidated financial statements~~accompanying Condensed Consolidated Financial Statements include the accounts of Exelixis and those of our wholly-owned subsidiaries. These entities’ functional currency is the ~~United States (“~~U.S.”) dollar. All intercompany balances and transactions have been eliminated.

~~Basis of Presentation~~

The accompanying unaudited ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission ~~(“SEC”)~~(SEC). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of ~~the results of operations and cash flows~~our financial statements for the periods presented have been included. Operating results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for any future period. The accompanying Condensed Consolidated Financial Statements and Notes thereto should be read in conjunction with our Consolidated Financial Statements and Notes thereto for the year ended December 31, 2020, included in our Annual Report on Form 10-K submitted to the SEC on February 10, 2021.

We have adopted a 52- or 53-week fiscal year policy that generally ends on the Friday closest to December 31^st. Fiscal year ~~2017~~2021, which is a 52-week fiscal year, will end on December ~~29, 2017~~31, 2021 and fiscal year ~~2016~~2020, which was a 52-week fiscal year, ended on ~~December 30, 2016.~~January 1, 2021. For convenience, references in this report as of and for the fiscal periods ended ~~September 29, 2017~~July 2, 2021 and ~~September 30, 2016,~~July 3, 2020, and as of and for the fiscal ~~years~~year ended ~~December 29, 2017 and December 30, 2016,~~January 1, 2021, are indicated as being as of and for the fiscal periods ended ~~September~~June 30, ~~2017~~2021 and ~~September~~June 30, ~~2016,~~2020, and ~~the years ended December 31, 2017 and December 31, 2016, respectively.~~

Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or for any future period. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, ~~2016, included~~2020, respectively.

Segment Information

We operate in 1 business segment that focuses on the discovery, development and commercialization of new medicines for difficult-to-treat cancers. Our Chief Executive Officer, as the chief operating decision-maker, manages and

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allocates resources to our ~~Annual Report~~operations on ~~Form 10-K filed~~a total consolidated basis. Consistent with this decision-making process, our Chief Executive Officer uses consolidated, single-segment financial information for purposes of evaluating performance, forecasting future period financial results, allocating resources and setting incentive targets.

All of our long-lived assets are located in the ~~SEC on February 27, 2017.~~U.S. See “Note 2. Revenues” for enterprise-wide disclosures about product sales, revenues from major customers and revenues by geographic region.

Use of Estimates

The preparation of ~~our condensed consolidated financial statements~~the accompanying Condensed Consolidated Financial Statements conforms to accounting principles generally accepted in the U.S., which requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, ~~revenue~~equity, revenues and expenses, and related disclosures. On an ongoing basis, management evaluates its estimates including, but not limited to, those related to revenue recognition, including deductions from revenues (such as rebates, chargebacks, sales returns and sales allowances), the period of performance, identification of deliverables and evaluation of milestones with respect towe evaluate our collaborations, the amounts of revenues and expenses under our profit and loss sharing agreement, recoverability of inventory, certain accrued liabilities including accrued clinical trial liability, and stock-based compensation.significant estimates. We base our estimates on historical experience and on various other market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.

Reclassifications

Certain prior period amounts in the ~~condensed consolidated financial statements~~accompanying Condensed Consolidated Financial Statements have been reclassified to conform to the current period presentation. ~~We reclassified $1.8 million in payable~~Such reclassifications did not impact previously reported total revenues, income from operations, net income, total assets, total liabilities or total stockholders’ equity.

Significant Accounting Policies

Except for the foreign currency forward contracts for non-designated hedges, there have been no material changes to our ~~customers from Other current liabilities~~significant accounting policies during the six months ended June 30, 2021, as compared to ~~Trade and other receivables~~the significant accounting policies disclosed in Note 1 – Significant Accounting Policies included in our Annual Report on Form 10-K for the ~~accompanying~~year ended December 31, ~~2016~~2020.

Foreign Currency Forward Contracts for Non-Designated Hedges

We may use forward foreign currency exchange contracts (forward contracts) to hedge certain operational exposures resulting from potential changes in foreign currency exchange rates. Our strategy is to enter into forward contracts so that increases or decreases in our foreign currency exposures are offset by gains or losses on the foreign currency forward contracts thereby mitigating the risks and volatility associated with our foreign currency transactions. We do not apply hedge accounting treatment to these non-designated hedging instruments. We do not hold or issue derivative instruments for trading or speculative purposes.

Our forward contracts are generally short-term in duration. Given the short duration of the forward contracts, amounts recorded generally are not significant. We account for our derivative instruments as either assets or liabilities on our Condensed Consolidated Balance ~~Sheet.~~Sheets and measure them at fair value. Derivatives not designated as hedging instruments are adjusted to fair value through earnings in other income (expense), net in the Condensed Consolidated Statements of Income.

Recently Adopted Accounting Pronouncements

On January 1, 2021, we adopted the Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740)-Simplifying the Accounting for Income Taxes (ASU 2019-12). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification (ASC) Topic 740, Income Taxes and clarifying and amending existing guidance. Our adoption of ASU 2019-12 did not have a significant impact on the accompanying Condensed Consolidated Financial Statements.

Recent Accounting Pronouncements Not Yet Adopted

There were no new accounting pronouncements issued since our filing of the Annual Report on Form 10-K for the year ended December 31, 2020, which could have a significant effect on our condensed consolidated financial statements.

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NOTE 2. REVENUES

Revenues consisted of the following (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Product revenues:
Gross product revenues	$	380,204	$	229,898	$	694,409	$	482,464
Discounts and allowances	(95,956)		(51,168)		(182,949)		(109,854)
Net product revenues	284,248		178,730		511,460		372,610
Collaboration revenues:
License revenues	39,640		59,234		67,168		80,113
Collaboration services revenues	61,289		21,515		76,779		33,671
Total collaboration revenues	100,929		80,749		143,947		113,784
Total revenues	$	385,177	$	259,479	$	655,407	$	486,394

The percentage of total revenues by customer who individually accounted for 10% or more of our total revenues were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Ipsen Pharma SAS	24	%	20	%	19	%	17	%
Affiliates of McKesson Corporation	14	%	11	%	14	%	13	%
Affiliates of CVS Health Corporation	13	%	13	%	14	%	15	%
Affiliates of AmerisourceBergen Corporation	12	%	11	%	13	%	11	%
Affiliates of Optum Specialty Pharmacy	8	%	10	%	9	%	11	%
Accredo Health, Incorporated	8	%	10	%	8	%	9	%
Takeda Pharmaceutical Company Limited	2	%	10	%	2	%	5	%

The percentage of trade receivables by customer who individually accounted for 10% or more of our trade receivables were as follows:


	June 30, 2021		December 31, 2020
Ipsen Pharma SAS	24	%	23	%
Affiliates of McKesson Corporation	21	%	12	%
Affiliates of AmerisourceBergen Corporation	19	%	11	%
Affiliates of CVS Health Corporation	13	%	11	%
Takeda Pharmaceutical Company Limited	4	%	10	%

Revenues by geographic region were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
U.S.	$	287,190	$	181,231	$	517,147	$	377,827
Europe	90,921		52,917		124,727		81,953
Japan	7,066		25,331		13,533		26,614
Total revenues	$	385,177	$	259,479	$	655,407	$	486,394

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Total revenues include net product revenues attributed to geographic regions based on the ship-to location and license and collaboration services revenues attributed to geographic regions based on the location of our collaboration partners’ headquarters.

Net product revenues and license revenues are recorded in accordance with ASC Topic 606, Revenue from Contracts with Customers (Topic 606). License revenues include the recognition of the portion of milestones payments allocated to the transfer of intellectual property licenses for which it had become probable in the current period that the milestone would be achieved and a significant reversal of revenues would not occur, as well as royalty revenues and our share of profits under our collaboration agreement with Genentech. Collaboration services revenues were recorded in accordance with ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 and by analogy to Topic 606. Collaboration services revenues include the recognition of deferred revenues for the portion of upfront and milestone payments allocated to our research and development services performance obligations, development cost reimbursements earned under our collaboration agreements, product supply revenues, net of product supply costs, and the royalties we paid on sales of products containing cabozantinib by our collaboration partners. We ~~have also reclassified~~received notification that, effective January 1, 2021, Royalty Pharma plc (Royalty Pharma) acquired from GlaxoSmithKline (GSK) all rights, title and interest in royalties on net product sales containing cabozantinib for non-U.S. markets for the ~~related~~full term of the royalty and for the U.S. market through September 2026, after which time U.S. royalties will revert back to GSK.

Net product revenues by product were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
CABOMETYX	$	275,614	$	173,610	$	499,209	$	362,826
COMETRIQ	8,634		5,120		12,251		9,784
Net product revenues	$	284,248	$	178,730	$	511,460	$	372,610

Product Sales Discounts and Allowances

The activities and ending reserve balances ~~between line items in Changes in assets~~for each significant category of discounts and ~~liabilities~~allowances, which constitute variable consideration, were as follows (in thousands):


	Chargebacks, Discounts for Prompt Payment and Other		Other Customer Credits/Fees and Co-pay Assistance		Rebates		Total
Balance at December 31, 2020	$	9,853	$	3,279	$	17,404	$	30,536
Provision related to sales made in:
Current period	114,489		15,392		51,355		181,236
Prior periods	(40)		(164)		1,917		1,713
Payments and customer credits issued	(108,487)		(11,637)		(46,349)		(166,473)
Balance at June 30, 2021	$	15,815	$	6,870	$	24,327	$	47,012

The allowance for chargebacks, discounts for prompt payment and other are recorded as a reduction of trade receivables, net and the remaining reserves are recorded as rebates and fees due to customers in the accompanying Condensed Consolidated ~~Statement~~Balance Sheets.

Contract Assets and Liabilities

We receive payments from our collaboration partners based on billing schedules established in each contract. Amounts are recorded as accounts receivable when our right to consideration is unconditional. We may also recognize revenue in advance of ~~Cash Flows~~the contractual billing schedule and such amounts are recorded as a contract asset when recognized. We may be required to defer recognition of revenue for ~~the nine months ended September 30, 2016 to conform the presentation of~~upfront and milestone payments until we perform our obligations under these arrangements, and such amounts are recorded as deferred revenue upon receipt or when due. For those ~~line items to the corresponding presentation of~~contracts that have multiple performance obligations, contract assets and liabilities are reported on a net basis at the contract level.

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Contract assets and liabilities were as follows (in thousands):


	June 30, 2021		December 31, 2020
Contract assets
Current portion(1)	$	9,749	$	0
Long-term portion(1)	948		0
Total contract assets	$	10,697	$	0

Contract liabilities:
Current portion(2)	$	6,314	$	1,790
Long-term portion(2)	8,577		3,755
Total contract liabilities	$	14,891	$	5,545

____________________

(1) Presented in ~~our~~prepaid and other current assets and other long-term assets, respectively, on the accompanying Condensed Consolidated Balance Sheets.

~~Segment Information~~

~~We operate as a single reportable segment.~~

~~Stock-Based Compensation~~

~~In January 2017, we adopted Accounting Standards Update (“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~~(2) Presented in other current liabilities and long-term portion of deferred revenues, respectively, in the simplification of several aspects of the accounting for employee share-based payment transactions, including accounting for forfeitures, income tax consequences and classification on the statement of cash flows.

Pursuant to the adoption of ASU 2016-09, we have made an election to record forfeitures when they occur. Previously, stock-based compensation was based on the number of awards expected to vest after considering estimated forfeitures. The change in accounting principle with regards to forfeitures was adopted using a modified retrospective approach, with a cumulative adjustment of $0.3 million to accumulated deficit and additional paid-in-capital as of January 1, 2017. No prior periods were restated as a result of this change in accounting principle.

As a result of the adoption of ASU 2016-09, as of January 1, 2017 we also recorded an increase to the federal and state net operating losses of $56.9 million for excess tax benefits previously not included. The resulting increase to the deferred tax assets of approximately $21.2 million was offset by a corresponding increase to the valuation allowance, resulting in a net zero impact to both our income tax expense in our Condensed Consolidated Statements of Operations and our deferred tax assets and liabilities in ouraccompanying Condensed Consolidated Balance Sheets.

~~ASU 2016-09 also requires~~Contract assets as of June 30, 2021 are primarily related to a $12.5 million development milestone that ~~cash paid~~we deemed probable of achievement and recognized $11.8 million of revenues during the three months ended June 30, 2021. Contract liabilities as of June 30, 2021 are primarily related to ~~taxing authorities when directly withholding shares~~deferred revenues from Takeda Pharmaceutical Company Limited (Takeda).

During the six months ended June 30, 2021 and 2020, we recognized $4.8 million and $3.4 million, respectively, in revenues that were included in the beginning deferred revenues balance for ~~tax withholding purposes be classified~~those periods.

During the three and six months ended June 30, 2021, we recognized $40.6 million and $67.8 million, respectively, in revenues for performance obligations satisfied in previous periods, as ~~a financing activity on our Condensed Consolidated Statement of Cash Flows. Previously, we classified such payments as operating cash flows. The change in accounting principle with regards~~compared to ~~such cash flows was adopted using a retrospective approach. Accordingly, we recorded a reclassification that resulted in an increase in cash provided by operating activities by $2.7~~$62.0 million ~~along with a corresponding increase in cash used in financing activities in our Condensed Consolidated Statement of Cash Flows~~and $82.2 million for the ~~nine months ended September 30, 2016.~~

~~Recent Accounting Pronouncements~~

~~In May 2014,~~corresponding periods in 2020. Such revenues were primarily related to royalty payments allocated to the ~~Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09,~~ ~~Revenue 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 delayed the effective date of ASU 2014-09 by one year. ASU 2014-09, as amended, becomes effective for us in the first quarter of fiscal year 2018, which is when we will adopt the standard. 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 will adopt 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 five step process to achieve this core principle and, in doing so, has created the possibility that more judgment and estimates may be required within the revenue recognition process than required under existing U.S. generally accepted accounting pronouncements. We have substantially completed our analysis on the adoption of ASU 2014-09 and have determined the adoption will not have a material impact on the recognition of revenue from product sales. ASU 2014-09 will impact the timing of recognition of revenuelicense performance obligations for our ~~collaboration arrangements~~collaborations with Ipsen Pharma SAS ~~(“Ipsen”)~~(Ipsen), Takeda, Daiichi Sankyo and Genentech.

As of June 30, 2021, $86.9 million of the combined transaction prices for our Ipsen and Takeda ~~Pharmaceutical Company Ltd. (“Takeda”). We expect~~collaborations were allocated to ~~reclassify deferred revenue~~

performance obligations that had not yet been satisfied. See “Note 3. Collaboration Agreements— Cabozantinib Collaborations - Performance Obligations and Transaction Prices for our Ipsen and Takeda Collaborations” to ~~accumulated deficit (a concept known as “lost revenue”) for amounts associated with these collaboration arrangements upon recording~~ our transition adjustment in the first quarter of 2018, primarily due to the timing of recognition of revenue related to intellectual property licenses that we have transferred for development and commercialization of our products. Additionally, for all of our collaboration arrangements, the timing of recognition of certain of our development and regulatory milestones could change as a result of the variable consideration guidanceConsolidated Financial Statements included in ~~ASU 2014-09. ASU 2014-09 will also require additional disclosures regarding~~ our ~~revenue transactions.~~Annual Report on Form 10-K for the year ended December 31, 2020 for information about the expected timing to satisfy these performance obligations.

NOTE 2:3. COLLABORATION AGREEMENTS, IN-LICENSING ARRANGEMENTS AND BUSINESS DEVELOPMENT ACTIVITIES

~~Ipsen Collaboration~~

~~In February 2016, we entered into a collaboration and license agreement (the “Ipsen Collaboration Agreement”)~~We have established multiple collaborations with ~~Ipsen~~leading pharmaceutical companies for the commercialization and further development of ~~cabozantinib. Pursuant to the terms of the Ipsen Collaboration Agreement, Ipsen received exclusive commercialization rights for current and potential future~~our cabozantinib indications outside of the U.S., Canada and Japan (the “Ipsen Territory”). The Ipsen Collaboration Agreement was subsequently amended in December 2016 (the “Amendment”) to include commercialization rights in Canada in the Ipsen Territory. Wefranchise. Additionally, 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 Ipsen Collaboration 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 and, as a result of the approval of cabozantinib in second-line RCC by the European Commission (“EC”) in September 2016, we received a $60.0 million milestone in November 2016. We are receiving a 2% royalty on the initial $50.0 million of net sales by Ipsen, and are entitled to receive a 12% royalty on the next $100.0 million of net sales by Ipsen. After the initial $150.0 million of sales, we are entitled to receive a tiered royalty of 22% to 26% on annual net sales by Ipsen; these tiers will reset each calendar year. We are primarily responsible for funding cabozantinib-related development costs for those trials in existence at the time we entered into several research collaborations and in-licensing arrangements to further enhance our early-stage pipeline and expand our ability to discover, develop and commercialize novel therapies with the ~~Ipsen Collaboration Agreement; global development costs~~goal of providing new treatment options for additional trials are shared between the parties, with Ipsen reimbursing us for 35% of such costs, provided Ipsen opts in to participate in such additional trials. Pursuant to the terms of the Ipsen Collaboration Agreement, we will remain responsible for the manufacturecancer patients and ~~supply of cabozantinib for all development and commercialization activities. As part of the collaboration agreement, we~~their physicians. We also entered into ~~a supply agreement pursuant to which we will supply finished, labeled drug product to Ipsen~~other collaborations with leading pharmaceutical companies for distribution in the Ipsen Territories at our cost, as defined in the agreement, which excludes the 3% royalty we are required to pay GlaxoSmithKline (“GSK”) on Ipsen’s Net Sales of any product incorporating cabozantinib.

The Ipsen Collaboration Agreement contains multiple deliverables consisting of intellectual property licenses, delivery of products and/or materials containing cabozantinib to Ipsen for all developmentother compounds and commercial activities, research and development services, and participation on the joint steering, development and commercialization committees (as defined in the Ipsen Collaboration Agreement). We determined that these deliverables do not have stand-alone value and accordingly, 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 term of the Ipsen Collaboration Agreement, through early 2030, which is the current estimated patent expiration of cabozantinib in the European Union. At the time we entered into the Ipsen Collaboration 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 entirely until the date of the European Medicines Agency’s (the “EMA”) approval of cabozantinib in second-line RCC in September 2016 and has been and will continue to be recognized ratably over the remainder of the term of the Ipsen 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 Ipsen 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. Reimbursements for development costs are classified as revenue as the development services represent our ongoing major or central operations.

During the three months ended March 31, 2017, we reclassified $9.0 million of deferred revenue to Accrued collaboration liabilities and Other long-term liabilities, and accordingly adjusted our amortization of the upfront payment of $200.0 million as a result of a change in operational responsibilities for certain clinical programs in ~~the Ipsen Territory. As of September 30, 2017, we had paid $2.1 million toward the $9.0 million of reimbursements due to Ipsen for these clinical programs.~~our portfolio.

In September 2017, we recognized two milestones totaling $45.0 million resulting from Ipsen’s receipt of the validation from the EMA for the application for variation to the CABOMETYX marketing authorization for the addition of a new indication in first-line treatment of advanced RCC in adults. The two milestones were determined to be substantive at the time we entered into the Ipsen Collaboration Agreement and were recognized as collaboration revenues in the third quarter of 2017. Payment for the first milestone of $20.0 million is due in the fourth quarter of 2017 and payment for the second milestone of $25.0 million is due in the first quarter of 2018.

See “Note ~~2 -~~3. Collaboration Agreements” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~ ~~filed with the SEC on February 27, 2017~~2020, or as further described below, for additional ~~description~~information on each of our collaboration agreements and in-licensing arrangements.

Cabozantinib Collaborations

Ipsen Collaboration

In February 2016, we entered into a collaboration agreement with ~~Ipsen.~~Ipsen for the commercialization and further development of cabozantinib. Under the terms of the collaboration agreement, as amended, Ipsen received exclusive commercialization rights for current and potential future cabozantinib indications outside of the U.S. and Japan. We have

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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.

During the second quarter of 2021, Ipsen opted into and is now co-funding the development costs for COSMIC-311, our phase 3 pivotal trial evaluating cabozantinib versus placebo in patients with radioactive iodine differentiated thyroid cancer who have progressed after up to two VEGF receptor-targeted therapies. Under the terms of the Agreement, Ipsen is now obligated to reimburse us for their share of the COSMIC-311 global development costs, as well as an additional payment calculated as a percentage of such costs, triggered by the timing of the exercise of its option. We determined that the decision to opt into and co-fund the development costs for COSMIC-311 represented a contract modification for additional distinct services at their standalone selling price and therefore was treated as a separate contract under Topic 606. Accordingly, collaboration services revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021, includes a cumulative catch up for Ipsen’s share of global development costs incurred since the beginning of the study and ~~2016, collaboration revenues~~through the end of the period.

Revenues under the collaboration agreement with Ipsen ~~Collaboration Agreement~~ were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
License revenues	$	33,656	$	33,597	$	56,107	$	51,546
Collaboration services revenues	57,265		19,320		68,620		30,407
Total	$	90,921	$	52,917	$	124,727	$	81,953

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Milestones achieved $ 45,000
$ —
$ 45,000
$ —
Amortization of upfront payments and deferred milestone 4,742
3,780
13,788
8,570
Royalty revenue 371
—
814
—
Development cost reimbursements 1,123
—
2,322
—
Product supply agreement revenue 1,681
—
3,483
—
Cost of supplied product (1,681 ) —
(3,483 ) —
Royalty payable to GSK on net sales by Ipsen (557 ) —
(1,221 ) —
Collaboration revenues under the Ipsen Collaboration Agreement $ 50,679
$ 3,780
$ 60,703
$ 8,570

As of ~~September~~June 30, ~~2017, short-term and long-term deferred revenue relating to the Ipsen Collaboration Agreement was $19.0~~2021, $46.2 million ~~and $215.0 million, respectively.~~

~~Genentech Collaboration~~

In December 2006, we out-licensed the further development and commercialization of cobimetinib to Genentech pursuant to a worldwide collaboration agreement (the “Genentech Collaboration Agreement”). Under the terms of the ~~Genentech Collaboration Agreement for cobimetinib, we are entitled~~transaction price was allocated to ~~a share of profits~~our research and ~~losses received in connection with cobimetinib’s commercialization in the U.S. This profit and loss share~~development services performance obligations that has multiple tiers: we are entitled to 50% of profits and losses from the first $200.0 million of U.S. actual sales, decreasing to 30% of profits and losses from U.S. actual sales in excess of $400.0 million. Separately, we are entitled to low double-digit royalties on net sales outside the U.S. In November 2013, we exercised an option under the Genentech Collaboration Agreement to co-promote COTELLIC in the U.S., which allows for us to provide up to 25% of the total sales force for approved cobimetinib indications in the U.S. In 2015, we began fielding 25% of the sales force promoting COTELLIC in combination with Zelboraf® as a treatment for patients with BRAF mutation-positive advanced melanoma.

On June 3, 2016, we filed a Demand for Arbitration before JAMS in San Francisco, California asserting claims against Genentech related to its clinical development, pricing and commercialization of COTELLIC, and cost and revenue allocations arising from COTELLIC’s commercialization in the U.S. Our arbitration demand asserted that Genentech breached the Genentech Collaboration Agreement by, amongst other breaches, failing to meet its diligence and good faith obligations.

On July 13, 2016, Genentech asserted a counterclaim for breach of contract seeking monetary damages and interest related to the cost allocations under the Genentech Collaboration Agreement. On December 29, 2016, however, Genentech withdrew its counterclaim against us and stated that it would unilaterally change its approach to the allocation

of promotional expenses arising from commercialization of the COTELLIC plus Zelboraf combination therapy, both retrospectively and prospectively. The revised allocation approach substantially reduced our exposure to costs associated with promotion of the COTELLIC plus Zelboraf combination in the U.S. However, other significant issues remained in dispute between the parties. Genentech’s action did not address the claims in our demand for arbitration related to Genentech’s clinical development of cobimetinib, or pricing or promotional costs for COTELLIC in the U.S. and it did not fully resolve claims over revenue allocation. In addition, Genentech’s unilateral action did not clarify how it intended to allocate promotional costs incurred with respect to the promotion of other combination therapies that include COTELLIC for other indications that may be developed or are in development and may be approved. As a result, we continued to press our position before the arbitral panel to obtain a just resolution of these claims.

On June 8, 2017, the parties settled the arbitration, which was dismissed with prejudice. The settlement was memorialized in a settlement agreement dated July 19, 2017, that included a mutual release of all claims arising out of or related in any way to the causes of actions and/or claims that were asserted or could haveyet been asserted based on the facts alleged in the arbitration. The settlement does not provide for payments in settlement of the asserted claims; as part of the settlement, on July 19, 2017, the parties entered into an amendment to the Genentech Collaboration Agreement. Pursuant to the terms of the amendment, we continue to be entitled to a share of U.S. profits and losses received in connection with the commercialization of COTELLIC in accordance with the profit share tiers as originally set forth in the collaboration agreement, which share continues to decrease as sales of COTELLIC increase. However, effective as of July 1, 2017, the revenue for each sale of COTELLIC applied to the profit and loss statement for the collaboration agreement (the “Collaboration P&L”) is being calculated using the average of the quarterly net selling prices of COTELLIC and any additional branded Genentech product(s) prescribed with COTELLIC in such sale. While we also continue to share U.S. commercialization costs for COTELLIC, the amendment expressly sets forth that the amount of commercialization costs Genentech is entitled to allocate to the Collaboration P&L is to be reduced based on the number of Genentech products in any given combination including COTELLIC. In addition, the amendment also sets forth the parties’ confirmation and agreement that we have exercised our co-promotion option and that, as such, we have the option to co-promote current and future Genentech combinations that include COTELLIC in the U.S.

~~During the three and nine months ended September 30, 2017 and 2016, ex-U.S. royalty revenues and U.S. losses under the Genentech Collaboration Agreement were as follows (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Royalty revenues on ex-U.S. sales of COTELLIC included in Collaboration revenues $ 1,392
$ 672
$ 5,057
$ 1,844
U.S. losses included in Selling, general and administrative expenses⁽¹⁾
$ (891 ) $ (2,922 ) $ (2,298 ) $ (14,845 )

~~____________________~~


~~(1)~~	A portion of the accrual for losses for the three and nine months ended September 30, 2016 were reversed in December 2016 when we were relieved of our obligation to pay certain disputed costs as a result of Genentech’s unilateral change to its approach to the allocation of promotional expenses arising from commercialization of the COTELLIC plus Zelboraf combination therapy.

The U.S. losses under the Genentech Collaboration Agreement include our share of the net loss from the collaboration, as well as personnel and other costs we have incurred to co-promote COTELLIC plus Zelboraf in the U.S.

Royalty revenues from the Genentech Collaboration Agreement are based on amounts reported to us by Genentech and are recorded when such information becomes available to us. For prior periods, from the launch of COTELLIC through December 31, 2016, such information was not available until the following quarter, meaning that historically we recorded royalty revenues on a one quarter lag. Beginning in 2017, such information became available to us in the current quarter. As a result of this change, during the nine months ended September 30, 2017, in addition to the royalties reported to us for that period we also recorded $1.1 million in royalties for the sales activity related to the three months ended December 31, 2016.satisfied.

Takeda Collaboration

OnIn January ~~30,~~ 2017, we entered into a collaboration and license agreement ~~(the “Takeda Collaboration Agreement”)~~ with Takeda for the commercialization and further ~~clinical~~ development of ~~cabozantinib in Japan.~~cabozantinib. Pursuant to ~~the terms of the~~this collaboration and license agreement, as amended, Takeda ~~Collaboration Agreement, Takeda will have~~has exclusive commercialization rights for current and potential future cabozantinib indications in ~~Japan. The companies~~Japan, and the parties have ~~also~~ agreed to collaborate on the clinical

development of cabozantinib in Japan. The operation and strategic direction of the parties’ collaboration is governed through a joint executive committee and appropriate subcommittees.

In consideration for the exclusive license and other rights contained in the Takeda Collaboration Agreement, Takeda paid us an upfront nonrefundable 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 hepatocellular carcinoma (“HCC”), as well as additional development, regulatory and first-sale milestone payments for potential future indications. The Takeda Collaboration Agreement also provides that we will 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 first $300.0 million of cumulative net sales. Thereafter, the royalty rate will be adjusted to 20% to 30% on annual net sales.

Takeda will be responsible for 20% of the costs associated with the global cabozantinib development plan’s current and future trials, provided Takeda opts to participate in such future trials, and 100% of costs associated with cabozantinib development activities that are exclusively for the benefit of Japan. Pursuant to the terms of the Takeda Collaboration Agreement, we will remain responsible for the manufacture and supply of cabozantinib for all development and commercialization activitiesRevenues under the ~~collaboration. As part of the~~ collaboration ~~the parties will enter into appropriate supply agreements for the manufacture and supply of cabozantinib for Takeda’s territory.~~

~~During the three and nine months ended September 30, 2017, collaboration revenues under the~~agreement with Takeda ~~Collaboration Agreement~~ were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
License revenues	$	2,097	$	22,946	$	3,398	$	22,946
Collaboration services revenues	4,024		2,195		8,159		3,264
Total	$	6,121	$	25,141	$	11,557	$	26,210

Three Months Ended September 30, Nine Months Ended September 30,
Amortization of upfront payment $ 2,830
$ 7,547
Development cost reimbursements 1,193
3,301
Collaboration revenues under the Takeda Collaboration Agreement $ 4,023
$ 10,848

~~There was no such revenue during the comparable periods in 2016.~~ As of ~~September~~June 30, ~~2017, short-term and long-term deferred revenue relating to the Takeda Collaboration Agreement was $11.3~~2021, $40.7 million ~~and $31.1 million, respectively.~~

~~The Takeda 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~~transaction price was allocated to achieve specified levels of commercial performance, based upon sales volume and/or promotional effort, during the first six years following the first commercial sale of cabozantinib in Japan shall constitute a material breach of the Takeda Collaboration Agreement. We may terminate the agreement if Takeda challenges or opposes any patent covered by the Takeda Collaboration Agreement. At any time prior to August 1, 2023, the parties may mutually agree to terminate the Takeda 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 Takeda 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.

The Takeda Collaboration Agreement contains multiple deliverables consisting of intellectual property licenses, delivery of products and/or materials containing cabozantinib to Takeda for all development and commercial activities,our research and development services performance obligations that has not yet been satisfied.

GSK and participation on the joint executive, development and commercialization committees (as defined in the Takeda Collaboration Agreement). We determined that these deliverables, other than the commercial supply and joint commercialization committee participation, are non-contingent in nature. The commercial supply deliverable was deemed contingent, primarily due to the fact that there is uncertainty around approval in Japan, which is dependent on successful clinical trial results from a study in Japanese patients. We also determined that the non-contingent deliverables do not have stand-alone value, because each one of them has value only if we meet our obligation as a whole to provide Takeda with research and development services, including clinical supply of cabozantinib under the Takeda Collaboration Agreement. Accordingly, we combined the non-contingent deliverables into a single unit of accounting and allocated the $50.0 million upfront fee to that combined unit of accounting. We also determined that the level of effort required of us to meet our obligations under the Takeda Collaboration Agreement is not expected to vary significantly over

the development period of the Takeda Collaboration Agreement. As a result, the upfront payment of $50.0 million, received in the first quarter of 2017, will be recognized ratably over the development period of the Takeda Collaboration Agreement of approximately four years. We determined that the 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. We will record reimbursements for development costs as revenue as the development services represent a part of our ongoing major or central operations.

~~Bristol-Myers Squibb Collaboration - First-Line Advanced RCC, Bladder Cancer and HCC Combination Studies~~

~~In February 2017, we entered into a clinical trial collaboration agreement with Bristol-Myers Squibb Company~~(the “BMS Collaboration Agreement”) for the purpose of evaluating the combination of cabozantinib and nivolumab with or without ipilimumab in various tumor types, including, in RCC, HCC and bladder cancer. To date, a phase 3 trial in first-line advanced RCC and a phase 2 trial in HCC evaluating these combinations has been initiated. Pursuant to the terms of the BMS Collaboration Agreement, each party will grant to the other a non-exclusive, worldwide (within the collaboration territory as defined in the BMS Collaboration Agreement), non-transferable, royalty-free license to use the other party’s compounds in the conduct of each clinical trial. The parties’ efforts are governed through a joint development committee established to guide and oversee the collaboration’s operation. Each trial will be conducted under a combination Investigational New Drug Application, unless otherwise required by a regulatory authority. Each party will be responsible for supplying drug product for the applicable clinical trial in accordance with the terms of the supply agreement entered into between the parties in April 2017, and costs for each such trial will be shared equally between the parties, unless two Bristol-Myers Squibb Company (“BMS”) compounds will be utilized in such trial, in which case BMS will bear two-thirds of the costs and we will bear one-third of the costs for such study treatment arms. Unless earlier terminated, the BMS Collaboration Agreement will 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. Ipsen has opted in to participate in the phase 3 pivotal trial in first-line advanced RCC and will have access to the results to support potential future regulatory submissions. Ipsen may also participate in future studies at its choosing.

~~The Roche Group Collaboration~~

In February 2017, we established a clinical trial collaboration with The Roche Group (“Roche”) for the purpose of evaluating the safety and tolerability of cabozantinib in combination with Roche’s atezolizumab in patients with locally advanced or metastatic solid tumors. Each party is responsible for supplying drug product for the applicable clinical trial in accordance with the terms of the clinical supply agreement entered into by the parties in February 2017. Based on the dose-escalation results, the trial has the potential to enroll up to four expansion cohorts, including a cohort of 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. The trial was initiated in June 2017 and is open for enrollment. We are the sponsor of the trial, and Roche is responsible for supplying atezolizumab to us. Ipsen has opted to participate in the study and will have access to the results to support potential future development in its territories.

~~GlaxoSmithKline Collaboration~~Royalty Pharma

In October 2002, we established a ~~collaboration with GSK to discover and develop novel therapeutics in the areas of vascular biology, inflammatory disease and oncology. Under the terms of the~~ product development and commercialization collaboration agreement with GSK, ~~had the right~~that required us to choose cabozantinib for further development and commercialization, but notified us in October 2008 that it had waived its right to select the compound for such activities. As a result, we retained the rights to develop, commercialize, and license cabozantinib, subject to payment to GSK ofpay a 3% royalty to GSK on the worldwide net sales of any product incorporating ~~cabozantinib. The~~cabozantinib by us and our collaboration partners. As disclosed in Note 2, we received notification that, effective January 1, 2021, Royalty Pharma acquired from GSK all rights, title and interest in royalties on net product sales containing cabozantinib for non-U.S. markets for the full term of the royalty and for U.S. market through September 2026, after which time U.S. royalties will revert back to GSK. Royalties earned by GSK and Royalty Pharma in connection with our sales of cabozantinib are included in cost of goods sold and as a reduction of collaboration services revenues for sales by our collaboration partners. Such royalties were $12.1 million and $22.2 million during the three and six months ended June 30, 2021, respectively, as compared to $7.6 million and $15.7 million in the corresponding periods in 2020.

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Genentech Collaboration

In December 2006, we out-licensed the development and commercialization of cobimetinib to Genentech under a worldwide collaboration agreement. In November 2015, the FDA approved cobimetinib, under the brand name COTELLIC, in combination with Genentech’s ZELBORAF® (vemurafenib) for the treatment of patients with BRAF V600E or V600K mutation-positive advanced melanoma. COTELLIC in combination with ZELBORAF has also been approved in the European Union and multiple additional countries for use in the same indication. In July 2020, the FDA also approved COTELLIC for use in combination with ZELBORAF and TECENTRIQ® (atezolizumab) for the treatment of patients with BRAF V600 mutation-positive advanced melanoma in previously untreated patients. License revenues under the collaboration agreement was terminated during 2014, although GSK will continue to be entitled to a 3% royalty on net sales by us or our collaboration partners of any product incorporating cabozantinib, including COMETRIQ and CABOMETYX.

~~During the three and nine months ended September 30, 2017 and 2016, royalties owed to GSK in connection~~ with ~~the sales of COMETRIQ and CABOMETYX~~Genentech were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Profits on U.S. commercialization	$	2,160	$	1,376	$	3,954	$	2,783
Royalty revenues on ex-U.S. sales	$	782	$	1,125	$	1,733	$	2,434

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Royalties owed to GSK $ 3,446
$ 1,277
$ 8,809
$ 2,495

~~Royalties owed to GSK are included in Cost of goods sold for sales by us~~Research Collaborations, In-Licensing Arrangements and ~~as a reduction of Collaboration revenues for sales by Ipsen in the accompanying Condensed Consolidated Statements of Operations.~~

Other ~~Collaborations~~Business Development Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2017, we recognized $2.5 million~~2021, in ~~contract revenues from a milestone payment received from BMS related to its ROR gamma program.~~

During the three and nine months ended September 30, 2016, we recognized $15.0 million in contract revenues from a milestone payment earned from Daiichi Sankyo Company, Limited (“Daiichi Sankyo”) related to its worldwide licensesupport of our ~~compounds that modulate the mineralocorticoid receptor (“MR”)~~development pipeline, we entered into additional collaboration and in-licensing arrangements with Adagene, Inc. (Adagene) and WuXi Biologics Ireland Limited (WuXi Bio), including CS-3150 (an isomer of XL550). During the nine months ended September 30, 2016, we also recognized $5.0 million in contract revenues from a milestone payment earned from Merck related to its worldwide license of our phosphoinositide-3 kinase-delta program.

See “Note 2 - Collaboration Agreements” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 27, 2017 for a description ofand amended our existing collaboration ~~agreements.~~agreement with StemSynergy Therapeutics, Inc. (StemSynergy). In conjunction with each of these arrangements we have made aggregate upfront payments totaling $17.0 million and will make payments for potential future development milestones of up to $58.5 million, regulatory milestones of up to $139.0 million and commercial milestones of up to $377.5 million, each in the aggregate per product, as well as royalties on future net product sales. Additionally, we entered into an asset purchase agreement with GamaMabs Pharma SA (GamaMabs), pursuant to which we made an upfront payment of $5.0 million for the initial technology transfer, and subject to certain conditions, will make a $9.0 million payment upon closing of the transaction. We will also make payments for potential future development milestones of up to $42.0 million and regulatory milestones of up to $22.5 million, per product.

NOTE 3:4. CASH AND INVESTMENTS

~~All~~Cash, Cash Equivalents and Restricted Cash Equivalents

A reconciliation of cash, cash equivalents, and restricted cash equivalents reported in the accompanying Condensed Consolidated Balance Sheets to the amount reported within the accompanying Condensed Consolidated Statements of Cash Flows was as follows (in thousands):


	June 30, 2021		December 31, 2020
Cash and cash equivalents	$	492,462	$	319,217

Restricted cash equivalents included in other long-term assets	46,839		1,555
Cash, cash equivalents, and restricted cash equivalents as reported in the accompanying Condensed Consolidated Statements of Cash Flows	$	539,301	$	320,772

Restricted cash equivalents are used to collateralize letters of credit and consist of money-market funds and certificates of deposit with original maturities of 90 days or less. The restricted cash equivalents are classified as other long-term assets based upon the remaining term of the underlying restriction. As of June 30, 2021, restricted cash equivalents included $45.3 million of short-term investments, which is collateral under our January 2021 standby letter of credit to guarantee our obligation to fund a portion of the total tenant improvements related to our build-to-suit lease at our corporate campus. As we fund these tenant improvements, our restricted cash becomes available for operations.

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Cash, Cash Equivalents, Restricted Cash Equivalents and Investments

Cash, cash equivalents, restricted cash equivalents and investments ~~are classified as available-for-sale. The~~consisted of the following ~~tables summarize cash~~(in thousands):


	June 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt securities available-for-sale:
Commercial paper	$	716,916	$	141	$	0	$	717,057
Corporate bonds	489,678		2,630		(166)		492,142
U.S. Treasury and government-sponsored enterprises	132,036		43		(13)		132,066
Municipal bonds	14,261		41		(4)		14,298
Total debt securities available-for-sale	1,352,891		2,855		(183)		1,355,563
Cash	88,511		0		0		88,511
Money market funds	179,306		0		0		179,306
Certificates of deposit	115,706		0		0		115,706
Total cash, cash equivalents, restricted cash equivalents and investments	$	1,736,414	$	2,855	$	(183)	$	1,739,086


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt securities available-for-sale:
Commercial paper	$	569,456	$	372	$	0	$	569,828
Corporate bonds	543,520		5,244		(7)		548,757
U.S. Treasury and government-sponsored enterprises	208,326		232		(4)		208,554
Municipal bonds	28,680		83		(1)		28,762
Total debt securities available-for-sale	1,349,982		5,931		(12)		1,355,901
Cash	82,176		0		0		82,176
Money market funds	40,761		0		0		40,761
Certificates of deposit	60,004		0		0		60,004
Total cash, cash equivalents, restricted cash equivalents and investments	$	1,532,923	$	5,931	$	(12)	$	1,538,842

Interest receivable was $3.3 million and ~~cash equivalents, investments, and restricted cash and investments by balance sheet line item~~$4.5 million as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~ ~~(in thousands):~~

September 30, 2017

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Cash and cash equivalents $ 149,357
$ —
$ —
$ 149,357
Short-term investments 217,805
17
(81 ) 217,741
Long-term investments 50,557
41
(29 ) 50,569
Long-term restricted cash and investments 4,650
—
—
4,650
Total cash and investments $ 422,369
$ 58
$ (110 ) $ 422,317

December 31, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Cash and cash equivalents $ 151,686
$ —
$ —
$ 151,686
Short-term investments 268,234
13
(130 ) 268,117
Long-term investments 55,792
1
(192 ) 55,601
Long-term restricted cash and investments 4,150
—
—
4,150
Total cash and investments $ 479,862
$ 14
$ (322 ) $ 479,554

~~Under our loan~~2020, respectively, and ~~security agreement with Silicon Valley Bank, we were required to maintain compensating balances on deposit~~is included in ~~one or more investment accounts with Silicon Valley Bank or one of its affiliates. The total collateral balance of~~ ~~$81.6 million~~ ~~as of~~ ~~December 31, 2016~~ ~~is reflected~~prepaid expenses and other current assets in ~~our~~the accompanying Condensed Consolidated Balance Sheet in short-term investments; as a result of our repayment of the term loan with Silicon Valley Bank, the compensating balance requirement was terminated as of March 29, 2017. See “Note 7 - Debt” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended ~~December 31, 2016~~ ~~filed with the SEC on February 27, 2017 for more information regarding the collateral balance requirements under our Silicon Valley Bank loan and security agreement.~~Sheets.

The following tables summarize our cash equivalents and investments by security type as of September 30, 2017 and December 31, 2016. The amounts presented exclude cash, but include investments classified as cash equivalents (in thousands):

September 30, 2017

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Money market funds $ 42,797
$ —
$ —
$ 42,797
Commercial paper 168,738
—
—
168,738
Corporate bonds 187,197
58
(95 ) 187,160
U.S. Treasury and government sponsored enterprises 14,659
—
(15 ) 14,644
Total investments $ 413,391
$ 58
$ (110 ) $ 413,339

December 31, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Money market funds $ 71,457
$ —
$ —
$ 71,457
Commercial paper 165,375
—
—
165,375
Corporate bonds 152,712
3
(308 ) 152,407
U.S. Treasury and government sponsored enterprises 70,730
11
(14 ) 70,727
Total investments $ 460,274
$ 14
$ (322 ) $ 459,966

~~Gains~~Realized gains and losses on the sales of investments ~~available-for-sale~~ were ~~nominal or zero~~insignificant during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~.2020.

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We manage credit risk associated with our investment portfolio through our investment policy, which limits purchases to high-quality issuers and limits the amount of our portfolio that can be invested in a single issuer. The fair value and gross unrealized losses on debt securities available-for-sale in an unrealized loss position were as follows (in thousands):


	June 30, 2021
	Fair Value		Gross Unrealized Losses
Commercial paper	$	1,002	$	0
Corporate bonds	154,767		(166)
U.S. Treasury and government-sponsored enterprises	38,088		(13)
Municipal bonds	5,897		(4)
Total	$	199,754	$	(183)


	December 31, 2020
	Fair Value		Gross Unrealized Losses
Corporate bonds	$	28,445	$	(7)
U.S. Treasury and government-sponsored enterprises	21,989		(4)
Municipal bonds	5,865		(1)
Total	$	56,299	$	(12)

All ~~of our investments are subject to a quarterly impairment review. During the nine months ended September 30, 2017~~securities presented have been in an unrealized loss position for less than 12 months. There were 53 and ~~2016 we did not record any other-than-temporary impairment charges on our available-for-sale securities. As of September 30, 2017, there were 84~~14 investments in an unrealized loss position ~~with gross unrealized~~as of June 30, 2021 and December 31, 2020, respectively. During the six months ended June 30, 2021 and 2020, we did 0t record an allowance for credit losses of $0.1 million and an aggregate fair value of $134.9 million. The investments in an unrealized loss position comprise corporate bonds with an aggregate fair value of $124.9 million and securities issued by U.S. Treasury and government sponsored enterprises with an aggregate fair value of $10.0 million. Theor other impairment charges on our investment securities. Based upon our quarterly impairment review, we determined that the unrealized losses were not attributed to credit risk but ~~rather~~were primarily associated with ~~the~~ changes in interest ~~rates.~~rates and market liquidity. Based on the scheduled maturities of our investments, we ~~concluded~~determined that ~~the unrealized losses in our investment securities are not other-than-temporary, as~~ it iswas 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 table summarizes the~~ fair value of debt securities ~~classified as~~ available-for-sale by contractual maturity was as follows (in thousands):


	June 30, 2021		December 31, 2020
Maturing in one year or less	$	1,015,650	$	1,034,150
Maturing after one year through five years	339,913		321,751
Total debt securities available-for-sale	$	1,355,563	$	1,355,901

NOTE 5. FAIR VALUE MEASUREMENTS

Fair value reflects the amounts that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy has the following three levels:

•Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities;

•Level 2 - inputs other than level 1 that are observable either directly or indirectly, such as quoted prices in active markets for similar instruments or on industry models using data inputs, such as interest rates and prices that can be directly observed or corroborated in active markets;

•Level 3 - unobservable inputs that are supported by little or no market activity that are significant to the fair value measurement

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The classifications within the fair value hierarchy of our financial assets that were measured and recorded at fair value on a recurring basis were as follows (in thousands):


	June 30, 2021
	Level 1		Level 2		Total
Commercial paper	$	0	$	717,057	$	717,057
Corporate bonds	0		492,142		492,142
U.S. Treasury and government-sponsored enterprises	0		132,066		132,066
Municipal bonds	0		14,298		14,298
Total debt securities available-for-sale	0		1,355,563		1,355,563
Money market funds	179,306		0		179,306
Certificates of deposit	0		115,706		115,706
Total financial assets carried at fair value	$	179,306	$	1,471,269	$	1,650,575


	December 31, 2020
	Level 1		Level 2		Total
Commercial paper	$	0	$	569,828	$	569,828
Corporate bonds	0		548,757		548,757
U.S. Treasury and government-sponsored enterprises	0		208,554		208,554
Municipal bonds	0		28,762		28,762
Total debt securities available-for-sale	0		1,355,901		1,355,901
Money market funds	40,761		0		40,761
Certificates of deposit	0		60,004		60,004
Total financial assets carried at fair value	$	40,761	$	1,415,905	$	1,456,666

When available, we value investments based on quoted prices for those financial instruments, which is a Level 1 input. Our remaining investments are valued using third-party pricing sources, which use observable market prices, interest rates and yield curves observable at commonly quoted intervals for similar assets as observable inputs for pricing, which is a Level 2 input.

The carrying amount of our remaining financial assets and liabilities, which include cash, receivables and payables, approximate their fair values due to their short-term nature.

Forward Foreign Currency Contracts

In January 2021, we initiated an operational hedging program and entered into forward contracts to hedge certain operational exposures for the changes in foreign currency exchanges rates associated with assets or liabilities denominated in foreign currencies, primarily the Euro.

As of June 30, 2021, we had 1 forward contract outstanding to sell €9.3 million. The forward contract has a maturity of three months, is recorded at fair value and is included in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. The unrealized gain/loss on the settlement of the forward contract is not material as of ~~September~~June 30, ~~2017~~ ~~(in thousands):~~

Mature within One Year After One Year through Five Years Fair Value
Money market funds $ 42,797
$ —
$ 42,797
Commercial paper 168,738
—
168,738
Corporate bonds 136,592
50,568
187,160
U.S. Treasury and government sponsored enterprises 14,644
—
14,644
Total investments $ 362,771
$ 50,568
$ 413,339

~~Cash~~2021. The forward contract is ~~excluded from~~considered a Level 2 in the ~~table above. The classification~~fair value hierarchy of ~~certain restricted investments is dependent upon~~our fair value measurements. For the ~~term of the underlying restriction~~six months ended June 30, 2021, we recognized $0.3 million net gains on the ~~asset and not the~~ maturity ~~date~~ of ~~the investment. Therefore, certain long-term restricted cash and investments have contractual maturities within one year.~~our forward contracts, which is included in other income (expense), net on our Condensed Consolidated Statements of Income.

Table of Contents

NOTE 4.6. INVENTORY

Inventory ~~consists~~consisted of the following (in thousands):


	June 30, 2021		December 31, 2020
Raw materials	$	6,905	$	7,773
Work in process	25,951		20,610
Finished goods	8,587		7,291
Total	$	41,443	$	35,674

Balance Sheet classification:
Current portion included in inventory	$	24,982	$	20,973
Long-term portion included in other long-term assets	16,461		14,701
Total	$	41,443	$	35,674

September 30,
2017 December 31,
2016
Raw materials $ 378
$ 863
Work in process 2,951
2,343
Finished goods 2,856
738
Total 6,185
3,944
Less: non-current portion included in Other long-term assets (379 ) (606 )
Inventory, net $ 5,806
$ 3,338

We generally relieve inventory on a first-expiry, first-out basis. A portion of the manufacturing costs for inventory was incurred prior to regulatory approval of CABOMETYX and COMETRIQ and therefore was expensed as research and development costs when those costs were incurred, rather than capitalized as inventory. Write-downs related to excess and expiring inventory ~~are charged to either Cost of goods sold or the cost of supplied product included in Collaboration revenues. Such write-downs~~ were ~~$1.2~~$2.3 million and $1.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~$0.4 million for the comparable period in 2016. The non-current portion of inventory is expected to be used or sold in future periods more than 12 months from the date presented. As of~~ ~~September 30, 2017~~, the non-current portion of inventory consists of finished goods. As of December 31, 2016, the non-current portion of inventory consists of raw materials and a portion of the active pharmaceutical ingredient that is included in work in process inventories.2020, respectively.

~~NOTE 5. PROPERTY AND EQUIPMENT~~

~~Property and equipment consisted of the following (in thousands):~~

September 30,
2017 December 31,
2016
Computer equipment and software $ 14,242
$ 13,738
Leasehold improvements 4,715
6,646
Laboratory equipment 5,836
4,310
Furniture and fixtures 1,954
2,240
Construction-in-progress 15,627
19
42,374
26,953
Less: accumulated depreciation and amortization (23,118 ) (24,882 )
Property and equipment, net $ 19,256
$ 2,071

~~Depreciation expense was~~ ~~$0.8 million~~ ~~during both the nine months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016~~.

~~Build-to-Suit Lease~~

On May 2, 2017, we entered into a Lease Agreement (the “Lease”) with Ascentris 105, LLC (“Ascentris”), to lease 110,783 square feet of space in office and research facilities located at 1851, 1801, and 1751 Harbor Bay Parkway, Alameda, California (the “Premises”). On October 16, 2017, we executed an amendment to the Lease for 19,778 square feet of additional space located at the Premises with terms consistent with the original Lease. See “Note 12. Commitments” for a description of the Lease.

In connection with the Lease, we received a tenant improvement allowance of $6.7 million from Ascentris, for the costs associated with the design, development and construction of tenant improvements for the Premises. We are obligated to fund all costs incurred in excess of the tenant improvement allowance and to certain indemnification obligations related to the construction activities. We evaluated our involvement during the construction period and determined the scope of the tenant improvements on portions of the Premises including the building shells did not qualify as “normal tenant improvements” under Accounting Standards Codification topic 840, ~~Leases~~. Accordingly, for accounting purposes, we are the deemed owner of such portions of the Premises during the construction period. As such, we will capitalize the construction costs as a build-to-suit property within property and equipment, net, including the estimated fair value of the

building shells that we are deemed to own at the lease inception date, as determined using a third-party appraisal. The capitalized construction costs will also include the estimated tenant improvements incurred by Ascentris. Accordingly, we capitalized $14.5 million of costs related to the Lease in construction-in-progress as of May 2, 2017, with a corresponding build-to-suit lease obligation in Other long-term liabilities. As of ~~September 30, 2017, we have capitalized an additional~~ ~~$0.5 million~~ ~~to construction in progress for improvements to the Premises.~~

Once the construction is complete, we will consider the requirements for sale-leaseback accounting treatment, including evaluating whether all risks of ownership have been transferred back to Ascentris, as evidenced by a lack of continuing involvement in the leased property. If the arrangement does not qualify for sale-leaseback accounting treatment, the building assets will remain on our consolidated balance sheets at their historical cost.

~~NOTE 6. DEBT~~

~~The amortized carrying amount of our debt consists of the following (in thousands):~~

September 30,
2017 December 31,
2016
Secured Convertible Notes due 2018 (“Deerfield Notes”) $ —
$ 109,122
Term loan payable —
80,000
Total debt $ —
$ 189,122

~~See “Note 7 - Debt” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended~~ ~~December 31, 2016~~ ~~filed with the SEC on February 27, 2017 for additional information on the terms of our debt, including a description of the material features of the Deerfield Notes.~~

~~Deerfield Notes~~

On June 28, 2017, we repaid all amounts outstanding under the Deerfield Notes. The repayment amount totaled $123.8 million which comprised $113.9 million in principal, including $13.9 million of interest paid in kind paid through the repayment date, a $5.8 million prepayment penalty associated with the early repayment of the notes and $4.2 million in accrued and unpaid interest. As a result of the early repayment, there was a $6.2 million loss on the extinguishment of the debt which comprised the prepayment penalty and the unamortized fees and costs on the date of the repayment.

Prior to our early repayment of the notes, the outstanding principal amount of the Deerfield Notes bore interest 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. The following is a summary of interest expense for the Deerfield Notes (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Stated coupon interest $ —
$ 2,031
$ 4,151
$ 5,939
Interest paid in kind —
2,031
4,151
5,939
Amortization of debt discount and debt issuance costs —
121
182
327
Total interest expense $ —
$ 4,183
$ 8,484
$ 12,205

~~The balance of unamortized fees and costs was $0.4 million as of~~ ~~December 31, 2016, which was recorded as a reduction of the carrying amount of the Deerfield Notes on the accompanying Condensed Consolidated Balance Sheet.~~

~~Silicon Valley Bank Loan and Security Agreement~~

On March 29, 2017, we repaid all amounts outstanding under our term loan with Silicon Valley Bank. The repayment included $80.0 million in principal plus $0.1 million in accrued and unpaid interest. There was no gain or loss on the extinguishment of debt as a result of the repayment of the term loan. Prior to our early repayment of the term loan, the principal amount outstanding under the term loan had accrued interest at 1.0% per annum, which was due and payable monthly.

In accordance with the terms of the loan and security agreement, we were required to maintain an amount equal to at least 100%, but not to exceed 107%, of the outstanding principal balance of the term loan 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. We were entitled to retain income earned on the amounts maintained in such accounts. The total collateral balance as of ~~December 31, 2016~~ was $81.6 million and was reflected in our Condensed Consolidated Balance Sheet in Short-term investments as the amounts were not restricted as to withdrawal. As a result of our repayment of the term loan, the compensating balance requirement was terminated as of March 29, 2017.

~~NOTE 7. 2014 WARRANTS~~

In connection with an amendment to the note purchase agreement for the Secured Convertible Notes due 2015, (the “Original Deerfield Notes”), in January 2014 we issued 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 (the “2014 Warrants”). Subsequent to our March 2015 notification of our election to extend the maturity date of the Deerfield Notes, the exercise price of the 2014 Warrants was reset to $3.445 per share, the term was extended by two years to January 22, 2018, and the 2014 Warrants were transferred to Additional paid-in capital as of that date at their then estimated fair value of $1.5 million as their terms had become fixed.

On September 11, 2017, we issued an aggregate of 877,451 shares of common stock pursuant to the cashless exercises of the 2014 Warrants issued to an accredited investor transferee. The number of shares issued upon exercise was net of 122,549 shares withheld to effect the cashless exercise of the 2014 Warrants in accordance with their terms.

~~NOTE 8. STOCK-BASED COMPENSATION~~

~~We recorded and allocated employee stock-based compensation expense for our equity incentive plans and our 2000 Employee Stock Purchase Plan (“ESPP”) as follows (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Research and development expense $ 1,663
$ 1,165
$ 4,741
$ 7,894
Selling, general and administrative expense 3,626
2,438
10,288
10,452
Total stock-based compensation expense $ 5,289
$ 3,603
$ 15,029
$ 18,346

We use the Black-Scholes Merton option pricing model to value our stock options and ESPP purchases. The weighted average grant-date fair value per share of our stock options and ESPP purchases was as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Stock options $ 11.75
$ 8.59
$ 10.32
$ 4.31
ESPP $ 6.85
$ 1.51
$ 5.29
$ 1.65

~~The fair value of stock options and ESPP purchases was estimated using the following assumptions:~~

Stock Options
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Risk-free interest rate 1.70 % 1.07 % 1.68 % 1.09 %
Dividend yield — % — % — % — %
Expected volatility 58 % 76 % 61 % 76 %
Expected life 4.0 years
4.5 years
4.1 years
4.4 years

ESPP
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Risk-free interest rate 1.14 % 0.37 % 0.88 % 0.39 %
Dividend yield — % — % — % — %
Expected volatility 55 % 63 % 61 % 66 %
Expected life 6 months
6 months
6 months
6 months

We considered implied volatility as well as our historical volatility in developing our estimate of expected volatility. The expected life computation is based on historical exercise patterns and post-vesting termination behavior.

~~A summary of stock option activity for the~~ ~~nine months endedSeptember 30, 2017~~ ~~is presented below (dollars in thousands~~, ~~except per share amounts):~~

Shares
Weighted
Average
Exercise Price Per Share

Weighted
Average
Remaining Contractual
Term

Aggregate
Intrinsic
Value
Options outstanding at December 31, 2016 24,999,665
$ 4.91

Granted 821,260
$ 21.60

Exercised (4,282,847 ) $ 3.94

Forfeited (204,525 ) $ 8.14

Options outstanding at September 30, 2017 21,333,553
$ 5.72
4.08 years $ 395,212
Exercisable at September 30, 2017 15,961,685
$ 4.41
3.59 years $ 316,415

~~As of~~ ~~September 30, 2017, a total of~~ ~~24,037,291~~ ~~shares were available for grant under our stock option plans.~~

~~A summary of restricted stock unit (“RSU”) activity for the~~ ~~nine months endedSeptember 30, 2017~~ ~~is presented below (dollars in thousands~~, ~~except per share amounts):~~

Shares
Weighted
Average
Grant Date
Fair Value Per Share

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value
RSUs outstanding at December 31, 2016 2,469,791
$ 8.69

Awarded 331,847
$ 22.03

Vested and released (348,294 ) $ 4.63

Forfeited (111,603 ) $ 10.89

RSUs outstanding at September 30, 2017 2,341,741
$ 11.08
1.55 years $ 56,740

~~NOTE 9. INCOME TAXES~~

~~Income tax expense consists of the following (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Income tax expense $ 3,206
$ —
$ 3,921
$ —

During the nine months ended September 30, 2017, we recorded income tax expense of $3.9 million, which primarily comprises our computed income tax expense of $5.2 million reduced by $1.2 million of excess benefits associated with equity compensation. The income tax expense for the three and nine months ended September 30, 2017 primarily relates to state taxes in jurisdictions outside of California, for which we do not have net operating loss carry-forwards due to a limited operating history.

~~NOTE 10. NET INCOME (LOSS) PER SHARE~~

~~The following table sets forth a reconciliation of basic and diluted net income (loss) per share (in thousands, except per share amounts):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income (loss) $ 81,382
$ (11,284 ) $ 115,738
$ (105,345 )
Net income allocated to participating securities (221 ) —
(368 ) —
Net income allocable to common stock for basic net income (loss) per share 81,161
(11,284 ) 115,370
(105,345 )
Adjustment to net income allocated to participating securities 14
—
23
—
Net income allocable to common stock for diluted net income (loss) per share $ 81,175
$ (11,284 ) $ 115,393
$ (105,345 )

Weighted-average shares of common stock outstanding 294,269
256,319
292,776
238,024
Dilutive securities:
Outstanding stock options, unvested RSUs and ESPP contributions 18,671
—
18,779
—
Weighted-average shares of common stock outstanding and dilutive securities 312,940
256,319
311,555
238,024

Net income (loss) per share, basic $ 0.28
$ (0.04 ) $ 0.39
$ (0.44 )
Net income (loss) per share, diluted $ 0.26
$ (0.04 ) $ 0.37
$ (0.44 )

The 2014 Warrants were participating securities and the warrant holders did not have a contractual obligation to share in our losses. See “Note 7 - 2014 Warrants” for a description of the 2014 Warrants.

The following table sets forth potentially dilutive shares of common stock that are not included in the computation of diluted net income (loss) per share because to do so would be anti-dilutive (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Outstanding stock options, unvested RSUs and ESPP contributions 583
30,474
1,108
30,474
Deerfield Notes —
33,890
—
33,890
4.25% convertible senior subordinated notes due 2019 (the “2019 Notes”) —
413
—
413
2014 Warrants —
1,000
—
1,000
Total potentially dilutive shares 583
65,777
1,108
65,777

~~The 2014 Warrants were exercised in September 2017. The Deerfield Notes were repaid in June 2017. The 2019 Notes were converted and redeemed between August and November 2016.~~

NOTE ~~11. FAIR VALUE MEASUREMENTS~~

~~The following table sets forth the classification of our financial assets within the fair value hierarchy that were measured and recorded at fair value on a recurring basis as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~. We did not have any financial liabilities measured and recorded at fair value on a recurring basis as of those dates. The amounts presented exclude cash, but include investments classified as cash equivalents (in thousands):

September 30, 2017
Level 1 Level 2 Total
Money market funds $ 42,797
$ —
$ 42,797
Commercial paper —
168,738
168,738
Corporate bonds —
187,160
187,160
U.S. Treasury and government sponsored enterprises —
14,644
14,644
Total financial assets $ 42,797
$ 370,542
$ 413,339

December 31, 2016
Level 1 Level 2 Total
Money market funds $ 71,457
$ —
$ 71,457
Commercial paper —
165,375
165,375
Corporate bonds —
152,407
152,407
U.S. Treasury and government sponsored enterprises —
70,727
70,727
Total financial assets $ 71,457
$ 388,509
$ 459,966

~~We did not have any financial assets or liabilities classified as Level 3 in the fair value hierarchy as of~~ ~~September 30, 2017~~ or ~~December 31, 2016~~ ~~and there were no transfers of financial assets or liabilities classified as Level 3 during the nine months ended September 30, 2017 or the year ended December 31, 2016.~~

The carrying amounts of cash, trade and other receivables, accounts payable, accrued clinical trial liabilities, accrued compensation and benefits, and other liabilities approximate their fair values and are excluded from the tables above.

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 are Level 2 inputs.

~~NOTE 12. COMMITMENTS~~

~~Leases~~

On May 2, 2017, we entered into the Lease with Ascentris for an aggregate of 110,783 square feet of space in office and research facilities located at the Premises in Alameda, California. We also have the right to make certain tenant improvements to the space leased on the Premises. The Lease has an initial term of 10 years with a target commencement date of February 1, 2018, and, subject to a partial twelve-month rent abatement period, rent payments will begin upon the target commencement date. We have two five-year options to extend the Lease and a one-time option to terminate the Lease without cause on the last day of the 8^th year of the initial term. We are obligated to make lease payments totaling $24.1 million over the Lease term. The Lease further provides that we are obligated to pay to Ascentris certain costs, including taxes and operating expenses. We also have a right of first offer to lease certain additional space, in the aggregate of approximately 170,000 square feet of space, as that additional space becomes available over the remainder of the initial term at 1601, 1701, 1751, and 1801 Harbor Bay Parkway, Alameda, California at a market rate determined according to the Lease.7. STOCK-BASED COMPENSATION

We ~~are deemed, for accounting purposes only, to be~~allocated the owner of portions of the Premises, including two building shells, even though we are not the legal owner. See “Note 5. Property and Equipment - Build-to-Suit Lease” for a further description of the accounting for that portion of the Premises.

On May 2, 2017, we also entered into an Agreement for Conditional Option to Amend Lease (the “Optional Amendment Agreement”) with Ascentris. Under the terms of the Optional Amendment Agreement, a current tenant (the “Tenant”) occupying approximately 16,343 square feet of the facility located at 1801 Harbor Bay Parkway was given the option to relocate to another building on the premises or terminate their current lease early, requiring them to relocate within six months from the termination date. Under the terms of the Optional Amendment Agreement, we would reimburse Ascentris for the first $1.5 million of costs incurred to induce the Tenant to relocate. In August 2017, the Tenant communicated to Ascentris that they were terminating their lease early. As of September 30, 2017, we have accrued $1.4 millionstock-based compensation expense for our anticipated reimbursement of costs to Ascentris for the Tenant’s relocation. On October 16, 2017, we executed an amendment to the Lease for an additional 19,778 square feet of space located on the Premises, which includes the space vacated by the Tenant, with terms consistent with the original Lease.

~~As of September 30, 2017, the aggregate future minimum lease payments under~~equity incentive plans and our ~~leases are~~Employee Stock Purchase Plan (ESPP) as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Research and development	$	13,667	$	6,112	$	26,063	$	11,198
Selling, general and administrative	14,368		10,042		36,625		18,938
Total stock-based compensation expense	$	28,035	$	16,154	$	62,688	$	30,136

Operating leases
Other financing obligations⁽¹⁾
Remainder of 2017 $ 1,006
$ —
Year Ending December 31,
2018 2,802
566
2019 605
1,477
2020 630
1,685
2021 637
1,745
2022 646
1,814
Thereafter 3,465
10,441
$ 9,791
$ 17,728

~~____________________~~


~~(1)~~	~~Other financing obligations includes payments related to our build-to-suit lease.~~

~~Rent expense~~Stock-based compensation for each type of award under our equity incentive plans and ~~sublease income~~ESPP were as follows ~~for the periods presented~~ (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Stock options	$	5,902	$	5,301	$	10,596	$	10,295
Restricted stock units	15,412		8,599		27,081		16,396
Performance stock units	4,698		1,429		22,645		1,925
ESPP	2,023		825		2,366		1,520
Total stock-based compensation expense	$	28,035	$	16,154	$	62,688	$	30,136

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Gross rental expense $ 1,215
$ 1,972
$ 4,986
$ 7,424
less: Sublease income —
(908 ) (1,225 ) (2,637 )
Net rental expense $ 1,215
$ 1,064
$ 3,761
$ 4,787

~~Letter~~As of ~~Credit~~

~~We obtained~~June 30, 2021, 8,254,455 shares were available for grant under the Exelixis, Inc. 2017 Equity Incentive Plan (as amended and restated, the 2017 Plan). The share reserve is reduced by 1 share for each share issued pursuant to a ~~standby letter of credit in May 2017~~stock option and 1.5 shares for full value awards granted in the ~~amount~~form of ~~$0.5~~restricted stock units (RSUs).

During the six months ended June 30, 2021, we granted 1,733,554 stock options with a weighted average exercise price of $22.50 per share and a weighted average grant date fair value of $9.70 per share. As of June 30, 2021, there were 15,443,578 stock options outstanding and $32.2 million ~~which may be drawn down by Ascentris~~of related unrecognized compensation expense.

During the six months ended June 30, 2021, we granted 3,575,190 service-based RSUs with a weighted average grant date fair value of $21.76 per share. As of June 30, 2021, there were 8,314,774 RSUs outstanding and $149.0 million of related unrecognized compensation expense.

Stock options and RSUs granted to employees during the six months ended June 30, 2021 have vesting conditions and contractual lives of a similar nature to those described in ~~the event we fail to fully and faithfully perform all of our obligations under the Lease and to compensate Ascentris for all losses and damages Ascentris may suffer as a result~~“Note 8. Employee Benefit Plans” of the ~~occurrence~~Notes to

Table of ~~any default on our part not cured within the applicable cure period. As of September 30, 2017, none of the standby letter of credit amount has been used.~~Contents

~~See “Note 13 - Commitments” to our~~ Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~ ~~filed with~~2020.

In March 2021, we awarded 1,027,650 (the target amount) performance-based (PSUs), subject to a performance and a market condition (the 2021 PSUs). Pursuant to the ~~SEC~~terms of 2021 PSUs, the holders of the awards may earn up to 200% of the target amount of shares, depending on ~~February 27, 2017 for~~the level of achievement of the performance condition related to certain net product revenues and a ~~description of additional letters of credits that were entered into prior~~total shareholder return (TSR) market condition. The TSR market condition is based on our relative TSR percentile rank compared to ~~December 31, 2016~~.

~~NOTE 13. 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, commercial paper, corporate bonds with high credit quality, and securities issued by the U.S. Treasury and other government sponsored enterprises. All investments are maintained with financial institutions that management believes are creditworthy.

~~Trade and other receivables are unsecured and are concentrated~~companies 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 September 30, 2017, 55% of our trade receivables are with Ipsen,~~NASDAQ Biotechnology Index during the performance period, which ~~include the amounts due from two milestones totaling $45.0 million resulting from Ipsen’s receipt~~is January 2, 2021 through December 29, 2023. NaN percent of the ~~validation from~~shares earned subject to the ~~EMA~~performance and market conditions will vest at the end of the performance period and the remainder will vest approximately one year later subject to employee’s continuous service. The 2021 PSUs will be forfeited if the performance condition at or above a threshold level is not achieved by December 29, 2023.

A Monte Carlo simulation model was used to determine the grant date fair value of $24.54 for the application for variation to the CABOMETYX marketing authorization for the addition of a new indication in first-line treatment of advanced RCC in adults. Payment for the first milestone of $20.0 million is due in the fourth quarter of 2017 and payment for the second milestone of $25.0 million is due in the first quarter of 2018. Ipsen historically has paid promptly.

~~The percentage of total revenues recognized by customer that represent 10% or more of total revenues was as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Diplomat Specialty Pharmacy 13 % 31 % 19 % 41 %
Ipsen 33 % 6 % 18 % 8 %
Caremark L.L.C. 13 % 9 % 16 % 8 %
Affiliates of McKesson Corporation 10 % 6 % 12 % 5 %
Accredo Health, Incorporated 9 % 9 % 11 % 7 %
Daiichi Sankyo — % 24 % — % 13 %

All of our long-lived assets are located in the U.S. We have operations solely in the U.S., while some of our collaboration partners have headquarters outside of the U.S. and some of our clinical trials for cabozantinib are also conducted outside of the U.S.

~~The following table shows the revenues earned by geographic region. Net product revenues are attributed to regions~~2021 PSUs based on the ~~delivery location. Collaboration revenues are attributed to regions~~following assumptions:


Fair value of the Company’s common stock on grant date	$	21.31
Expected volatility	49		%
Risk-free interest rate	0.29		%
Dividend yield	0		%

The Monte Carlo simulation model also assumed correlations of returns of the stock prices of the Company’s common stock and the common stock of a peer group of companies and historical stock price volatility of the peer group of companies. The valuation model also used terms based on the ~~location~~length of the performance period and compound annual growth rate goals for total stockholder return based on the provisions of the award.

As of June 30, 2021, there were 8,709,765 PSUs outstanding and $155.7 million of related unrecognized compensation expense. Expense recognition for PSUs commences when it is determined that achievement of the performance target is probable. For more information about our PSUs, see “Note 8. Employee Benefit Plans” of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

NOTE 8. PROVISION FOR INCOME TAXES

The effective tax rate for the three and six months ended June 30, 2021 was 23.1% and 20.5%, respectively, as compared to 17.2% and 18.0% for the corresponding periods in 2020. The effective tax rate for the three and six months ended June 30, 2021 and 2020 differed from the U.S. federal statutory tax rate of 21% primarily due to excess tax benefits related to the exercise of certain stock options during the periods and the generation of federal tax credits, partially offset by state taxes.

Table of Contents

NOTE 9. NET INCOME PER SHARE

Net income per share - basic and diluted, were computed as follows (in thousands, except per share amounts):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Numerator:
Net income	$	96,092	$	66,821	$	97,693	$	115,433
Denominator:
Weighted-average common shares outstanding — basic	314,117		307,807		313,295		306,598
Dilutive securities	8,824		10,337		8,819		10,394
Weighted-average common shares outstanding — diluted	322,941		318,144		322,114		316,992

Net income per share — basic	$	0.31	$	0.22	$	0.31	$	0.38
Net income per share — diluted	$	0.30	$	0.21	$	0.30	$	0.36

Dilutive securities included outstanding stock options and Performance Stock Options, unvested RSUs and PSUs and ESPP contributions.

Certain potential common shares were excluded from our calculation of weighted-average common shares outstanding - diluted because either they would have had an anti-dilutive effect on net income per share or they were related to shares from PSUs that were contingently issuable and the contingency had not been satisfied at the end of the reporting period. The weighted-average potential common shares excluded from our calculation were as follows (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Anti-dilutive securities and contingently issuable shares excluded	12,285	8,812	11,146	10,413

NOTE 10. COMMITMENTS AND CONTINGENCIES

In September 2019, we received a notice letter regarding an Abbreviated New Drug Application (ANDA) submitted to the FDA by MSN Pharmaceuticals, Inc. (MSN), requesting approval to market a generic version of CABOMETYX tablets. MSN’s initial notice letter included a Paragraph IV certification with respect to our U.S. Patent Nos. 8,877,776, 9,724,342, 10,034,873 and 10,039,757, which are listed in the Approved Drug Products with Therapeutic Equivalence Evaluations, also referred to as the Orange Book. MSN’s initial notice letter did not provide a Paragraph IV certification against U.S. Patent No. 7,579,473, the composition of matter patent, or U.S. Patent No. 8,497,284, a method of use patent. On October 29, 2019, we filed a complaint in the United States District Court for the District of Delaware (the Delaware District Court) for patent infringement against MSN asserting U.S. Patent No. 8,877,776 arising from MSN’s ANDA filing with the FDA. On November 20, 2019, MSN filed its response to the complaint, alleging that U.S. Patent No. 8,877,776 is invalid and not infringed. On May 5, 2020, we received notice from MSN that it had amended its ANDA to assert additional Paragraph IV certifications. The ANDA now requests approval to market a generic version of CABOMETYX tablets prior to expiration of the two previously unasserted CABOMETYX patents: U.S. Patent No. 7,579,473 and U.S. Patent No. 8,497,284. On May 11, 2020, we filed a complaint in the Delaware District Court for patent infringement against MSN asserting U.S. Patent No. 7,579,473 and U.S. Patent No. 8,497,284 arising from MSN’s amended ANDA filing with the FDA. Neither of our ~~collaboration partner's headquarters (in thousands):~~complaints alleges infringement of U.S. Patent Nos. 9,724,342, 10,034,873 and 10,039,757. On May 22, 2020, MSN filed its response to the complaint, alleging that each of U.S. Patent No. 7,579,473 and U.S. Patent No. 8,497,284 is invalid and not infringed. On March 23, 2021, MSN filed its First Amended Answer and Counterclaims (amending its prior filing from May 22, 2020), seeking, among other things, a declaratory judgment that U.S. Patent No. 9,809,549 is invalid and would not be infringed by MSN if its generic version of CABOMETYX tablets were approved by the FDA. On April 7, 2021, we filed our response to MSN’s First Amended Answer and Counterclaims, denying, among other things, that U.S. Patent No. 9,809,549 is invalid or would not be infringed. In our complaints, we are seeking, among other relief, an order that the effective date of any FDA approval of MSN’s ANDA would be a date no earlier than the expiration of all of U.S. Patent No. 7,579,473, U.S. Patent No.

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Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
U.S. $ 97,807
$ 41,971
$ 260,853
$ 87,757
Europe 50,680
5,223
60,704
11,116
Japan 4,023
15,000
10,848
15,000
8,497,284 and U.S. Patent No. 8,877,776, the latest of which expires on October 8, 2030, and equitable relief enjoining MSN from infringing these patents. These lawsuits against MSN have been consolidated, and a bench trial has been scheduled for May 2022.

In May 2021, we received notice letters from Teva Pharmaceuticals Development, Inc. and Teva Pharmaceuticals USA, Inc. (individually and collectively referred to as Teva) regarding an ANDA Teva submitted to the FDA, requesting approval to market a generic version of CABOMETYX tablets. Teva’s notice letters included a Paragraph IV certification with respect to our U.S. Patent Nos. 9,724,342 (formulations), 10,034,873 (methods of treatment) and 10,039,757 (methods of treatment), which are listed in the Orange Book and expire in 2033, 2031 and 2031, respectively. Teva’s notice letters did not provide a Paragraph IV certification against any additional CABOMETYX patents. On June 17, 2021, we filed a complaint in the Delaware District Court for patent infringement against Teva, along with Teva Pharmaceutical Industries Limited, asserting U.S. Patent Nos. 9,724,324 (formulations), 10,034,873 (methods of treatment) and 10,039,757 (methods of treatment) arising from Teva’s ANDA filing with the FDA. We ~~recorded losses~~are seeking, among other relief, an order that the effective date of ~~$0.2 million relating~~any FDA approval of Teva’s ANDA would be a date no earlier than the expiration of all of U.S. Patent Nos. 9,724,342, 10,034,873 and 10,039,757, the latest of which expires on July 9, 2033, and equitable relief enjoining Teva and Teva Pharmaceutical Industries Limited from infringing these patents.

The sale of any generic version of CABOMETYX earlier than its patent expiration could significantly decrease our revenues derived from the U.S. sales of CABOMETYX and thereby materially harm our business, financial condition and results of operations. It is not possible at this time to ~~foreign exchange fluctuations for both~~determine the ~~nine months ended~~ ~~September 30, 2017~~likelihood of an unfavorable outcome or estimate of the amount or range of any potential loss.

We may also from time to time become a party or subject to various other legal proceedings and ~~2016~~.claims, either asserted or unasserted, which arise in the ordinary course of business. Some of these proceedings have involved, and may involve in the future, claims that are subject to substantial uncertainties and unascertainable damages.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~The following discussion and analysis~~This Quarterly Report on Form 10-Q contains forward-looking statements. These statements are based on Exelixis, Inc.’s ~~(“Exelixis,” “we,” “our”~~(Exelixis, we, our or ~~“us”)~~us) current expectations, assumptions, estimates and projections about our business and our industry and involve known and unknown risks, uncertainties and other factors that may cause our company’s or our industry’s results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in, or contemplated by, the forward-looking statements. Words such as “expect,” “potential,” “will,” “goal,” “would,” “intend,” “continues,” “objective,” “anticipate,” “initiate,” “believe,” “could,” “plan,” “trend,” 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 “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as those discussed elsewhere in this report. These and many other factors could affect our future financial and operating results. We undertake no obligation to update any forward-looking statement to reflect events after the date of this report.

This discussion and analysis should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this report and the consolidated financial statements and accompanying notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016, filed with~~2020 submitted to the Securities and Exchange Commission ~~or SEC,~~(SEC) on February 27, 2017. Operating results are not necessarily indicative of results that may occur in future periods. We undertake no obligation to update any forward-looking statement to reflect events after the date of this report.10, 2021.

Overview

We are aan oncology-focused biotechnology company ~~committed~~that strives to accelerate the discovery, development and commercialization of new medicines for difficult-to-treat cancers. We have invented and brought to ~~improve care~~market novel, effective and ~~outcomes for people~~tolerable therapies using our drug discovery and development resources and capabilities and commercialization platform; we will continue to build on this foundation, working toward providing cancer patients with ~~cancer.~~ additional treatment options.

Since ~~our founding~~we were founded in 1994, ~~three~~four products ~~discovered at Exelixis~~resulting from our discovery efforts have progressed through clinical development, received regulatory approval and ~~entered~~established a commercial presence in various geographies around the ~~marketplace. Two are derived from~~world. Our flagship molecule, cabozantinib, is an inhibitor of multiple tyrosine kinases including ~~VEGF,~~ MET, AXL, VEGF receptors and RET ~~receptors:~~and has been approved by the U.S. Food and Drug Administration (FDA) and foreign regulatory authorities as two products: CABOMETYX® (cabozantinib) tablets approved for ~~previously treated~~ advanced renal cell carcinoma ~~or RCC,~~(RCC), both alone and in combination with Bristol-Myers Squibb Company’s (BMS) OPDIVO® (nivolumab), and for previously treated hepatocellular

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carcinoma (HCC); and COMETRIQ® (cabozantinib) capsules approved for progressive, metastatic medullary thyroid cancer (MTC). For these types of cancer, cabozantinib has become or ~~MTC.~~ is becoming a standard of care.

The ~~third product,~~other two products resulting from our discovery efforts are: COTELLIC® (cobimetinib) ~~tablets, is a reversible~~, an inhibitor of MEK, approved as part of multiple combination regimens to treat specific forms of advanced melanoma and marketed under a collaboration with Genentech, Inc. (a member of the Roche Group) (Genentech); and MINNEBRO® (esaxerenone), an oral, non-steroidal, selective blocker of the mineralocorticoid receptor, approved for the treatment of hypertension in Japan and islicensed to Daiichi Sankyo Company, Limited (Daiichi Sankyo).

Cabozantinib Franchise

On January 22, 2021, the FDA approved CABOMETYX in combination with OPDIVO as ~~part~~a first-line treatment of patients with advanced RCC. This regulatory milestone expands upon the FDA’s prior approvals of CABOMETYX as a ~~combination regimen to treat~~monotherapy for previously treated patients with advanced ~~melanoma. Both cabozantinib~~RCC in April 2016 and ~~cobimetinib~~for previously untreated patients with advanced RCC in December 2017. Additionally, in January 2019, the FDA approved CABOMETYX for the treatment of patients with HCC who have ~~shown potential in a variety of forms of cancer~~been previously treated with sorafenib.

To develop and ~~are the subject of broad clinical development programs for multiple oncology indications.~~

~~While our commercialization efforts for~~commercialize CABOMETYX and COMETRIQ ~~are focused in~~outside the ~~United States, or~~ U.S., we have ~~licensed development and commercialization rights to cabozantinib outside of the U.S. to~~entered into license agreements with Ipsen Pharma SAS ~~or Ipsen,~~(Ipsen) and Takeda Pharmaceutical Company ~~Ltd., or Takeda.~~Limited (Takeda). We granted to Ipsen ~~has been granted~~the rights to develop and commercialize cabozantinib outside of the U.S. and Japan, and to Takeda ~~has been granted~~the rights to develop and commercialize cabozantinib in Japan. Both Ipsen and Takeda also contribute financially and operationally to the further global development and commercialization of the cabozantinib franchise in other potential indications, and we ~~are working~~continue to work closely with them on these activities. Utilizing its regulatory expertise and established international oncology marketing network, Ipsen has continued to execute on its commercialization plans for CABOMETYX, having received regulatory approvals and launched in multiple territories outside of the U.S., including in the European Union (EU) and Canada, as a treatment for advanced RCC and for HCC in adults who have previously been treated with sorafenib. In addition, in March 2021, Ipsen and BMS received regulatory approval from the European Commission (EC) for CABOMETYX in combination with OPDIVO as a first-line treatment for patients with advanced RCC, and both Ipsen and BMS plan to submit applications to approve the combination in other territories beyond the EU. With respect to the Japanese market, Takeda received Manufacturing and Marketing Approvals in 2020 from the Japanese Ministry of Health, Labour and Welfare (MHLW) of CABOMETYX as a treatment of patients with curatively unresectable or metastatic RCC and as a treatment of patients with unresectable HCC who progressed after cancer chemotherapy. In October 2020, Takeda and Ono Pharmaceutical Co., Ltd., BMS’ development and commercialization partner in Japan, submitted a supplemental application to the Japanese MHLW for Manufacturing and Marketing Approval of CABOMETYX in combination with OPDIVO for the treatment of patients with unresectable, advanced or metastatic RCC.

~~Beyond~~In addition to our ~~currently approved~~regulatory and commercialization efforts in the U.S. and the support provided to our collaboration partners for rest-of-world regulatory and commercialization activities, we are also pursuing other indications for ~~RCC and MTC, we are pursuing other indications~~cabozantinib that have the potential to ~~expand~~increase the number of cancer patients ~~that~~who could benefit from ~~cabozantinib. Most advanced~~this medicine. We are evaluating cabozantinib, both as a single agent and in ~~the cabozantinib~~combination with other therapies, in a broad development program iscomprising over 100 ongoing or planned clinical trials across multiple indications. We, along with our ~~evaluation~~collaboration partners, sponsor some of ~~CABOMETYX as a treatment for patients with previously untreated advanced RCC. On August 15, 2017, we submitted a supplemental New Drug Application, or sNDA, for cabozantinib in this indication to~~ the ~~U.S. Food~~trials, and ~~Drug Administration, or FDA, and on October 16, 2017, we announced that~~independent investigators conduct the FDA had accepted this filing and granted it Priority Review, assigning a Prescription Drug User Fee Act, or PDUFA, action date of February 15, 2018. The data in support of this filing are derived from CABOSUN, a randomized phase 2 trial comparing cabozantinib to sunitinib in the first-line treatment of patients with intermediate- or poor-risk RCC that was conducted by The Alliance for Clinical Trials in Oncology, or The Alliance,remaining trials through our Cooperative Research and Development Agreement ~~or CRADA,~~(CRADA) with the National Cancer Institute’s Cancer Therapy Evaluation Program (NCI-CTEP) or ~~NCI-CTEP. In May 2016, The Alliance informed us~~our investigator-sponsored trial (IST) program. Informed by the available data from these clinical trials, we advanced the development program for the cabozantinib franchise with potentially label-enabling trials. One pivotal trial that CABOSUN met its primary endpoint demonstrating a statistically significant and clinically meaningful improvement of progression-free survival, or PFS, compared with sunitinib. The CABOSUN primary efficacy endpoint results were later confirmed by a blinded independent radiology review committee, or IRRC, in June 2017.

~~Closely behind~~has resulted from this effort is COSMIC-311, our FDA filing for first-line RCC is our investigation of CABOMETYX as a treatment for patients with advanced hepatocellular carcinoma, or HCC, who have previously been treated with sorafenib. On October 16, 2017, we announced that, at the time of the second planned interim analysis, the study’s independent data monitoring committee had recommended that CELESTIAL, our company-sponsored, global phase 3 pivotal trial ofevaluating cabozantinib versus placebo in patients with ~~advanced HCC~~radioactive iodine (RAI)-refractory differentiated thyroid cancer (DTC) who have ~~been previously treated with sorafenib, be stopped because it~~progressed after up to two VEGF receptor-targeted therapies. In December 2020, we announced that COSMIC-311 had met ~~its~~the primary endpoint ~~with cabozantinib providing a statistically~~of demonstrating significant ~~and clinically meaningful~~ improvement in ~~overall~~progression-free survival ~~or OS, compared~~(PFS), and in February 2021, we announced the FDA had granted Breakthrough Therapy Designation to ~~placebo. Safety data~~cabozantinib as a potential treatment for patients with RAI-refractory DTC who have progressed following prior therapy. Study results from COSMIC-311 were presented at the ~~study were consistent with~~2021 American Society of Clinical Oncology (ASCO) Annual Meeting and published in The Lancet Oncology. They further served as the ~~established profile of cabozantinib. Based on~~basis for the ~~results of CELESTIAL,~~supplemental New Drug Application (sNDA) we ~~plan to submit an sNDA~~submitted to the FDA in ~~the first quarter~~June 2021 seeking approval for CABOMETYX to treat patients 12 and older with DTC who have progressed following prior therapy and who are RAI-refractory (if RAI is

Table of ~~2018, for cabozantinib as a second-line treatment for patients with advanced HCC. We will discuss the trial results with regulatory authorities~~Contents

appropriate), and ~~determine next steps for the trial, including offering patients currently receiving placebo the opportunity to cross over to cabozantinib.~~

~~We believe~~in August 2021, we announced that the ~~available clinical data demonstrate that cabozantinib has the potential to be~~FDA had accepted our sNDA, granted Priority Review and assigned a ~~broadly active anti-cancer agent that can make a meaningful difference in the lives~~Prescription Drug User Fee Act (PDUFA) goal date, or target action date, of patients. Accordingly, we are engaged in a broad development program composed of over 50 ongoing or planned clinical trials to explore the clinical potential of cabozantinib in additional tumor types. This program includes Exelixis sponsored trials and trials conducted through our CRADA with NCI-CTEP or our investigator sponsored trial program. We are particularly interested in examining cabozantinib’s potential in combination with immunotherapies to determine if such combinations further improve outcomes for patients.December 4, 2021. Building on preclinical and clinical observations that cabozantinib ~~creates~~in combination with immune checkpoint inhibitors (ICIs) may promote a more immune-permissive tumor environment, ~~potentially resulting~~we initiated numerous pivotal studies to further explore these combination regimens. The first of these studies to deliver results was CheckMate -9ER, a phase 3 pivotal trial evaluating the combination of cabozantinib and nivolumab compared to sunitinib in previously untreated advanced or metastatic RCC. We, along with our collaboration partner, BMS, announced in April 2020 that the ~~cooperative activity~~trial met its primary endpoint of PFS at final analysis, as well as the secondary endpoints of overall survival (OS) at a pre-specified interim analysis and objective response rate (ORR), and showed that the combination of cabozantinib with nivolumab significantly improved the three key efficacy outcomes as compared with sunitinib, doubling PFS and ORR and reducing the risk of disease progression or death by 40% compared with sunitinib. Data from CheckMate -9ER served as the basis for the FDA’s and EC’s approval of CABOMETYX in combination with ~~these products,~~OPDIVO as a first-line treatment of patients with advanced RCC in January 2021 and March 2021, respectively. We are also collaborating with BMS on COSMIC-313, a phase 3 pivotal trial evaluating the triplet combination of cabozantinib, nivolumab and ipilimumab versus the combination of nivolumab and ipilimumab in patients with previously untreated advanced intermediate- or poor-risk RCC. Enrollment for COSMIC-313 was completed in March 2021, and we ~~are~~expect to report top-line results of the event-driven analyses from the trial in the late 2021 or early 2022 timeframe.

In an effort to expand our exploration of combinations with ICIs, we also initiated multiple trials evaluating cabozantinib in combination with F. Hoffmann-La Roche Ltd.’s (Roche) ICI, atezolizumab. COSMIC-021 is a variety of immune checkpoint inhibitors in multiple clinical trials. The most advanced of these combination studies includes a phase 3 trial evaluating cabozantinib with nivolumab (Opdivo®) or with nivolumab and ipilimumab (Yervoy®) in first-line advanced RCC and a phase 2 evaluation of the same combinations in HCC, each in collaboration with Bristol-Myers Squibb Company, or BMS. As a further part of our clinical collaboration with BMS, we also plan to evaluate cabozantinib and nivolumab with or without ipilimumab in various other tumor types, including in bladder cancer. Diversifying our exploration of immunotherapy combinations, we have also initiated abroad phase 1b ~~dose escalation~~ study evaluating the safety and tolerability of cabozantinib in combination with ~~The Roche Group’s, or Roche’s,~~ atezolizumab ~~(Tecentriq®)~~ in patients with a wide variety of locally advanced or metastatic solid tumors.

~~Significant progress also continues~~ Based on encouraging efficacy and safety data that has emerged from the trial, certain cohorts have been or may be further expanded, including the cohorts of patients with non-small cell lung cancer (NSCLC) who have been previously treated with an ICI and metastatic castration-resistant prostate cancer (mCRPC) who have been previously treated with enzalutamide and/or abiraterone acetate and experienced radiographic disease progression in soft tissue (Cohort 6). Data from Cohort 6, announced in May 2021, resulted in an investigator assessed ORR of 27% and a blinded independent radiology committee assessed ORR of 18%. We intend to ~~be made under~~discuss these data with the FDA to determine next steps toward a potential regulatory submission for the combination regimen for patients with high-risk mCRPC and plan to present detailed results of the COSMIC-021 trial at a medical meeting in the second half of 2021. Since the initiation of the trial, data from COSMIC-021 have been instrumental in guiding our ~~December 2006 worldwide collaboration agreement~~clinical development strategy for cabozantinib in combination with ~~Genentech, or~~ICIs, including supporting the ~~Genentech Collaboration Agreement, with respect to the~~initiation of COSMIC-312, a phase 3 ~~clinical development program for our second approved cancer agent, cobimetinib. Genentech is now conducting~~pivotal trial evaluating cabozantinib in combination with atezolizumab versus sorafenib in previously untreated advanced HCC, and three phase 3 pivotal trials ~~exploring~~in collaboration with Roche, CONTACT-01, CONTACT-02 and CONTACT-03, evaluating the combination of ~~cobimetinib~~cabozantinib with atezolizumab in ~~colorectal carcinoma (IMblaze370)~~patients with metastatic NSCLC, mCRPC and ~~BRAF wild type melanoma population (IMspire170),~~advanced RCC, respectively. CONTACT-01 and CONTACT-03 are sponsored by Roche and co-funded by us; CONTACT-02 is sponsored by us and co-funded by Roche. In June 2021, we announced results from COSMIC-312. The trial met one of the primary endpoints, demonstrating significant improvement in PFS at the planned primary analysis, reducing the risk of disease progression or death by 37% compared with sorafenib (hazard ratio: 0.63; 99% confidence internal: 0.44-0.91; P=0.0012). A prespecified interim analysis for the second primary endpoint of OS, conducted at the same time as the primary analysis for PFS, showed a trend favoring the combination of ~~cobimetinib~~cabozantinib and atezolizumab but did not reach statistical significance. Safety for the combination appeared to be consistent with the known safety profiles of the individual medicines, and no new safety signals were identified. Based on the preliminary OS data, we anticipate that the probability of reaching statistical significance at the time of the final analysis is low, but the trial will continue as planned to the final analysis of OS, with results anticipated in early 2022. We plan to present the trial results at a future medical meeting and intend to discuss the results with the FDA to determine next steps toward a potential regulatory submission for the combination regimen for patients with previously untreated advanced HCC.

Pipeline Activities

Our small molecule discovery programs are supported by a robust and expanding infrastructure, including a library of 4.6 million compounds. We have extensive experience in the identification and optimization of drug candidates against multiple target classes for oncology, inflammation and metabolic diseases. The first compound to advance from our recent drug discovery efforts is XL092, a next-generation oral tyrosine kinase inhibitor that targets VEGF receptors, MET, AXL, MER and other kinases implicated in cancer’s growth and spread. In designing XL092, we sought to build upon our experience with cabozantinib, retaining the target profile of cabozantinib while improving key characteristics, including the pharmacokinetic half-life. To date, we have announced two large phase 1b clinical trials studying XL092, STELLAR-001 and STELLAR-002. STELLAR-001 is a phase 1b clinical trial evaluating XL092, both as a monotherapy and in combination with

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either atezolizumab or avelumab, an ICI developed by Merck KGaA, Darmstadt, Germany and Pfizer Inc., which is currently enrolling patients with advanced solid tumors. We expect that once recommended doses of single-agent XL092 and XL092 in combination with atezolizumab or avelumab are established, the trial will begin to enroll expansion cohorts for patients with clear cell and ~~vemurafenib~~non-clear cell RCC, colorectal cancer (CRC), hormone-receptor positive breast cancer, mCRPC and urothelial carcinoma (UC). STELLAR-002 is a phase 1b clinical trial that will evaluate XL092 in ~~BRAF V600 mutant melanoma (IMspire150 TRILOGY)~~combination with either nivolumab, nivolumab and ipilimumab, or nivolumab and bempegaldesleukin, an investigational CD122-preferential IL-2–pathway agonist developed by Nektar Therapeutics (Nektar). ~~Enrollment~~We expect to begin enrolling patients with advanced solid tumors in dose-escalation cohorts for ~~IMblaze370 was completed~~STELLAR-002 during the second half of 2021. Depending on the dose-escalation results, STELLAR-002 may enroll expansion cohorts for patients with clear cell and non-clear cell RCC, mCRPC and UC, and to better understand the individual contribution of the therapies, treatment arms in the ~~first quarter~~expansion cohorts may include XL092 as a single-agent, XL092 in combination with nivolumab, XL092 in combination with nivolumab and ipilimumab, and XL092 in combination with nivolumab and bempegaldesleukin.

We augment our small molecule discovery activities through research collaborations and in-licensing arrangements with other companies. The most advanced compound to emerge from these arrangements is XL102 (formerly AUR102), the lead program targeting cyclin-dependent kinase 7 under our collaboration with Aurigene Discovery Technologies Limited (Aurigene). In December 2020, based on encouraging preclinical data, we exercised our exclusive option to license XL102 from Aurigene. Following the FDA’s acceptance of ~~2017,~~our Investigational New Drug (IND) application in December 2020, we initiated a phase 1 clinical trial of the compound in January 2021.

Beyond small molecules, we have also launched rigorous efforts to discover and ~~Genentech has announced~~advance biologic drug candidates, such as bispecific antibodies, antibody drug conjugates (ADCs) and other innovative biologics that ~~top line results for the trial are expected during the first half of 2018. Should these trials prove positive, we believe that cobimetinib will~~ have the potential to become anti-cancer therapies. ADCs in particular present a unique opportunity for new cancer treatments, given their capabilities to deliver anti-cancer payload drugs to targets with increased precision while minimizing impact on healthy tissues, and have been validated by the multiple regulatory approvals for the commercial sale of ADCs since the beginning of 2020. To facilitate the growth of these biologics programs, we have established multiple research collaborations and in-licensing arrangements, expanding our access to antibodies or other binders, which are the starting point for use with additional technology platforms that we employ to generate next-generation ADCs or bispecific antibodies. We have already made significant progress under these arrangements and believe we will continue to do so. For example, based on promising preclinical data for XB002 (formerly known as ICON-2), the lead Tissue Factor ADC program under our research collaboration with Iconic Therapeutics, Inc. (Iconic), we exercised our exclusive option to license XB002 in December 2020. Following the FDA’s acceptance of our IND for XB002 in April 2021, we initiated a phase 1 clinical trial in June 2021. We have expanded our access to antibodies through arrangements with WuXi Biologics Ireland Limited (WuXi Bio), focused on leveraging WuXi Bio’s panel of monoclonal antibodies against an undisclosed target for the development of ADC, bispecific and certain other novel tumor-targeting biologics, and through the execution of an asset purchase agreement with GamaMabs Pharma SA (GamaMabs), under which we will, upon the closing of the asset purchase and subject to certain conditions, acquire all rights, title and interest in GamaMabs’ antibody program directed at anti-Müllerian hormone receptor 2 (AMHR2), a novel oncology target with relevance in multiple forms of cancer. These antibodies, as well as those originating from collaboration with Invenra, Inc., provide usstarting points for the construction of ADCs through our collaborations with NBE-Therapeutics AG and/or Catalent, Inc.’s wholly owned subsidiaries Redwood Bioscience, Inc., R.P. Scherer Technologies, LLC and Catalent Pharma Solutions, Inc., utilizing their site-specific conjugation technologies and payloads. In addition, our collaboration with Adagene Inc. (Adagene), focused on using Adagene’s SAFEbodyTM technology to develop novel masked ADCs or other innovative biologics, provides potential for developing ADCs or other biologics with improved therapeutic index.

We will continue to engage in business development initiatives aimed at acquiring and in-licensing promising oncology platforms and assets and then further characterize and develop them utilizing our established preclinical and clinical development infrastructure. In total, we are advancing drug candidates across approximately 20 ongoing discovery programs toward and through preclinical development, and subject to preclinical data, we have the potential to submit multiple INDs later in 2021.

COVID-19 Update

As of the date of this Quarterly Report on Form 10-Q, the COVID-19 pandemic continues to have a ~~second meaningful source of revenue. With~~modest impact on our business operations, in particular with respect to ~~COTELLIC commercialization~~our clinical trial and commercial activities. We have and continue to undertake considerable efforts to mitigate the various problems presented by this crisis, including as described below:

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Clinical Trials. To varying degrees and at different rates across our global clinical trials, we experienced declines in screening and enrollment activity during the early days of the COVID-19 pandemic, as well as delays in new site activations and restrictions on the access to treatment sites that is necessary to monitor clinical study progress and administration. Beginning during the second quarter of 2020 and since that time, however, that trend reversed, and screening and enrollment activity began to increase. As a result, we and our collaboration partners, including principal investigators and personnel at clinical trial sites, have been successful overall in preventing material delays to our ongoing and planned clinical trials due to the COVID-19 pandemic. We have done this through ongoing assessment of the COVID-19 pandemic’s impact and, wherever possible, taking proactive steps in compliance with guidance issued by the FDA, EMA and other regulatory agencies to support the safety of our patients and their access to treatment, as well as to maintain the high quality of our clinical trials. We recognize, however, that we may have to make further operational adjustments to our ongoing and planned clinical trials and that patient enrollment, and new clinical trial site initiations may again be slowed due to recurring COVID-19 outbreaks and potential reintroduction of certain restrictions intended to mitigate the spread of COVID-19.

Drug Discovery and Preclinical Development. We have fully resumed drug discovery in our laboratories following a temporary suspension of these activities while we observed the shelter in place orders issued by the State of California and Alameda County. While this temporary suspension combined with interruptions in the portion of drug discovery work outsourced to third-party contractors in regions first impacted by COVID-19 caused us to experience modest delays in the advancement of certain of our early-stage programs, we continued to substantially progress our product pipeline despite the COVID-19 pandemic, including the submission of INDs for XL102 and XB002.

Commercial Activities. Despite the challenges posed by the COVID-19 pandemic, including requiring us to temporarily shift to telephonic and virtual interactions with healthcare professionals, we believe our commercial business was only modestly impacted. Our field employees have now partially resumed their in-person promotional activities while supplementing these activities with telephonic and virtual interactions and we believe they are well-positioned to execute on our commercial objectives.

Supply Chain. We have not experienced production delays or seen any significant impairment to our supply chain as a result of the COVID-19 pandemic. In addition, we continue to maintain substantial safety stock inventories for our commercial drug substance and drug products, which should be sufficient to maintain robust long-term supply. We continue to work closely with our third-party contract manufacturers, distributors, suppliers, comparator drug sourcing vendors and collaboration partners to safeguard both the timely production and delivery of our products.

General Business Operations. We have taken numerous precautions, some temporary and others still in place, to help mitigate the risk of transmission of the virus, including: initially reducing the number of our employees working on-site at our Alameda headquarters; maintaining enhanced safety and social distancing protocols for those employees who have returned to working on-site and initiating an on-site COVID-19 testing program; and restricting non-essential business. Most of our employees worked remotely during much of 2020 and early 2021, and many employees continue to do so on a part-time or full-time basis, which has required that we devise new ways of working and collaborating. However as of the date of this Quarterly Report on Form 10-Q, the COVID-19 pandemic has only had a modest impact on our productivity and has not caused significant interruptions in our general business operations.

The circumstances surrounding the COVID-19 pandemic continue to be subject to rapid change, and we will continue to monitor new developments that could pose additional risks for us, including the spread of the Delta variant in the U.S. ~~under~~and other countries and the ~~Genentech Collaboration Agreement,~~potential emergence of other SARS-CoV-2 variants that may prove especially contagious or virulent. Despite our mitigation efforts, we ~~have been fielding 25%~~may experience delays or an inability to execute on our clinical and preclinical development plans, reduced revenues or other adverse impacts to our business, which are described in more detail in “Risk Factors” in Part II, Item 1A of the sales force promoting COTELLIC in combination with Zelboraf® as a treatment for patients with BRAF mutation-positive advanced melanoma. However, following a recent commercial review, commencing in January 2018, we and Genentechthis Quarterly Report on Form 10-Q. We recognize that this pandemic will scale back the personal promotion of COTELLIC in combination with Zelboraf as a treatment for patients with BRAF mutation-positive advanced melanoma in the U.S. This decision is not indicative of any change in our intention to promote COTELLIC for other therapeutic indications for which it may be approved in the future.

~~As we~~ continue to ~~maximize the clinical, therapeutic~~present unique challenges for us throughout 2021, and commercial potential of cabozantinib and cobimetinib, we remain steadfast in our commitment to discover and develop new cancer therapies for patients. In this regard, we have resumed internal drug discovery efforts with the goal of identifying new product candidates to advancepotentially into clinical trials. Notably, these efforts are led by some of the same experienced scientists responsible for the discovery of cabozantinib and cobimetinib, which have been approved for commercialization by regulatory authorities, as well as other promising Exelixis compounds that are in earlier stages of clinical and regulatory development pursuant to our collaborations with Daiichi Sankyo Company, Limited, or Daiichi Sankyo, Merck and BMS.2022.

~~Third~~Second Quarter ~~2017~~2021 Business ~~Development~~ Updates and Financial Highlights

During the ~~third~~second quarter of ~~2017,~~2021, we continued to ~~build infrastructure intended~~execute on our business objectives, generating significant revenues from operations and enabling us to ~~support~~continue to seek to maximize the clinical and commercial potential of our ~~anticipated growth~~products and ~~evolution beyond~~expand our ~~current~~ product pipeline. Significant business ~~development~~ updates and financial highlights for the quarter and subsequent to quarter-end include:

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Business ~~Development~~ Updates

•In ~~July 2017, BMS~~April 2021, we announced the FDA’s acceptance of the IND for XB002 and initiated a phase 31 trial ~~CheckMate 9ER,~~in June 2021.

•In May 2021, we announced an asset purchase agreement with GamaMabs to ~~evaluate~~acquire GamaMabs’ antibody program directed at AMHR2.

•In May 2021, we announced additional phase 1b results from the mCRPC Cohort 6 of COSMIC-021, in which ORR for cabozantinib in combination with ~~nivolumab with or without ipilimumab, versus sunitinib~~atezolizumab in high-risk patients ~~with previously untreated, advanced or metastatic RCC. The primary endpoint for~~was 27% and 18% per investigator assessment and Blinded Independent Radiology Committee (BIRC) assessment, respectively, and the ~~trial is PFS.~~

disease control rate was 88% and 84% per investigator assessment and BIRC assessment, respectively. In ~~July 2017,~~continuation of prior regulatory interaction and feedback from the FDA, we ~~entered into an amendment~~intend to ~~our collaboration agreement with Genentech in connection with~~discuss the settlement of our arbitration concerning claims asserted by us against Genentech related to the development, pricing and commercialization of COTELLIC. The amendment resolves our concerns outlined in the arbitration demand and provides for a favorably revised revenue and cost-sharing arrangement, effective as of July 1, 2017, that is applicable to current and potential future commercial uses of COTELLIC.

~~In August 2017, we completed the submission of an sNDA~~phase 1b data with the FDA to determine next steps toward a potential regulatory submission for the combination regimen for patients with high-risk mCRPC and plan to present detailed results of the trial at a medical meeting in the second half of 2021.

•In June 2021, cabozantinib aswas the subject of multiple data presentations at the 2021 ASCO Annual Meeting, which included: (i) a ~~treatment~~post-hoc exploratory analysis of CheckMate -9ER demonstrating that efficacy benefits of the combination compared with sunitinib were observed across analyzed subgroups, including those based on International Metastatic Renal Cell Carcinoma Database Consortium risk status, site of metastases and extent of tumor burden at baseline; (ii) another post-hoc analysis of CheckMate -9ER demonstrating that CABOMETYX in combination with OPDIVO resulted in a statistically significant and clinically meaningful increase in quality-adjusted survival compared with sunitinib for patients with previously untreated advanced ~~RCC.~~

In September 2017, Ipsen received validation from the European Medicines Agency, or EMA, for the application for variation to the CABOMETYX marketing authorization for the addition of a new indication in first-line treatment of advanced RCC in adults.

~~In September 2017, at the 2017 European Society for Medical Oncology Congress, we announced updated~~RCC; (iii) positive results from CABOSUN, including the IRRC analysis that confirmed the primary efficacy endpoint results of investigator-assessed PFS. Per the IRRC analysis, cabozantinib demonstrated a clinically meaningful and statistically significant 52% reduction in the rate of disease progression or death (HR 0.48, 95% CI 0.31-0.74, two-sided P=0.0008). The median PFS for cabozantinib was 8.6 months versus 5.3 months for sunitinib, corresponding to a 3.3 month (62%) improvement favoring cabozantinib over sunitinib.

~~In September 2017, we announced that our partner Daiichi Sankyo reported positive top-line results from ESAX-HTN,~~ a phase ~~3 pivotal trial~~2 IST showing promising efficacy and an acceptable safety profile of ~~esaxerenone, a product of the companies’ prior research collaboration,~~CABOMETYX in combination with OPDIVO in patients with ~~essential hypertension~~advanced or metastatic non-clear cell RCC with papillary, unclassified or translocation-associated histologies; and (iv) detailed results from COSMIC-311 evaluating cabozantinib in ~~Japan. With~~patients with RAI-refractory DTC, which served as the basis for an sNDA we submitted to the FDA in June 2021.

•In June 2021, we announced a clinical trial collaboration and supply agreement with BMS to evaluate XL092 in combination with either nivolumab, nivolumab and ipilimumab, or nivolumab and bempegaldesleukin in patients with advanced solid tumors as part of the new STELLAR-002 phase 1b dose escalation study.

•In June 2021, we filed a patent lawsuit against Teva Pharmaceuticals Development, Inc. and Teva Pharmaceuticals USA, Inc. (individually and collectively referred to as Teva), along with Teva Pharmaceutical Industries Limited, following receipt of two Paragraph IV certification notice letters from Teva informing us that it had filed an Abbreviated New Drug Application (ANDA) with the FDA requesting approval to market a generic version of CABOMETYX tablets. Teva’s notice letters included a Paragraph IV certification with respect to our U.S. Patent Nos. 9,724,342 (formulations), 10,034,873 (methods of treatment) and 10,039,757 (methods of treatment), which are listed in the Approved Drug Products with Therapeutic Equivalence Evaluations, also referred to as the Orange Book, and expire in 2033, 2031 and 2031, respectively. Teva’s notice letters did not provide a Paragraph IV certification against any additional CABOMETYX patents. We are seeking, among other relief, an order that the effective date of any FDA approval of the ANDA would be a date no earlier than the expiration of all of U.S. Patent Nos. 9,724,342, 10,034,873 and 10,039,757, the latest of which expires on July 9, 2033, and equitable relief enjoining Teva and Teva Pharmaceutical Industries Limited from infringing these patents. For a more detailed discussion of this litigation matter, see “Legal Proceedings” in Part II, Item 1 of this Quarterly Report on Form 10-Q.

•In June 2021, we announced phase 3 results from COSMIC-312, in which the combination of cabozantinib and atezolizumab met one of the primary endpoints, demonstrating significant improvement in PFS versus sorafenib at the planned primary analysis. A prespecified interim analysis for the second primary endpoint of OS, conducted at the same time as the primary analysis for PFS, showed a trend favoring the combination but did not reach statistical significance. The trial will continue as planned to the final analysis of OS; results are anticipated in early 2022. We plan to present the trial ~~achieving its primary endpoint, Daiichi Sankyo communicated its intention~~results at a future medical meeting and intend to ~~submit a Japanese regulatory application for esaxerenone for an essential hypertension indication in~~discuss the ~~first quarter of 2018.~~

In October 2017, we announced that BMS filed a Clinical Trial Authorization in Europe for a first-in-human study of a RORγt inverse agonist, which will trigger a $10.0 million milestone payment to us in the fourth quarter of 2017 under the terms of the parties’ worldwide collaboration for compounds targeting retinoic acid-related orphan receptor, a family of nuclear hormone receptors implicated in inflammatory conditions.

~~In October 2017, we announced that~~results with the FDA ~~determined that our sNDA~~to determine next steps toward a potential regulatory submission for ~~cabozantinib~~the combination regimen for patients with previously untreated advanced ~~RCC was sufficiently complete to permit~~HCC.

•In August 2021, we announced that the FDA had accepted our sNDA for CABOMETYX as a ~~substantive review. The FDA~~treatment for patients 12 and older with DTC who have progressed following prior therapy and who are RAI-refractory (if RAI is appropriate), granted Priority Review ~~of the filing~~ and assigned a PDUFA ~~action~~goal date of ~~February 15, 2018.~~

In October 2017, we announced that CELESTIAL met its primary endpoint of OS, with cabozantinib providing a statistically significant and clinically meaningful improvement in OS compared to placebo in patients with advanced HCC. Based on these results, we plan to submit an sNDA to the FDA in the first quarter of 2018.December 4, 2021.

Financial Highlights

•Net ~~income~~product revenues for the ~~third~~second quarter of ~~2017 was~~ ~~$81.4~~2021 were $284.2 million,~~, or~~ ~~$0.28~~ ~~per share, basic and~~ ~~$0.26~~ ~~per share, diluted,~~ compared to ~~a net loss of~~ ~~$(11.3)~~$178.7 million~~, or~~ ~~$(0.04)~~ ~~per share, basic and fully diluted,~~ for the ~~third~~second quarter of ~~2016.~~2020.

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•Total revenues for the ~~third~~second quarter of ~~2017 increased to~~ ~~$152.5~~2021 were $385.2 million,, compared to ~~$62.2~~$259.5 million for the ~~third~~second quarter of ~~2016.~~

2020.

~~Cost of goods sold for the third quarter of 2017 increased to~~ ~~$4.7 million, compared to~~ ~~$2.5 million~~ ~~for the third quarter of 2016.~~

•Research and development expenses for the ~~third~~second quarter of ~~2017 increased to~~ ~~$28.5~~2021 were $148.8 million,, compared to ~~$20.3~~$114.9 million for the ~~third~~second quarter of ~~2016.~~

2020.

•Selling, general and administrative expenses for the ~~third~~second quarter of ~~2017 increased to~~ ~~$38.1~~2021 were $98.5 million,, compared to ~~$32.5~~$59.8 million for the ~~third~~second quarter of ~~2016.~~

2020.

~~Total other~~•Provision for income ~~(expense), net~~taxes for the ~~third~~second quarter of ~~2017 increased to~~ ~~$3.4~~2021 was $28.8 million,, compared to ~~$(18.5)~~$13.9 million for the ~~third~~second quarter of ~~2016.~~

2020.

•Net income for the second quarter of 2021 was $96.1 million, or $0.31 per share, basic and $0.30 per share, diluted, compared to net income of $66.8 million, or $0.22 per share, basic and $0.21 per share diluted, for the second quarter of 2020.

•Cash, cash equivalents, restricted cash equivalents and investments ~~decreased to~~ ~~$422.3 million~~ at ~~September~~were $1.7 billion as of June 30, ~~2017~~,2021, compared to ~~$479.6 million~~ at $1.5 billion as of December 31, ~~2016~~.

2020.

See “Results of Operations” below for a discussion of the detailed components and analysis of the amounts above.

Although we reported net income of $115.7 million for the nine months ended September 30, 2017, we may not be able to maintain or increase profitability on a quarterly or annual basis and we are unable to accurately predict the extent of long-range future profits or losses. We expect to continue to spend significant additional amounts to fund the continued development and commercialization of cabozantinib. In addition, we intend to expand our product pipeline through the measured resumption of drug discovery and the evaluation of in-licensing and acquisition opportunities that align with our oncology drug expertise, which efforts could involve substantial costs. As a result, we are unable to predict the extent of any future profits or losses because we expect to continue to incur substantial operating expenses and, consequently, we will need to generate substantial revenues to maintain or increase profitability.

Challenges and Risks

~~We anticipate that~~In addition to the challenges and risks imposed by the COVID-19 pandemic and described under “—COVID-19 Update” above, we will also continue to face ~~a number of~~ challenges and risks ~~to our business~~ that may impact our ability to execute on our 2021 business ~~objectives.~~objectives, and some of these risks to our business have been or may be exacerbated by the COVID-19 pandemic. In particular, ~~we anticipate that~~ for the foreseeable future, we expect our ability to generate ~~meaningful revenue~~sufficient cash flow to fund our ~~commercial~~business operations and ~~our development and discovery programs is dependent~~growth will depend upon the ~~successful commercialization~~continued commercial success of CABOMETYX, both alone or in combination with other therapies, as a treatment for the ~~treatment of advanced RCC in territories where~~highly competitive indications for which it is approved, and possibly for other indications for which cabozantinib has been or is currently being evaluated in potentially label-enabling clinical trials, if warranted by the data generated from these trials. However, we cannot be certain that the clinical trials we and our collaboration partners are currently conducting, or may ~~be approved. The~~conduct in the future, will demonstrate adequate safety and efficacy in these additional indications to receive regulatory approval in the major 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 frommarkets where CABOMETYX is ~~also affected by a number of other factors, including~~approved. Even if we and our collaboration partners receive the ~~extent~~required regulatory approvals to ~~which~~market cabozantinib for additional indications, we and our collaboration partners may not be able to commercialize CABOMETYX effectively and successfully in these additional indications. In addition, CABOMETYX will only continue to be commercially successful if private third-party and government payers continue to provide coverage and reimbursement. However, as is the case for all innovative pharmaceutical therapies, obtaining and maintaining coverage and reimbursement for CABOMETYX is ~~available from government and other third-party payers. Obtaining and maintaining appropriate coverage and reimbursement for CABOMETYX is~~becoming increasingly ~~challenging due to, among other things, efforts by payors to contain and slow increases in healthcare costs in~~difficult, both within the U.S. and ~~worldwide. It is also potentially threatened by increasing interest among policymakers~~ in foreign markets, because of growing concerns over healthcare cost containment and corresponding policy initiatives and activities aimed at limiting access to, and restricting the ~~U.S. with respect to controlling pharmaceutical drug pricing practices. Our ability to fulfill the fullest commercial potential~~prices of, cabozantinib also ultimately 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 the potential regulatory approval of our sNDA for cabozantinib as a treatment for patients with previously untreated advanced RCC based upon data from CABOSUN. Obtaining this approval represents a significant challenge because CABOSUN was not originally designed as a registration enabling trial. However, given the positive nature of CABOSUN results, combined with the confirming analysis of such results by the IRRC, we submitted an sNDA to the FDA on August 15, 2017, which, as we announced on October 16, 2017, was deemed by the FDA as sufficiently complete to permit a substantive review. The FDA granted the file Priority Review and assigned a PDUFA action date of February 15, 2018.pharmaceuticals.

Achievement of our 2021 business objectives will also depend on our ability to ~~adapt our development and commercialization strategy to navigate the increasing prevalence of immunotherapy, which is both~~maintain a competitive ~~threat and a potential opportunity due to interest in the use of combination therapy to treat cancer.~~

~~In addition~~position with respect to the ~~challenges we encounter while working toward~~shifting landscape of therapeutic strategy for the ~~achievement~~treatment of our development and commercial objectives, we also face significant challenges in our efforts to expand our pipeline through the measured resumption of internal drug discovery activities and the evaluation of in-licensing and acquisition opportunities. Internal discovery efforts require substantial technical, financial and human resources and may fail to yield product candidates for clinical development. Furthermore, we continue to operate in an environment with significant market competition for relevant product candidates, and, even if we are able to identify an attractive and available product candidate,cancer, which we may not be able to ~~in-license~~ do. While we have had success in adapting our development strategy for the cabozantinib franchise and other product candidates to address the expanding role of therapies that combine targeted agents with ICIs and/or ~~acquire~~with other mechanisms of action, it ~~on acceptable terms~~is uncertain whether current and future clinical trials will lead to regulatory approvals, or whether physicians will prescribe regimens containing our products instead of competing product combinations. Moreover, the complexities of such a development strategy have required and are likely to continue to require collaboration with some of our competitors. In the longer term, we may eventually face competition from potential manufacturers of generic versions of our marketed products, including the proposed generic versions of CABOMETYX tablets that ~~would enable~~are the subject of ANDAs submitted to the FDA by MSN Pharmaceuticals, Inc. (MSN) and Teva, and the approval of either MSN’s or Teva’s ANDA could significantly decrease our ~~continued growth~~revenues derived from the U.S. sales of CABOMETYX and thereby materially harm our business, financial condition and results of operations. Separately, our research and development objectives may be impeded by the challenges of scaling our organization to meet the demands of expanded drug development, unanticipated delays in clinical testing and the inherent risks and uncertainties associated with drug discovery operations, all of which may be increased as ~~an organization.~~a result of the COVID-19 pandemic. In connection with efforts to expand our product pipeline, we may be unsuccessful in discovering new drug candidates or identifying 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 biotechnology, biopharmaceutical and pharmaceutical ~~industry~~industries with development and commercial operations. As described under “—COVID-19 Update” above, these risks have been or may be exacerbated by the COVID-19 pandemic. For

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a ~~complete~~more detailed discussion of challenges and risks we face, including those relating to the COVID-19 pandemic, see “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Fiscal Year Convention

We have adopted a 52- or 53-week fiscal year policy that ~~generally~~ ends on the Friday closest to December 31^st.31st. Fiscal year ~~2017~~2021, which is a 52-week fiscal year, will end on December ~~29, 2017~~31, 2021 and fiscal year ~~2016~~2020, which was a 52-week fiscal year, ended on ~~December 30, 2016.~~January 1, 2021. For convenience, references in this report as of and for the fiscal periods ended ~~September 29, 2017~~July 2, 2021 and ~~September 30, 2016,~~July 3, 2020, and as of and for the fiscal ~~years~~year ended ~~December 29, 2017 and December 30, 2016,~~January 1, 2021 are indicated as being as of and for the fiscal periods ended ~~September~~June 30, ~~2017~~2021 and ~~September~~June 30, ~~2016,~~2020, and the ~~years~~year ended December 31, ~~2017 and December 31, 2016,~~2020, respectively.

Results of Operations

Revenues

Revenues by category were as follows (dollars in thousands):


	Three Months Ended June 30,				Percent Change		Six Months Ended June 30,				Percent Change
	2021		2020				2021		2020
Net product revenues	$	284,248	$	178,730	59	%	$	511,460	$	372,610	37	%
License revenues	39,640		59,234		-33	%	67,168		80,113		-16	%
Collaboration services revenues	61,289		21,515		185	%	76,779		33,671		128	%
Total revenues	$	385,177	$	259,479	48	%	$	655,407	$	486,394	35	%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Product revenues:
Gross product revenues $ 111,148
$ 46,720
$ 289,365
$ 92,383
Discounts and allowances (14,732 ) (3,978 ) (36,068 ) (8,924 )
Net product revenues 96,416
42,742
253,297
83,459
Collaboration revenues:
Contract revenues⁽¹⁾
45,000
15,000
47,500
20,000
License revenues⁽²⁾
7,572
3,780
21,335
8,570
Development cost reimbursements 2,316
—
5,623
—
Royalty and product supply revenues, net 1,206
672
4,650
1,844
Total collaboration revenues 56,094
19,452
79,108
30,414
Total revenues $ 152,510
$ 62,194
$ 332,405
$ 113,873
Dollar change $ 90,316
$ 218,532

Percentage change 145 % 192 %

Net Product Revenues

~~____________________~~Gross product revenues, discounts and allowances, and net product revenues were as follows (dollars in thousands):


~~(1)~~	~~Includes milestone payments.~~


~~(2)~~	~~Includes amortization of upfront payments.~~


	Three Months Ended June 30,				Percent Change		Six Months Ended June 30,				Percent Change
	2021		2020				2021		2020
Gross product revenues	$	380,204	$	229,898	65	%	$	694,409	$	482,464	44	%
Discounts and allowances	(95,956)		(51,168)		88	%	(182,949)		(109,854)		67	%
Net product revenues	$	284,248	$	178,730	59	%	$	511,460	$	372,610	37	%

Net product revenues by product were as follows (dollars in thousands):


	Three Months Ended June 30,				Percent Change		Six Months Ended June 30,				Percent Change
	2021		2020				2021		2020
CABOMETYX	$	275,614	$	173,610	59	%	$	499,209	$	362,826	38	%
COMETRIQ	8,634		5,120		69	%	12,251		9,784		25	%
Net product revenues	$	284,248	$	178,730	59	%	$	511,460	$	372,610	37	%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
CABOMETYX $ 90,362
$ 31,238
$ 233,582
$ 48,812
COMETRIQ 6,054
11,504
19,715
34,647
Net product revenues $ 96,416
$ 42,742
$ 253,297

$ 83,459
Dollar change $ 53,674
$ 169,838

Percentage change 126 % 203 %

For the three and nine months ended September 30, 2017, net product revenues increased 126% and 203%, respectively, as compared to the comparable periods in 2016. For the three and nine months ended September 30, 2017, the 189% and 379% increaseThe increases in net product revenues for CABOMETYX ~~as compared~~for the three and six months ended June 30, 2021, relative to the ~~comparable period in 2016, was~~corresponding prior year periods, were primarily ~~due~~related to ~~a 174% and 353% increase, respectively,~~increases in the number of ~~CABOMETYX~~ units sold that was driven by the strong uptake for the combination therapy of CABOMETYX and OPDIVO following approval by the FDA in January 2021. The increases in net product revenues for COMETRIQ for the three and six months ended June 30, 2021, relative to the corresponding prior year periods, were due to increases in the number of COMETRIQ units sold, due to a comparator purchase of the product for use in a clinical trial.

We project our net product revenues for the remainder of 2021 may increase relative to the corresponding prior year period, primarily as a result of the increase in demand for CABOMETYX following the FDA’s approval of CABOMETYX in combination with OPDIVO as a first-line treatment of patients with advanced RCC, as well as an increase in ~~the average~~ selling price ~~of the product. 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. The increase in CABOMETYX sales volume was due to an increase in market share. For the three and nine months ended September 30, 2017, the 47% and 43% decrease in net product revenues for COMETRIQ as compared to the comparable periods in 2016, was primarily due to a 77% and 65% decrease, respectively, in the number of COMETRIQ units sold; the decrease in units sold was partially offset by an increase in the average selling price of the product. The decrease in COMETRIQ sales volume was primarily driven by the adoption of CABOMETYX by our customers.

Contract revenues for the three and nine months ended September 30, 2017 reflects recognition of two milestones totaling $45.0 million resulting from Ipsen’s receipt of the validation from the EMA for the application for variation to the CABOMETYX marketing authorization for the addition of a new indication in first-line treatment of advanced RCC in adults. Payment of the first milestone of $20.0 million is due in the fourth quarter of 2017 and payment of the second milestone of $25.0 million is due in the first quarter of 2018. Contract revenues for the nine months ended September 30, 2017 also reflects recognition of a $2.5 million milestone earned from BMS related to the RORγ program. Contract revenues for the three and nine months ended September 30, 2016 reflect recognition of $15.0 million from a milestone payment earned in

September 2016 from Daiichi Sankyo related to its worldwide license of our compounds that modulate mineralocorticoid receptor, or MR, including CS-3150 (an isomer of XL550). Contract revenues for the nine months ended September 30, 2016 also reflects recognition of a $5.0 million from a milestone payment earned from Merck related to its worldwide license of our phosphoinositide-3 kinase-delta program.

License revenues consists of the recognition of the upfront payments and non-substantive milestone received in connection with our February 2016 collaboration agreement with Ipsen, or the Ipsen Collaboration Agreement, and the upfront payment received in connection with our January 2017 collaboration agreement with Takeda, or the Takeda Collaboration Agreement. For the three and nine months ended September 30, 2017, we recognized $4.7 million and $13.8 million, respectively, of such revenue in connection with the Ipsen Collaboration Agreement, as compared to $3.8 million and $8.6 million, respectively, during the comparable periods in 2016. For the three and nine months ended September 30, 2017, we recognized $2.8 million and $7.5 million, respectively, of such revenue in connection with the Takeda Collaboration Agreement. No such revenue was recognized for Takeda during the comparable periods in 2016. The increase in such revenues is due to the timing of the execution of those agreements.

Development cost reimbursements for the three and nine months ended September 30, 2017 consisted of reimbursements pursuant to our collaboration and license agreements, including $1.1 million and $2.3 million, respectively, under the Ipsen Collaboration Agreement and $1.2 million and $3.3 million, respectively, under the Takeda Collaboration Agreement. There were no such development cost reimbursements during the comparable periods in 2016.

~~Royalty and product supply revenues, net, primarily consisted of royalties on ex-U.S. net sales of COTELLIC under our collaboration agreement with Genentech for cobimetinib.~~

~~Total revenues by significant customer were as follows (in thousands):~~ CABOMETYX.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Diplomat Specialty Pharmacy $ 20,460
$ 19,392
$ 62,909
$ 46,770
Ipsen 50,680
3,873
60,704
2,000
8,663
Caremark L.L.C. 20,272
5,591
52,526
8,728
Affiliates of McKesson Corporation 14,575
3,683
38,699
5,764
Accredo Health, Incorporated 13,445
5,880
36,504
8,340
Daiichi Sankyo —
15,000
—
15,000
Others, individually less than 10% of total revenues for all periods presented 33,078
8,775
81,063
20,608
Total revenues $ 152,510
$ 62,194
$ 332,405
$ 113,873

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We recognize product ~~revenue~~revenues 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~~included in ~~Part II, Item 8 of~~ our Annual Report on Form 10-K ~~filed with~~for the ~~SEC on February 27, 2017. The activities and ending reserve balances for each significant category of discount and allowance were as follows (in thousands):~~

Chargebacks and discounts for prompt payment Other customer credits and co-pay assistance Rebates Returns Total
Balance at December 31, 2016 $ 1,802
$ 794
$ 2,627
$ 351
$ 5,574
Provision related to sales made in:
Current period 22,823
5,135
8,389
—
36,347
Prior periods (864 ) —
584
—
(280 )
Payments and customer credits issued (22,221 ) (4,501 ) (7,533 ) (351 ) (34,606 )
Balance at September 30, 2017 $ 1,540
$ 1,428
$ 4,067
$ —
$ 7,035

Chargebacks and discounts for prompt payment are recorded as a reduction of trade receivables and the remaining reserve balances are classified as Other current liabilities in the accompanying Condensed Consolidated Balance Sheets. Balances as ofyear ended December 31, ~~2016 have been reclassified~~2020. The increases in discounts and allowances for the three and six months ended June 30, 2021, relative to ~~reflect that presentation.~~

~~The increase in~~ the ~~reserve balance at September 30, 2017 was~~corresponding prior year periods, were primarily the result of increases in Public Health Service hospital utilization and the dollar amount of the related chargebacks and, to a lesser extent, an increase in ~~product sales volume and a shift in payer mix to government programs, which was offset by payments, the issuance of customer credits~~Medicaid utilization and the ~~prior period adjustments for chargebacks and certain~~dollar amount of related Medicaid rebates.

We ~~expect~~project our discounts and allowances as a percentage of gross ~~product revenue to~~revenues may increase during the remainder of ~~2017~~2021 relative to the corresponding prior year period as ~~our business evolves and~~ the number of patients participating in government programs ~~increases,~~continues to increase and as the discounts orgiven and rebates paid to government payers ~~increase,~~also increase.

License Revenues

License revenues include the recognition of the portion of milestone payments allocated to the transfer of intellectual property licenses for which it had become probable in the related period that the milestone would be achieved and a significant reversal of revenues would not occur, as well as royalty revenues and the ~~engagement~~profit on the U.S. commercialization of COTELLIC from Genentech.

Milestone revenues, which are allocated between license revenues and collaboration services revenues, were $12.9 million and $13.5 million for the three and six months ended June 30, 2021, respectively, as compared to $43.5 million and $43.6 million for the corresponding prior year periods. Milestone revenues by period included the following:

•Milestone revenues for the three and six months ended June 30, 2021 included $11.8 million in revenues recognized in connection with a $12.5 million regulatory milestone we determined was probable of achievement.

•Milestone revenues for the three and six months ended June 30, 2020 included $23.7 million in revenues recognized in connection with $31.0 million in milestones we achieved upon Takeda’s first commercial ~~contracting~~sale of CABOMETYX as a treatment for patients with curatively unresectable or metastatic RCC in Japan and $18.8 million in revenues recognized in connection with a $20.0 million development milestone from Ipsen we determined was probable of achievement.

Royalties increased primarily as a result of increases in Ipsen’s net sales of cabozantinib outside of the U.S. and Japan. Ipsen royalties were $22.8 million and $45.3 million for the three and six months ended June 30, 2021, compared to $16.3 million and $34.2 million for the corresponding prior year periods. Ipsen’s net sales of cabozantinib have continued to grow since their first commercial sale of the product in the fourth quarter of 2016, primarily due to increased demand of CABOMETYX, which, as of June 30, 2021, is approved in 61 countries outside of the U.S. Royalties also increased due to the commercial launch of CABOMETYX for the treatment of patients with curatively unresectable or metastatic RCC in Japan by Takeda during the second quarter of 2020.

Our share of profits on the U.S. commercialization of COTELLIC under our collaboration agreement with Genentech was $2.2 million and $4.0 million for the three and six months ended June 30, 2021, compared to $1.4 million and $2.8 million for the corresponding prior year periods. We also earned royalties on ex-U.S. net sales of COTELLIC by Genentech of $0.8 million and $1.7 million for the three and six months ended June 30, 2021, compared to $1.1 million and $2.4 million for the corresponding prior year periods.

Due to uncertainties surrounding the timing and achievement of regulatory and development milestones, it is difficult to predict future milestone revenues and milestones can vary significantly from period to period. We project our license revenues for the remainder of 2021 to decrease, relative to fiscal 2020, as a result of the anticipated achievement of fewer milestones in 2021, partially offset by an increase in royalty revenues related to an increase in sales of CABOMETYX by Ipsen and Takeda.

Collaboration Services Revenues

Collaboration services revenues include the recognition of deferred revenues for the portion of upfront and milestone payments that have been allocated to research and development services performance obligations, development cost reimbursements earned under our collaboration agreements, product supply revenues, net of product supply costs and the royalties we pay on sales by Ipsen and Takeda of products containing cabozantinib. We received notification that, effective January 1, 2021, Royalty Pharma plc acquired from GlaxoSmithKline (GSK) all rights, title and interest in royalties on net product sales containing cabozantinib for non-U.S. markets for the full term of the royalty and for the U.S. market through September 2026, after which time U.S. royalties will revert back to GSK.

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Development cost reimbursements were $62.5 million and $80.9 million for the three and six months ended June 30, 2021, relative to $19.6 million and $34.0 million for the corresponding prior year periods. The increases in development cost reimbursements were primarily a result of the reimbursements from Ipsen associated with their decision to opt in and co-fund COSMIC-311 development costs. Ipsen is now responsible for 35% of the global development costs of COSMIC-311 and is obligated to reimburse Exelixis for these costs, as well as an additional payment calculated as a percentage of COSMIC-311 development costs, triggered by the timing of the exercise of its option. Accordingly, collaboration services revenues for the three and six months ended June 30, 2021, includes a cumulative catch up for Ipsen’s share of global development costs incurred since the beginning of the study and through the end of the period. Development costs reimbursements also increased as a result of the reimbursements from Takeda associated with their decision to opt in and co-fund CONTACT-02 and additional cohorts of COSMIC-021 studies in the third quarter of 2020 and their respective share of the increase in spending on the CONTACT-02 study. The increases in development cost reimbursements were partially offset by a decrease in total spending on COSMIC-021 and COSMIC-312 studies.

Collaboration services revenues were reduced by $3.5 million and $6.9 million for the 3% royalty we are required to pay on the net sales by Ipsen and Takeda of any product incorporating cabozantinib for the three and six months ended June 30, 2021, respectively, compared to $2.3 million and $4.7 million for the corresponding prior year periods. As royalty generating sales of cabozantinib by Ipsen and Takeda have increased as described above, our royalty payments have also increased.

We project our collaboration services revenues may increase for the remainder of 2021, relative to fiscal 2020, primarily as a result ~~in additional discounts or rebates.~~of increased development cost reimbursements related to Ipsen’s opt-in and co-funding of COSMIC-311 as well as projections related to our other collaboration arrangements.

Cost of Goods Sold

The cost of goods sold and our gross ~~margins~~margin were as follows (dollars in thousands):


	Three Months Ended June 30,						Percent Change		Six Months Ended June 30,						Percent Change
	2021			2020					2021			2020
Cost of goods sold	$	14,884		$	9,221		61	%	$	28,082		$	18,510		52	%
Gross margin	95		%	95		%			95		%	95		%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Cost of goods sold $ 4,658
$ 2,455
$ 10,875
$ 4,700
Gross margin 95 % 94 % 96 % 94 %

Cost of goods sold is related to our product revenues and consists primarily of a 3% royalty payable ~~to GlaxoSmithKline~~ on U.S. net sales of any product incorporating cabozantinib, ~~indirect labor costs,~~as well as the cost of ~~manufacturing,~~inventory sold, indirect labor costs, write-downs related to expiring and excess inventory, and other ~~third party~~third-party logistics costs. 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 incurred, rather than capitalized as inventory. The ~~sale of products containing previously expensed materials resulted~~increases in ~~a 1% and 6% reduction in the Cost~~cost of goods sold during the three and nine months ended September 30, 2017, respectively, as compared to a 6% and 5% reduction during the comparable periods in 2016. As of September 30, 2017 and December 31, 2016, our inventory includes approximately $0.5 million and $1.2 million, respectively, of materials that were previously expensed, are not capitalized, and will not be charged to Costs of goods sold in future periods. Write-downs related to excess and expiring inventory were $1.1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 as compared to $0.4 million for the comparable periods in 2016.~~

~~The increase in Cost of goods sold was primarily related~~2021, relative to the ~~growth~~corresponding prior year periods, were primarily the result of increases in royalties as a result of increased U.S. CABOMETYX sales ~~of CABOMETYX due to an increase in market share.~~

~~Gross margin is net product revenues less cost of goods sold, divided by net product revenues. The increase in~~and certain other period costs. We do not project our gross margin ~~for~~to change significantly during the three and nine months ended September 30, 2017, as compared to the comparable periods in 2016, was related to the change in product mix as CABOMETYX sales volumes have increased while COMETRIQ volumes have decreased, and CABOMETYX tablets having a lower manufacturing cost than COMETRIQ capsules which have additional packaging requirements and are made in smaller batches due to limited demand.remainder of 2021.

Research and Development Expenses

~~Total research and development expenses were as follows (dollars in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Research and development expenses $ 28,543
$ 20,256
$ 79,967
$ 72,166
Dollar change $ 8,287
$ 7,801

Percentage change 41 % 11 %

Research and development expenses consist primarily of clinical trial costs, personnel expenses, consulting and outside services, an allocation for general corporate costs, stock-based compensation, and expenses for temporary personnel.

The increase in research and development expenses for the three months ended September 30, 2017, as compared to the comparable period in 2016, was primarily related to increases in personnel expenses, clinical trial costs and consulting and outside services. The increase in personnel expenses was $2.5 million for the three months ended September 30, 2017, as compared to the comparable period in 2016, and was primarily a result of an increase in headcount associated with the re-launch of our internal discovery program and the build-out of our medical affairs organization. The increase in clinical trial costs, which includes services performed by third-party contract research organizations and other vendors who support our clinical trials, was $2.5 million for the three months ended September 30, 2017, as compared to

the comparable period in 2016. The increase in clinical trial costs was predominantly due to start-up costs associated with CheckMate 9ER and the phase 1b trial of cabozantinib and atezolizumab in locally advanced or metastatic solid tumors; those increases were partially offset by decreases in costs related to METEOR, our completed phase 3 pivotal trial comparing CABOMETYX to everolimus in patients with advanced RCC. The increase in consulting and outside services was $1.1 million for the three months ended September 30, 2017, as compared to the comparable period in 2016, and was primarily in support of our medical affairs organization. The increase in research and development expenses also reflects a $1.0 million filing fee for the submission of our sNDA to the FDA in August 2017 for cabozantinib as a treatment for patients with previously untreated advanced RCC.

The increase in research and development expenses for the nine months ended September 30, 2017, as compared to the comparable period in 2016, was primarily related to an increase in personnel expenses and consulting and outside services that were partially offset by a decrease in stock-based compensation. The increase in personnel expenses of $6.7 million for the nine months ended September 30, 2017, as compared to the comparable period in 2016, was primarily a result of an increase in headcount associated with the re-launch of our internal discovery program and the build-out of our medical affairs organization. The increase in consulting and outside services was $1.2 million for the three months ended September 30, 2017, as compared to the comparable period in 2016, and was primarily in support of our medical affairs organization. The increase in research and development expenses also reflects a $1.0 million filing fee for the submission of our sNDA to the FDA. These increases were partially offset by a decrease in stock-based compensation of $3.2 million for the nine months ended September 30, 2017, as compared to the comparable period in 2016, primarily due to the 2016 recognition of stock-based compensation expense pertaining to the performance-based stock-options tied to the acceptance and anticipated approval of our CABOMETYX New Drug Application, or NDA, submission to the FDA and a 2016 bonus to our employees in the form of fully-vested restricted stock units.

We do not track ~~fully-burdened~~fully burdened research and development expenses on a project-by-project basis. We group our research and development expenses into three categories: ~~development,~~(1) development; (2) drug ~~discovery~~discovery; and (3) other. Our development group leads the development and implementation of our clinical and regulatory strategies and prioritizes disease indications in which our compounds are being or may be studied in clinical trials. Our drug discovery group utilizes a variety of technologies, including in-licensed technologies, to enable the rapid discovery, optimization and extensive characterization of lead compounds such that we are able to select development candidates with the best potential for further evaluation and advancement into clinical development. ~~Drug discovery expenses relate primarily to personnel expenses, consulting and outside services, and laboratory supplies. The “Other” category includes stock-based compensation and the allocation~~

Table of ~~general corporate costs to research and development. The expenditures for research~~Contents

Research and development expenses by category were as follows (in thousands):


	Three Months Ended June 30,				Percent		Six Months Ended June 30,				Percent
	2021		2020		Change		2021		2020		Change
Research and development expenses:
Development:
Clinical trial costs	$	49,568	$	62,606	-21	%	$	110,259	$	115,950	-5	%
Personnel expenses	29,175		20,610		42	%	58,059		40,898		42	%
Consulting and outside services	6,646		3,811		74	%	11,935		7,055		69	%

Other development costs	7,534		5,194		45	%	14,818		9,935		49	%
Total development	$	92,923	$	92,221	1	%	195,071		173,838		12	%
Drug discovery:
License and other collaboration costs	23,466		7,239		224	%	51,904		12,252		324	%
Other drug discovery (1)	11,724		6,407		83	%	23,011		13,141		75	%
Total drug discovery	35,190		13,646		158	%	74,915		25,393		195	%
Other (2)	20,677		9,066		128	%	38,092		17,579		117	%
Total research and development expenses	$	148,790	$	114,933	29	%	$	308,078	$	216,810	42	%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Development:
Clinical trial costs $ 9,754
$ 7,279
$ 27,966
$ 27,504
Personnel expenses 7,437
5,661
21,649
16,168
Consulting and outside services 2,464
1,938
6,370
6,453
Other development costs 3,771
2,228
10,318
8,273
Total development 23,426
17,106
66,303
58,398
Drug discovery 1,743
213
3,986
723
Other 3,374
2,937
9,678
13,045
Total $ 28,543
$ 20,256
$ 79,967
$ 72,166
____________________

(1) Primarily includes personnel expenses, consulting and outside services and laboratory supplies.

(2) Includes stock-based compensation, the allocation of general corporate costs to research and development, and development cost reimbursements in connection with our collaboration arrangement with Roche executed in December 2019.

The increases in research and development expenses for the three and six months ended June 30, 2021, relative to the corresponding prior year periods, were primarily related to increases in license and other collaboration costs, personnel expenses and stock-based compensation expense, partially offset by decreases in clinical trial costs. License and other collaboration costs increased primarily due to the acquisition of GamaMabs assets, and increases in upfront license fees, program initiation fees and research funding commitments related to business development activities. Personnel expenses increased primarily due to increases in headcount to support our expanding discovery and development organization. Stock-based compensation expense increased primarily due to the performance-based restricted stock units (PSUs) granted in 2019 that became probable of achievement in the second half of 2020 and the first half of 2021. Clinical trial costs, which include services performed by third-party contract research organizations and other vendors who support our clinical trials, decreased primarily due to lower costs associated with COSMIC-312.

In addition to reviewing the three categories of research and development expenses described above, we principally consider qualitative factors in making decisions regarding our research and development programs. ~~Such~~These factors include enrollment in clinical trials for our drug candidates, ~~the~~preliminary data and final results ~~of and data~~ from clinical trials, the potential indications for our drug candidates, the clinical and commercial potential for our drug candidates, and competitive dynamics. We also make our research and development decisions in the context of our overall business ~~strategy, which includes the pursuit of commercial collaborations with major pharmaceutical and biotechnology companies for the development of our drug candidates.~~strategy.

We are focusing a significant amount of our development ~~and commercialization~~ efforts ~~primarily~~ on cabozantinib to maximize the therapeutic and commercial potential of this compound and, as a result, we ~~expect~~project that a substantial portion of our ~~near-term~~ research and

development expenses ~~to primarily~~will relate to the continuing clinical development program of ~~cabozantinib. We expect to continue to incur significant development costs for~~ cabozantinib, ~~in future periods as we evaluate its potential in a broad development program comprising approximately 50~~which includes over 100 ongoing or planned clinical trials across multiple indications. ~~The most notable~~Notable ongoing company-sponsored studies ofresulting from this program ~~are CELESTIAL, our company-sponsored phase 3 trial of cabozantinib in advanced HCC, our phase 3 study in collaboration with~~include: COSMIC-313, for which BMS ~~evaluating cabozantinib in combination with nivolumab or~~is providing nivolumab and ipilimumab ~~as compared~~free of charge and CONTACT-02 for which Roche is sharing the development costs and providing atezolizumab free of charge.

We are expanding our oncology product pipeline through drug discovery efforts, which encompass both small molecule and biologics programs with multiple modalities and mechanisms of action. In this regard, we conduct drug discovery activities with the goal of identifying new product candidates to sunitinib in previously untreated patients with advanced RCC, and our phase 2 study, in collaboration with BMS, evaluating cabozantinib and nivolumab or nivolumab and ipilimumab in advanced HCC, as well as our phase 1b study, in collaboration with Roche, evaluating cabozantinib in combination with atezolizumab in patients with advanced malignancies.advance into clinical trials. In addition, ~~post-marketing commitments~~we will continue to engage in ~~connection with the approval~~business development initiatives aimed at acquiring and in-licensing promising oncology platforms and assets and then further characterize and develop them utilizing our established preclinical and clinical development infrastructure.

Table of ~~COMETRIQ in progressive, metastatic MTC dictate that we conduct an additional study in that indication. As a result, we expect~~Contents

We project our research and development expenses may continue to increase ~~as we continue~~for the remainder of 2021 compared to ~~develop~~2020, primarily driven by our ongoing clinical evaluation of cabozantinib, the initiation of new clinical trials and expansion of ongoing clinical trials evaluating other product candidates in our ~~pipeline.~~pipeline, including XL092, XL102, XB002 and anticipated business development activities.

The length of time required for clinical development of a particular product candidate and our development costs for that product candidate may be impacted by the scope and timing of enrollment in clinical trials for the product candidate, our decisions to develop a product candidate for additional indications and whether we pursue development of the product candidate or a particular indication with a collaborator or independently. For example, cabozantinib is being developed in multiple indications, and we do not yet know for how many of those indications we will ultimately pursue regulatory ~~approval for.~~approval. In this regard, our decisions to pursue regulatory approval of cabozantinib for additional indications depend on several variables outside of our control, including the strength of the data generated in our prior, ongoing and potential future clinical trials. Furthermore, the scope and number of clinical trials required to obtain regulatory approval for each pursued indication is subject to the input of the applicable regulatory authorities, and we have not yet sought such input for all potential indications that we may elect to ~~pursue, and even~~pursue. Even after having given such input, applicable regulatory authorities may subsequently require additional clinical studies prior to granting regulatory approval based on new data generated by us or other companies, or for other reasons outside of our control. As a condition to any regulatory approval, we may also be subject to post-marketing development commitments, including additional clinical trial requirements. As a result of the uncertainties discussed above, we are unable to determine the duration of, or ~~complete~~total costs associated with the development of cabozantinib or any of our other research and development projects.

~~In any event, our~~Our potential therapeutic products are subject to a lengthy and uncertain regulatory process that may not result in our receipt of the necessary regulatory approvals. Failure to receive the necessary regulatory approvals would prevent us from commercializing the product candidates affected, including cabozantinib in any additional indications. In addition, clinical trials of our potential product candidates may fail to demonstrate safety and efficacy, which could prevent or significantly delay regulatory approval. A discussion of the risks 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 “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Selling, General and Administrative Expenses

~~Total selling,~~Selling, general and administrative expenses were as follows (dollars in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Selling, general and administrative expenses $ 38,129
$ 32,463
$ 113,116
$ 103,143
Dollar change $ 5,666
$ 9,973

Percentage change 17 % 10 %


	Three Months Ended June 30,				Percent Change		Six Months Ended June 30,				Percent Change
	2021		2020				2021		2020
Selling, general and administrative expenses	$	98,495	$	59,791	65	%	$	200,846	$	122,731	64	%

Selling, general and administrative expenses consist primarily of personnel expenses, ~~consulting and outside services,~~ stock-based compensation, marketing ~~legal and accounting costs, facility~~ costs and ~~travel and entertainment.~~certain other administrative costs.

The ~~increase~~increases in selling, general and administrative expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, as compared~~2021, relative to the ~~comparable~~corresponding prior year periods, ~~in 2016, was~~were primarily related to increases in personnel expenses, ~~consulting~~marketing costs, corporate giving and ~~outside services, and for the nine months ended September 30, 2017, legal and accounting costs; those increases were partially offset by a decrease in marketing costs.~~stock-based compensation expense. Personnel expenses increased ~~by $2.0 million and $11.8 million for the three and nine months ended September 30, 2017, respectively, as compared to the comparable periods in 2016,~~ primarily due to ~~an increase~~increases in ~~general and~~ administrative headcount to support our commercial and research and development ~~organizations, incentive compensation and the accrual for bonuses. Consulting and outside services~~organizations. Marketing costs increased ~~by $4.3~~

~~million and $6.0 million for the three and nine months ended September 30, 2017, respectively, as compared to the comparable periods in 2016,~~ primarily due to ~~increases~~increased marketing activities in ~~consulting for marketing activities. Legal~~support of the launch of the combination therapy of CABOMETYX and ~~accounting expenses increased by $3.8 million~~OPDIVO for the ~~nine months ended September 30, 2017 as compared to~~treatment of advanced RCC following approval by the ~~comparable period~~FDA in ~~2016,~~January 2021. The increase in stock-based compensation expense was primarily due to ~~increases~~the PSUs granted in ~~costs related~~2019 that became probable of achievement in the second half of 2020 and the first half of 2021.

We project our selling, general and administrative expenses may continue to ~~our dispute with Genentech. Marketing costs decreased by $3.3 million and $14.6 million~~increase for the ~~three~~remainder of 2021 relative to 2020 in support of our continued commercial investment in CABOMETYX and ~~nine months ended September 30, 2017, respectively, as compared to~~ the ~~comparable periods~~growth in ~~2016, primarily due to a decrease in losses recognized under our collaboration agreement with Genentech driven by Genentech’s change in cost allocation approach in December 2016.~~the broader organization.

~~Other~~

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Non-operating Income ~~(Expense), Net~~

~~Other~~Non-operating income ~~(expense), net,~~ was as follows (dollars in thousands):


	Three Months Ended June 30,				Percent Change		Six Months Ended June 30,				Percent Change
	2021		2020				2021		2020
Interest income	$	1,891	$	5,162	-63	%	$	4,573	$	12,382	-63	%
Other income (expense), net	(11)		—		n/a		(101)		6		n/a
Non-operating income	$	1,880	$	5,162	-64	%	$	4,472	$	12,388	-64	%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Interest income and other, net $ 3,408
$ 3,059
$ 6,098
$ 4,010
Interest expense —
(7,834 ) (8,679 ) (28,575 )
Loss on extinguishment of debt —
(13,773 ) (6,239 ) (13,773 )
Total other income (expense), net $ 3,408
$ (18,548 ) $ (8,820 ) $ (38,338 )
Dollar change $ 21,956
$ 29,518

Percentage change (118 )% (77 )%

~~Interest expense decreased by $7.8 million and $19.9 million~~The decreases in non-operating income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively, as compared~~2021, relative to the ~~comparable~~corresponding prior year periods, were primarily the result of the decreases in ~~2016,~~interest income due to lower interest rates.

Provision for Income Taxes

The provision for income taxes and effective income tax rates were as follows (dollars in thousands):


	Three Months Ended June 30,						Percent Change		Six Months Ended June 30,						Percent Change
	2021			2020					2021			2020
Provision for income taxes	$	28,796		$	13,875		108	%	$	25,180		$	25,298		0	%
Effective tax rate	23.1		%	17.2		%			20.5		%	18.0		%

The increase in the provision for income taxes for the three months endedJune 30, 2021, relative to the corresponding prior year period, was primarily due to ~~conversions and~~an increase in pre-tax income. The provision for income taxes for the redemption of the 4.25% convertible senior subordinated notes due 2019, or the 2019 Notes, during the third and fourth quarters of 2016, the repayment of the Silicon Valley Bank term loan in March 2017 and the repayment of the Secured Convertible Notes due 2018, or the Deerfield Notes, in June 2017.

~~During the nine~~six months ended ~~September~~June 30, ~~2017, we recognized a $6.2 million loss on extinguishment of debt resulting primarily from~~2021 was flat, relative to the prepayment penalty associated with the early the repayment of the Deerfield Notes. During the three and nine months ended September 30, 2016, we recognized a $13.8 million loss on extinguishment of debt associated with the conversion of $285.3 million in aggregate principal amount of the 2019 Notes for 53,704,911 shares of our Common Stock. See “Note 6 - Debt” in our “Notes to Condensed Consolidated Financial Statements” for more information on the repayment of our debt during 2017.

corresponding prior year period. The ~~increase in interest income and other, net~~effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, as compared to~~2021 and 2020 differed from the ~~comparable periods in 2016, was~~U.S. federal statutory rate of 21% primarily related to increases in interest income. Interest income increased by $0.4 million and $1.8 million for the three and nine months ended September 30, 2017, respectively, as compared to the comparable periods in 2016, due to both an increase in our investment balances and an increase in the yield earned on those investments. Interest income and other, net also included the recognition of a $2.3 million and $3.0 million gain during the three and nine months ended September 30, 2017, respectively,excess tax benefits related to the ~~sale~~exercise of ~~our 9% interest in Akarna Therapeutics, Ltd. to Allergan Holdco UK Limited in August 2016. We acquired our interest in Akarna in 2015, in exchange for intellectual property rights related to~~certain stock options during the ~~Exelixis discovered compound XL335.~~periods and the generation of federal tax credits, partially offset by state taxes.

~~Income Tax Expense~~

~~Income tax expense was as follows (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Income tax expense $ 3,206
$ —
$ 3,921
$ —

Income tax expense for the three and nine months ended September 30, 2017 primarily relates to state taxes in jurisdictions outside of California, for which we do not have net operating loss carry-forwards due to a limited operating history. Our historical losses are sufficient to fully offset any federal taxable income.

Liquidity and Capital Resources

~~We have incurred net losses~~As of June 30, 2021, we had $1.7 billion in ~~every fiscal year since our inception, with the exception of the 2011 fiscal year,~~cash, cash equivalents, restricted cash equivalents and investments, compared to $1.5 billion as of September 30, 2017, we had an accumulated deficit of $1.9 billion. Although we reported net income of $115.7 million for the nine months ended September 30, 2017, we may not be able to maintain or increase profitability on a quarterly or annual basis and we are unable to accurately predict the extent of long-range future profits or losses. We expect to continue to spend significant additional amounts to fund the continued development and commercialization of cabozantinib. In addition, we intend to expand our product pipeline through the measured resumption of drug discovery and the evaluation of in-licensing and acquisition opportunities that align with our oncology drug expertise, which efforts could involve substantial costs. As a result, we are unable to predict the extent of any future profits or losses because we expect to continue to incur substantial operating expenses and, consequently, we will need to generate substantial revenues to maintain or increase profitability.

Since the launch of our first commercial product in January 2013, through September 30, 2017, we have generated an aggregate of $463.0 million in net product revenues, including $253.3 million for the nine months ended September 30, 2017. 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 U.S. (which may be impacted by our ability to obtain FDA approval for cabozantinib for additional indications); achievement of clinical, regulatory and commercial milestones and the amount of royalties, if any, from sales of CABOMETYX and COMETRIQ under the Ipsen Collaboration Agreement; 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.

~~As of September 30, 2017, we had $422.3 million in cash and investments, which included $417.6 million available for operations and $4.7 million of long-term restricted investments.~~December 31, 2020. We anticipate that the aggregate of our current cash and cash equivalents, ~~and~~ short-term investments available for operations, net product revenues and collaboration revenues will enable us to maintain our operations for a period of at least 12 months following the filing date of this report. The sufficiency of our cash resources depends on numerous assumptions, including assumptions related to product sales and operating expenses, 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 II, Item 1A of this Quarterly Report on Form 10-Q. Our assumptions may prove to be wrong or other factors may adversely affect our business, and as a result

We project we may ~~not~~continue to spend significant amounts of cash to fund the continued development and commercialization of cabozantinib. In addition, we intend to continue to expand our oncology product pipeline through our drug discovery efforts, including additional research collaborations, in-licensing arrangements and other business development activities that align with our oncology drug development, regulatory and commercial expertise. Financing these activities could materially impact our liquidity and capital resources and may require us to incur debt or raise additional funds through the issuance of equity. Furthermore, even though we believe we have ~~the cash resources to fund~~sufficient funds for our current and future operating ~~plans. This in turn could require us to raise additional funds, which~~plans, we may ~~be unable~~choose to ~~do, which could have a material adverse effect on our business. We may also choose to~~incur debt or raise additional funds through the issuance of equity due to market conditions or ~~debt~~strategic considerations.

Letters of Credit

We have obtained standby letters of credit related to ~~meet~~ our ~~business objectives.~~lease obligations and certain other obligations with combined credit limits of $46.8 million and $1.6 million as of June 30, 2021 and December 31, 2020, respectively.

In January 2021, we entered into a standby letter of credit as guarantee of our obligation to fund our portion of the tenant improvements related to our build-to-suit lease at our corporate campus. The letter of credit is secured by our short-term investments, which are recorded as restricted cash equivalents and presented in other long-term assets in our Condensed Consolidated Balance Sheets and will be reduced as we fund our portion of the tenant improvements. As of June 30, 2021, restricted cash equivalents included $45.3 million of short-term investments as collateral under our standby letter of credit for our portion of the tenant improvements.

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Sources and Uses of Cash

~~The following table summarizes our cash~~Cash flow activities were as follows (in thousands):

Nine Months Ended September 30,
2017 2016
Net cash provided by operating activities:
Net income (loss) $ 115,738
$ (105,345 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities 9,017
45,945
Changes in operating assets and liabilities (12,497 ) 184,695
Net cash provided by operating activities 112,258
125,295
Net cash provided by (used in) investing activities 54,628
(155,638 )
Net cash used in financing activities (169,215 ) (72 )
Net decrease in cash and cash equivalents (2,329 ) (30,415 )
Cash and cash equivalents at beginning of period 151,686
141,634
Cash and cash equivalents at end of period $ 149,357
$ 111,219


	Six Months Ended June 30,
	2021		2020
Net cash provided by operating activities	$	221,045	$	157,751
Net cash (used in) provided by investing activities	$	(8,590)	$	105,894
Net cash provided by (used in) financing activities	$	6,074	$	(3,003)

Operating Activities

Cash flows provided by operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities. Cash provided by operating activities is derived by adjusting our net income ~~(loss)~~ for: non-cash operating items such as deferred taxes, stock-based compensation, depreciation, ~~and amortization,~~ non-cash ~~interest~~lease expense ~~and share-based compensation charges;~~ and changes in operating assets and liabilities which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our Condensed Consolidated ~~Results~~Statements of ~~Operations. Our operating activities provided cash of~~ ~~$112.3 million~~ ~~for the~~ ~~nine months ended~~ ~~September 30, 2017, as compared to~~ ~~$125.3 million~~ ~~for the same period in 2016. The decrease in cash~~Income.

Cash provided by operating activities ~~was~~for the six months ended June 30, 2021 increased relative to the corresponding prior year period, primarily due to ~~the upfront nonrefundable payment~~an increase in cash received on sales of ~~$200.0 million~~our products, an increase in cash received from ~~Ipsen~~our commercial collaboration arrangements, and net favorable changes in ~~the nine months ended September 30, 2016 in consideration for the exclusive license~~operating assets and ~~other rights contained in our collaboration and license agreement with Ipsen along with increasing operating expenses. That decrease was~~liabilities, partially offset by ~~a $169.8 million~~an increase in ~~net product revenues and the upfront nonrefundable payment of $50.0 million received from Takeda in the nine months ended September 30, 2017 in consideration~~cash paid for ~~the exclusive license and other rights contained in the Takeda Collaboration Agreement.~~operating expenses.

Investing Activities

~~Our~~Cash used in investing activities ~~provided cash of~~ ~~$54.6 million~~for the ~~nine~~six months ended ~~September~~ June 30, ~~2017, as compared to~~ ~~$155.6 million~~2021 consisted of cash used ~~during the same period~~ in ~~2016.~~investment purchases of $688.9 million and purchases of property, equipment and other of $33.8 million, partially offset by maturities and sales of investments of $714.1 million.

Cash provided by investing activities for the ~~nine~~six months ended~~September~~ June 30, ~~2017~~ ~~was primarily due to~~2020 consisted of cash provided by the ~~maturity~~maturities and sales of investments of ~~$277.0~~$549.0 million, ~~and the sale of investments of $37.3 million, less~~partially offset by cash used ~~for~~in investment purchases of ~~$259.2 million.~~

~~Cash used by investing activities for the nine months ended September 30, 2016 was primarily due to investment~~$433.2 million and purchases of ~~$262.7 million, less cash from the maturity~~property and equipment and other of ~~unrestricted and restricted investments of $103.3~~$9.9 million.

Financing Activities

Cash ~~used in financing activities was $169.2 million for the~~ ~~nine months ended~~ ~~September 30, 2017, as compared to $0.1 million during the same period in 2016.~~

~~Cash used in~~provided by financing activities for the ~~nine~~six months ended ~~September~~ June 30, ~~2017 was primarily a result~~2021 consisted of ~~$185.8~~$15.5 million ~~paid for all amounts outstanding under the Deerfield Notes and our term loan with Silicon Valley Bank.~~

~~Cash used~~ in ~~financing activities for the~~ ~~nine months ended~~ ~~September 30, 2016 was primarily a result of payments on conversion of convertible notes and employees’ tax withholding paid to taxing authorities~~proceeds from ~~shares withheld on stock awards which was almost completely offset by~~ the issuance of common stock under our equity incentive ~~plans.~~and stock purchase plans, partially offset by $9.4 million of withholding taxes paid related to net share settlements of equity awards.

Cash used in financing activities for the six months ended June 30, 2020 included $20.9 million of withholding taxes paid related to net share settlements of equity awards, partially offset by $17.9 million in proceeds from the issuance of common stock under our equity incentive and stock purchase plans.

Contractual Obligations

~~As of~~ ~~September 30, 2017, we have contractual obligations in the form of capital and operating leases, purchase obligations and other long-term liabilities.~~

On June 28, 2017, we repaid all amounts outstanding under the Deerfield Notes. On March 29, 2017, we repaid all amounts outstanding under our term loan with Silicon Valley Bank. See “Note 6 - Debt” in the accompanying Notes to the Condensed Consolidated Financial Statements for more information on the Deerfield Notes and our loan and security agreement with Silicon Valley Bank.

On May 2, 2017, we entered into a Lease Agreement, or the Lease, with Ascentris 105, LLC, or Ascentris, for an aggregate of 110,783 square feet of space in office and research facilities located at 1851, 1801 and 1751 Harbor Bay Parkway, Alameda, California. We are obligated to make lease payments totaling $24.1 million over the Lease term. The Lease further provides that we are obligated to pay to Ascentris certain costs, including taxes and operating expenses. See “Note 12. Commitments” in the accompanying Notes to the Condensed Consolidated Financial Statements for a description of the Lease.

There were no ~~other~~ material changes outside of the ordinary course of business in our contractual obligations as of June 30, 2021 from those ~~as of~~disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2020.

Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2017~~,2021, we did not have any material off-balance-sheet arrangements, as defined by applicable SEC regulations.

Critical Accounting Policies and Estimates

The preparation of our Condensed Consolidated Financial Statements conforms to accounting principles generally accepted in the U.S. which requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, ~~revenue~~equity, revenues 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

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accounting estimates that are reasonably likely to occur periodically, could materially impact our Condensed Consolidated Financial Statements. On an ongoing basis, management evaluates its estimates including, but not limited ~~to,~~to: those related to revenue recognition, including ~~deductions from revenues (such~~determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price of performance obligations, and variable consideration such as rebates, chargebacks, sales returns and sales ~~allowances), the period of performance, identification of deliverables and evaluation of~~allowances as well as milestones ~~with respect to our collaborations,~~included in collaboration arrangements; the amounts of revenues and expenses under our profit and loss sharing ~~agreement,~~agreement; recoverability of ~~inventory,~~inventory; the accrual for certain ~~accrued~~ liabilities including accrued clinical trial ~~liability,~~liabilities; and valuations of equity awards used to determine stock-based ~~compensation.~~compensation, including certain awards with vesting subject to market or performance conditions; and the amounts of deferred tax assets and liabilities including the related valuation allowance. 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.

We believe our critical accounting policies relating to revenue recognition, inventory, clinical trial accruals, ~~inventory~~stock-based compensation and ~~share based compensation~~income taxes reflect the ~~more~~most significant estimates and assumptions used in the preparation of our Condensed Consolidated Financial Statements.

There have been no significant changes in our critical accounting policies and estimates during the ~~nine~~six months ended~~September~~ June 30, ~~2017~~,2021, as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~ ~~filed with~~2020 submitted to the SEC on February ~~27, 2017.~~10, 2021.

Recent Accounting Pronouncements

For a description of the expected impact of recent accounting pronouncements, see “Note ~~1 -~~1. Organization and Summary of Significant Accounting Policies” in the “Notes to Condensed Consolidated Financial Statements” ~~included~~contained in Part I, Item 1 of this Quarterly Report on Form 10-Q and “Note 1 - Organization and Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” included in our Annual Report on Form 10-K filed with the SEC on February 27, 2017.10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risks at ~~September~~as of June 30, ~~2017~~2021 have not changed significantly from those ~~discussed~~described in Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2016, filed with the SEC on~~ ~~February 27, 2017~~.2020.

~~Our exposure to market risk for changes in interest rates relates to our investment portfolio, and for prior periods, our debt. As of~~ ~~September 30, 2017~~, an increase 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 $(1.5) million as compared to a net positive change in the fair value of ~~$0.3 million~~ ~~as of~~ ~~December 31, 2016~~.

~~In addition, we have exposure to fluctuations in certain foreign currencies in countries in which we conduct clinical trials. As of~~ ~~September 30, 2017, and~~ ~~December 31, 2016~~, approximately $1.7 million and $2.2 million, respectively, of our accrued clinical trial liability 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 as of either of the dates presented. We recorded losses of $0.2 million relating to foreign exchange fluctuations for both the nine months ended ~~September 30, 2017~~ ~~and~~ ~~2016~~.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act) required by Rules 13a-15(b) or 15d-15(b) of the Exchange Act, our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

Limitations on the effectiveness of controls. A control system, no matter how ~~well conceived~~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.

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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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In September 2019, we received a notice letter regarding an ANDA submitted to the FDA by MSN, requesting approval to market a generic version of CABOMETYX tablets. MSN’s initial notice letter included a Paragraph IV certification with respect to our U.S. Patent Nos. 8,877,776, 9,724,342, 10,034,873 and 10,039,757, which are listed in the Orange Book. MSN’s initial notice letter did not provide a Paragraph IV certification against U.S. Patent No. 7,579,473, the composition of matter patent, or U.S. Patent No. 8,497,284, a method of use patent. On ~~June 3, 2016,~~October 29, 2019, we filed a ~~Demand~~complaint in the United States District Court for ~~Arbitration before JAMS in San Francisco, California~~the District of Delaware (the Delaware District Court) for patent infringement against MSN asserting ~~claims against Genentech (a member~~U.S. Patent No. 8,877,776 arising from MSN’s ANDA filing with the FDA. On November 20, 2019, MSN filed its response to the complaint, alleging that U.S. Patent No. 8,877,776 is invalid and not infringed. On May 5, 2020, we received notice from MSN that it had amended its ANDA to assert additional Paragraph IV certifications. The ANDA now requests approval to market a generic version of CABOMETYX tablets prior to expiration of the ~~Roche Group) related to its clinical development, pricing~~two previously unasserted CABOMETYX patents: U.S. Patent No. 7,579,473 and ~~commercialization of COTELLIC,~~U.S. Patent No. 8,497,284. On May 11, 2020, we filed a complaint in the Delaware District Court for patent infringement against MSN asserting U.S. Patent No. 7,579,473 and ~~cost and revenue allocations~~U.S. Patent No. 8,497,284 arising from ~~COTELLIC’s commercialization~~MSN’s amended ANDA filing with the FDA. Neither of our complaints alleges infringement of U.S. Patent Nos. 9,724,342, 10,034,873 and 10,039,757. On May 22, 2020, MSN filed its response to the complaint, alleging that each of U.S. Patent No. 7,579,473 and U.S. Patent No. 8,497,284 is invalid and not infringed. On March 23, 2021, MSN filed its First Amended Answer and Counterclaims (amending its prior filing from May 22, 2020), seeking, among other things, a declaratory judgment that U.S. Patent No. 9,809,549 is invalid and would not be infringed by MSN if its generic version of CABOMETYX tablets were approved by the FDA. On April 7, 2021, we filed our response to MSN’s First Amended Answer and Counterclaims, denying, among other things, that U.S. Patent No. 9,809,549 is invalid or would not be infringed. In our complaints, we are seeking, among other relief, an order that the effective date of any FDA approval of MSN’s ANDA would be a date no earlier than the expiration of all of U.S. Patent No. 7,579,473, U.S. Patent No. 8,497,284 and U.S. Patent No. 8,877,776, the latest of which expires on October 8, 2030, and equitable relief enjoining MSN from infringing these patents. These lawsuits against MSN have been consolidated, and a bench trial has been scheduled for May 2022.

In May 2021, we received notice letters from Teva regarding an ANDA Teva submitted to the FDA, requesting approval to market a generic version of CABOMETYX tablets. Teva’s notice letters included a Paragraph IV certification with respect to our U.S. Patent Nos. 9,724,342 (formulations), 10,034,873 (methods of treatment) and 10,039,757 (methods of treatment), which are listed in the Orange Book and expire in 2033, 2031 and 2031, respectively. Teva’s notice letters did not provide a Paragraph IV certification against any additional CABOMETYX patents. On June 17, 2021, we filed a complaint in the Delaware District Court for patent infringement against Teva, along with Teva Pharmaceutical Industries Limited, asserting U.S. ~~Our arbitration demand asserted that Genentech breached the parties’ December 2006 collaboration agreement for the development~~Patent Nos. 9,724,324 (formulations), 10,034,873 (methods of treatment) and ~~commercialization~~10,039,757 (methods of ~~COTELLIC, by, amongst other breaches, failing to meet its diligence and good faith obligations.~~

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, however, Genentech withdrew its counterclaim against us and stated that it would unilaterally change its approach to the allocation of promotional expensestreatment) arising from ~~commercialization~~Teva’s ANDA filing with the FDA. We are seeking, among other relief, an order that the effective date of any FDA approval of Teva’s ANDA would be a date no earlier than the COTELLIC plus Zelboraf® combination therapy, both retrospectively and prospectively. The revised allocation approach substantially reduced our exposure to costs associated with promotion of the COTELLIC plus Zelboraf combination in the U.S.

~~On June 8, 2017, the parties settled the arbitration, which was dismissed with prejudice. The settlement was memorialized in a settlement agreement dated July 19, 2017, that included a mutual release~~expiration of all ~~claims arising out~~ of ~~or related in any way to~~U.S. Patent Nos. 9,724,342, 10,034,873 and 10,039,757, the ~~causes~~latest of actions and/or claims that were asserted or could have been asserted based on the facts alleged in the arbitration. The settlement does not provide for payments in settlement of the asserted claims; as part of the settlement,which expires on July ~~19, 2017, the parties entered into an amendment to the Genentech Collaboration Agreement. Pursuant to the terms of the amendment, we continue to be entitled to a share of U.S. profits~~9, 2033, and losses received in connection with the commercialization of COTELLIC in accordance with the profit share tiers as originally set forth in the collaboration agreement, which share continues to decrease as sales of COTELLIC increase. However, effective as of July 1, 2017, the revenue for each sale of COTELLIC applied to the profit equitable relief enjoining Teva and loss statement for the collaboration agreement, or the Collaboration P&L, is being calculated using the average of the quarterly net selling prices of COTELLIC and any additional branded Genentech product(s) prescribed with COTELLIC in such sale. While we also continue to share U.S. commercialization costs for COTELLIC, the amendment expressly sets forth that the amount of commercialization costs Genentech is entitled to allocate to the Collaboration P&L is to be reduced based on the number of Genentech products in any given combination including COTELLIC. In addition, the amendment also sets forth the parties’ confirmation and agreement that we have exercised our co-promotion option and that, as such, we have the option to co-promote current and future Genentech combinations that include COTELLIC in the U.S.Teva Pharmaceutical Industries Limited from infringing these patents.

We may also from time to time become a party or subject to various other legal proceedings ~~arising~~and claims, either asserted or unasserted, which arise in the ordinary course of business. Some of these proceedings have involved, and may involve in the future, claims that are subject to substantial uncertainties and unascertainable damages.

Item 1A. Risk Factors

In addition to the ~~factors~~risks discussed elsewhere in this report, ~~and our other reports filed with the SEC,~~ the following are important factors that make an investment in our securities speculative or risky, and 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 ~~occurs,~~occur, our business and the value of your investment in our company could be harmed.

~~We have marked with an asterisk (*) those risk factors below that reflect substantive changes in risks facing us from the risk factors included in~~Risk Factor Summary

•Our ability to grow our ~~Annual Report on Form 10-K for the fiscal year ended December 30, 2016 filed with the Securities and Exchange Commission on February 27, 2017.~~

~~Risks Related to Our Business and Industry~~

~~Our future prospects are~~company is critically dependent upon the commercial success of CABOMETYX ~~for advanced RCC~~in its approved indications and the further clinical development, regulatory approval and commercial success of the cabozantinib franchise in additional indications.

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•If we are unable to obtain or maintain coverage and reimbursement for our products from third-party payers, our business will suffer.

•Pricing for pharmaceutical products in the U.S. has come under increasing attention and scrutiny by federal and state governments, legislative bodies and enforcement agencies. This may result in actions that have the effect of reducing our revenue or harming our business or reputation.

•Lengthy regulatory pricing and reimbursement procedures and cost control initiatives imposed by governments outside the U.S. could delay the marketing of and/or result in downward pressure on the price of our approved products, resulting in a decrease in revenue.

•Legislation and regulatory action designed to reduce barriers to the development, approval and adoption of generic drugs in the U.S., and the entrance of generic competitors, could limit the revenue we derive from our products, which could have a material adverse impact on our business, financial condition and results of operations.

•We are subject to healthcare laws, regulations and enforcement, as well as laws and regulations relating to privacy, data collection and processing of personal data; our failure to comply with those laws could have a material adverse impact on our business, financial condition and results of operations.

•Clinical testing of cabozantinib for new indications, or of new product candidates, is a lengthy, costly, complex and uncertain process that may fail ultimately to demonstrate safety and efficacy data for those products sufficiently differentiated to compete in our highly competitive market environment.

•The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy and uncertain and may not result in regulatory approvals for additional cabozantinib indications or our other product candidates, which could have a material adverse impact on our business, financial condition and results of operations.

•We may be unable to expand our development pipeline, which could limit our growth and revenue potential.

•Our profitability could be negatively impacted if expenses associated with our extensive clinical development, business development and commercialization activities, both for the cabozantinib franchise and our earlier-stage product candidates, grow more quickly than the revenues we generate.

•Our clinical, regulatory and commercial collaborations with major companies make us reliant on those companies for their continued performance and investments, which subjects us to a number of risks. For example, we rely on Ipsen and Takeda for the commercial success of CABOMETYX in its approved indications outside of the U.S., and are unable to control the amount or timing of resources expended by these collaboration partners in the commercialization of CABOMETYX in its approved indications outside of the U.S. In addition, our growth potential is dependent in part upon companies with which we have entered into research collaborations, in-licensing arrangements and similar business development relationships.

•Data breaches, cyber-attacks and other failures in our information technology operations and infrastructure could compromise our intellectual property or other sensitive information, damage our operations and cause significant harm to our business and reputation.

•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.

•If the COVID-19 pandemic is further prolonged or becomes more severe, our business operations and corresponding financial results could suffer, which could have a material adverse impact on our financial condition and prospects for growth.

•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.

Risks Related to the Commercialization of Our Products

Our ability to grow our company is critically dependent upon the commercial success of CABOMETYX in its approved indications and the further clinical development, regulatory approval and commercial success of the cabozantinib franchise in additional indications.

Our mission is to maximize the clinical and commercial potential of cabozantinib and cobimetinib and position Exelixis for future growth through the resumption of our discovery efforts and expansion of our development pipeline. We anticipate that for the foreseeable future, our ability to ~~generate meaningful revenue~~maintain or meaningfully increase cash flow to fund our ~~commercial~~business operations and ~~our development and discovery programs~~growth will ~~be dependent~~depend upon the ~~successful commercialization~~continued commercial success of CABOMETYX, both alone and in combination with other therapies, as a treatment for the ~~treatment of advanced RCC in territories where~~highly competitive indications for which it is approved, and possibly for other indications for which cabozantinib has been or ~~may soon be approved. The commercial potential~~is currently being evaluated in potentially label-enabling clinical trials, if warranted by the data generated from these trials. In this regard, part of our strategy is to pursue additional

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~~CABOMETYX~~indications for the ~~treatment~~cabozantinib franchise to increase the number 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 revenuecancer patients who could benefit from ~~CABOMETYX decreases,~~this medicine. However, 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 the Ipsen Collaboration Agreement, we rely heavily upon Ipsen’s regulatory, commercial, medical affairs, and other expertise and resources for commercialization of CABOMETYX in territories outside of the U.S. 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 Ipsen Collaboration Agreement, 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 dedicating substantial proprietary resources to developing cabozantinib into a potentially broad and significant oncology franchise. Even following the approval of CABOMETYX for the treatment of advanced RCC in the U.S. 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 previously untreated advanced RCC, advanced HCC, non-small cell lung cancer, and other forms of cancer. We cannot be certain ~~that~~ that the clinical trials we and our collaboration partners are currently conducting, or may conduct in the future, will demonstrate adequate safety and efficacy in ~~clinical testing~~these additional indications to receive regulatory ~~approval. Should~~approval in the major commercial markets where CABOMETYX is approved. Even if we ~~prove unsuccessful~~and our collaboration partners receive the required regulatory approvals to market cabozantinib for additional indications, we and our collaboration partners may not be able to commercialize CABOMETYX effectively and successfully in ~~advancing~~these additional indications. If revenue from CABOMETYX decreases or remains flat, or if we are unable to expand the ~~further clinical development~~labeled indications in major commercial markets where CABOMETYX is approved, or if we or our collaboration partners fail to achieve anticipated product royalties and ~~commercialization~~collaboration milestones, whether as a result of ~~cabozantinib beyond MTC~~the COVID-19 pandemic or ~~advanced RCC,~~otherwise, we may ~~be unable~~need to ~~execute~~reduce our operating expenses, access other sources of cash or otherwise modify our business ~~plan and~~plans, which could have a material adverse impact on our ~~revenues and~~business, financial condition ~~would be materially adversely affected.~~and results of operations.

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 provide Genentech with exclusive authority over the global development and commercialization plans for cobimetinib and the execution of those plans. We have limited effective influence over those plans and are heavily dependent on Genentech’s decision making. Any significant changes to Genentech’s business strategy and priorities, over which we have no control, could adversely affect Genentech’s willingness orOur 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, regulatory and commercial strategy and execution, and we are not able to control the amount or timinggrow revenues from sales 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.

~~The commercial success of cabozantinib, as~~ CABOMETYX ~~tablets for advanced RCC and as COMETRIQ capsules for MTC, and if approved for additional indications,~~ will depend upon the degree of market acceptance among physicians, patients, ~~health care~~healthcare payers, and the medical community.

Our ability to ~~successfully commercialize cabozantinib, as~~increase or maintain revenues from sales of CABOMETYX ~~tablets~~ for ~~advanced RCC and COMETRIQ capsules for MTC~~its approved indications is, and if approved for additional indications will be, highly dependent upon the extent ~~to which cabozantinib gains~~of market acceptance of CABOMETYX among physicians, patients, ~~health care~~government healthcare payers such as Medicare and Medicaid, ~~and~~ commercial healthcare plans and the medical community. ~~If cabozantinib does not achieve an adequate level of~~Market acceptance ~~we may not generate significant future product revenues. The degree of market acceptance~~for CABOMETYX could depend on numerous factors, including the effectiveness and safety profile, or the perceived effectiveness and safety profile, of CABOMETYX ~~and COMETRIQ will depend upon a number of factors, including:~~

~~the effectiveness, or perceived effectiveness, of cabozantinib in comparison~~compared 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;~~

products, the strength of CABOMETYX sales and marketing efforts ~~marketing, medical affairs~~ and ~~distribution support;~~changes in pricing and reimbursement for CABOMETYX. If CABOMETYX does not continue to be prescribed broadly for the treatment of its approved RCC and HCC indications, our product revenues could flatten or decrease, which could have a material adverse impact on our business, financial condition and results of operations.

Our competitors may develop products, combination therapies and technologies that impair the ~~sufficiency~~relative value of our marketed products and any future product candidates.

The biotechnology, biopharmaceutical and pharmaceutical industries are competitive and are characterized by constant technological change and diverse offerings of products, particularly in the area of novel oncology therapies. Many of our competitors have greater capital resources, larger research and development staff and facilities, deeper regulatory expertise and more extensive product manufacturing and commercial capabilities than we do, which may afford them a competitive advantage. Further, our competitors may be more effective at in-licensing and developing new commercial products that could render our products, and those of our collaboration partners, obsolete and noncompetitive. We face, and will continue to face, intense competition from biotechnology, biopharmaceutical and pharmaceutical companies, as well as academic research institutions, clinical reference laboratories and government ~~insurance coverage~~agencies that are pursuing scientific and ~~reimbursement;~~clinical research activities similar to ours.

Furthermore, the specific indications for which CABOMETYX is currently or may be approved, based on the results from clinical trials currently evaluating cabozantinib, are highly competitive. Several novel therapies and

combinations of therapies have been approved, are in advanced stages of clinical development or are under expedited regulatory review in these indications, and these other therapies are currently competing or are expected to compete with CABOMETYX. Given the shifting landscape of therapeutic strategy following the advent of ICIs, we believe our future success will depend upon our ability to ~~enforce~~achieve positive clinical trial results for therapies combining cabozantinib with ICIs across multiple indications, and if approved, successfully commercialize such combination therapies. While we have had success in adapting our ~~intellectual property rights~~development strategy for the cabozantinib franchise to address the expanding role of therapies that combine ICIs with ~~respect~~other targeted agents, including the FDA approval of CABOMETYX in combination with OPDIVO as a first-line treatment of patients with advanced RCC, it is uncertain whether current and future clinical trials, including those evaluating cabozantinib in combination with an ICI in HCC, NSCLC and mCRPC, will lead to ~~cabozantinib.~~regulatory approvals, or whether physicians will prescribe regimens containing cabozantinib instead of competing product combinations. Moreover, the complexities of such a development strategy have required and are likely to continue to require collaboration with some of our competitors.

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If we are unable to maintain or ~~scale adequate~~increase our sales, marketing, market access and product distribution capabilities ~~or enter into or maintain agreements with third parties to do so,~~for our products, we may be unable to maximize product revenues, ~~and~~which could have a material adverse impact on our business, financial condition and results of operations and prospects may be adversely affected.*operations.

Maintaining our sales, marketing, market access ~~medical affairs~~ and product distribution capabilities requires significant ~~resources. If we cannot maintain~~resources, and there are numerous risks involved with maintaining and continuously improving such a commercial organization, including our potential inability to successfully recruit, train, retain and incentivize adequate numbers of qualified and effective sales and marketing ~~market access, medical affairs~~personnel. We are competing for talent with numerous commercial- and ~~product distribution capabilities,~~precommercial-stage, oncology-focused biotechnology companies seeking to build out and maintain their commercial organizations, as well as other large pharmaceutical and biotechnology organizations that have extensive, well-funded and more experienced sales and marketing operations, and we may be unable to ~~maximize the~~maintain or adequately scale our commercial ~~potential~~organization as a result of ~~cabozantinib in its approved indications.~~such competition. Also, to the extent that the commercial opportunities for ~~cabozantinib~~CABOMETYX grow over time, we may not properly ~~judge~~scale the ~~requisite~~ size and experience of ~~the~~our commercialization teams ~~or the scale of distribution necessary~~ to market and sell ~~cabozantinib successfully.~~CABOMETYX successfully in an expanded number of indications. If we are unable to maintain or scale our ~~organization~~commercial function appropriately, or should we have to revert back to primarily telephonic and virtual interactions in lieu of in-person meetings with healthcare professionals for an extended period of time as a result of the COVID-19 pandemic, we may not be able to maximize product revenues, ~~and our business, financial condition, results of operations and prospects may be adversely affected.~~

We currently rely on third-party providers to handle storage and distribution 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 U.S., we still rely on a relatively limited distribution network to dispense COMETRIQ in fulfillment of prescriptions in the U.S. Furthermore, we rely on our collaboration partners for the commercialization and distribution of CABOMETYX and COMETRIQ in territories outside of the U.S., as well as for access and distribution activities for the approved products under the Named Patient Use program or a similar program with the effect of introducing earlier patient access to COMETRIQ and CABOMETYX.

Our current and anticipated future dependence upon the activities, support, and legal and regulatory compliance, of third parties, may adversely affect our ability to supply cabozantinib to the marketplace on a timely and competitive basis. These third parties may not provide services in the time required 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. If we are unable to contract for these third-party services related to the distribution of cabozantinib on acceptable terms, our commercialization efforts and those of our collaboration partners may be delayed or otherwise adversely affected, which could have a material adverse impact on our business, financial condition and results of ~~operations and prospects.~~

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. Should our compliance controls prove ineffective at preventing or mitigating the risk and impact of improper conduct, 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 Federal Food, Drug, and Cosmetic Act, or 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, as well as certain state and municipal government price reporting laws that require us to provide justifications where drug prices exceed a certain price increase threshold (and 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);

federal and state financial transparency laws, which generally require certain types of expenditures in the U.S. to be tracked and reported (and 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);

proposals by state legislatures and regulators to impose caps on the amount that pharmaceutical manufacturers may compensate healthcare providers for certain services (which could potentially restrict, or increase enforcement scrutiny with respect to, certain of our activities); and

federal and state healthcare fraud and abuse laws, FDA rules and regulations, as well as false claims laws, including the civil False Claims Act, which govern certain marketing practices, including off-label promotion.

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, regulatory penalties, the curtailment or restructuring of our operations, exclusion from participation in Medicare, Medicaid and other federal and state healthcare programs, reputational harm, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement, any of which would adversely affect our ability to sell our products and operate our business and also adversely affect our financial results. Of particular concern are suits filed under the civil False Claims Act, known as “~~qui tam~~” actions, which can be brought by any individual on behalf of the government. Such individuals, commonly known as “whistleblowers,” may potentially then share in 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 civil False Claims Act actions. 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. 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.

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 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. 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. Other countries also have, or are developing, laws governing the collection, use and transmission of personal information. For example, the EU Data Privacy Directive (95/46/EC), which will be replaced on May 28, 2018 by the more restrictive General Data Protection Regulation (Regulation (EU) 2016/679) and the 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 U.S. Failure to provide adequate privacy protections and maintain compliance with the new EU-U.S. Privacy Shield framework, which will replace the previous safe harbor mechanisms, could jeopardize business transactions across borders and result in significant penalties, These laws could create liability for us or increase our cost of doing business.operations.

If we are unable to obtain ~~both adequate~~or maintain coverage and ~~adequate~~ reimbursement for our products from third-party payers, ~~for CABOMETYX or COMETRIQ,~~ our ~~revenues and prospects for profitability~~business will suffer.

Our ability to commercialize ~~CABOMETYX or COMETRIQ~~our products successfully is highly dependent on the extent to which health insurance coverage and reimbursement is, and will be, available from third-party payers, including governmental payers, such as Medicare and Medicaid, and private health insurers. Third-party payers continue to scrutinize and manage access to pharmaceutical products and services and may limit reimbursement for newly approved products and indications. Patients ~~may~~are generally 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. Accordingly, market acceptance of CABOMETYX and COMETRIQ is dependent on the extent to which coverage and reimbursement is available from third-party payers. These entities could refuse, limit or condition coverage for our products, such as by using tiered reimbursement or pressing for new forms of contracting. If third-party payers do not provide coverage or reimbursement for CABOMETYX or COMETRIQ, our revenues and ~~prospects for profitability~~results of operations 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, which often varies based on the type of contract or plan purchased, may not be sufficient for patients to afford cabozantinib. There has been negative publicity regarding, and increasing legislative and enforcement interest in the U.S. 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 under the respective national health system. In these countries, price negotiations with governmental authorities or payers 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 study that seeks to establish the cost effectiveness of CABOMETYX compared with other available established therapies to support health technology appraisal. The conduct of such a study could be expensive and result in delays in the commercialization of CABOMETYX. Third-party payers are challenging the prices charged for medicinal 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 license revenues to us.~~

Current healthcare laws and regulations in the U.S. and future legislative or regulatory reforms to the U.S. healthcare system may affect our ability to ~~sell CABOMETYX~~commercialize our marketed products profitably.

Federal and COMETRIQ profitably.*

~~The~~state governments in the U.S. ~~and some foreign jurisdictions~~ are considering ~~or have enacted a number of~~ legislative and regulatory proposals to change the U.S. healthcare system in ways that could affect our ability to ~~sell~~continue to commercialize CABOMETYX and COMETRIQ profitably. ~~Among~~Similarly, among policy makers and payers, ~~in the U.S. and elsewhere,~~ there is significant interest in promoting such changes ~~in healthcare systems~~ with the stated goals of containing healthcare costs, improving quality ~~and/or~~and expanding patient access. InThe life sciences industry and specifically the ~~U.S.,~~market for the ~~pharmaceutical industry~~sale, insurance coverage and distribution of pharmaceuticals has been a particular focus of these efforts and ~~has been~~would likely be significantly affected by any major legislative or regulatory initiatives.

~~Since its enactment, there have been judicial and Congressional challenges~~For instance, efforts to ~~numerous~~repeal, substantially modify or invalidate some or all of the provisions of the Patient Protection and Affordable Care Act of 2010, as ~~well as recent~~amended (PPACA), some of which have been successful, create considerable uncertainties for all businesses involved in healthcare, including our own. Although such efforts byhave not significantly impacted our business to date, it is possible that the ~~Trump administration~~PPACA will be subject to ~~repeal~~judicial or ~~replace certain aspects~~legislative challenges in the future, which may have a material adverse impact on our business, financial condition and results of operations, and we cannot predict how future healthcare reform measures of the Biden administration and federal or state legislative or administrative changes relating to healthcare reform will affect our business.

In addition, there are pending federal and state-level legislative proposals that would significantly expand government-provided health insurance coverage, ranging from establishing a single-payer, national health insurance system to more limited “buy-in” options to existing public health insurance programs, each of which could have a significant impact on the healthcare industry. It is also possible that additional governmental actions will be taken in response to the ongoing

~~Affordable Care Act. Since January 2017, President Trump~~

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COVID-19 pandemic, and that such actions would have a significant impact on these public health insurance programs. While we cannot predict how future legislation (or enacted legislation that has ~~signed two Executive Orders designed~~yet to ~~delay~~be implemented) will affect our business, such proposals could have the potential to impact access to and sales of our products. Furthermore, the expansion of the 340B Drug Discount Program through the PPACA has increased the number of purchasers who are eligible for significant discounts on branded drugs, including our marketed products. Because we participate in the 340B Drug Discount Program to sell a portion of our marketed products, changes in the administration of the program could have a material adverse impact on our revenues, including the implementation of ~~any certain provisions of~~ the ~~Affordable Care Act or otherwise circumvent some of the requirements~~program’s Administrative Dispute Resolution Process, which is in part intended to resolve claims by covered entities that manufacturers have overcharged them for health insurance mandated by the Affordable Care Act. The Trump administration has also announced that it will discontinue the payment of cost-sharing reduction (CSR) payments to insurance companies until Congress approves the appropriation of funds for the CSR payments. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the Affordable Care Act. A bipartisan bill to appropriate funds for CSR payments has been introduced in the Senate, but the future of that bill is uncertain. Further, each chamber of Congress has put forth multiple bills this year designed to repeal or repeal and replace portions of the Affordable Care Act. Although none of these measures has been enacted by Congress to date, Congress may consider other legislation to repeal and replace elements of the Affordable Care Act. Moreover, certain politicians, including the President, have announced plans to regulate the prices of pharmaceutical products. Congress has also signaled an intent to address pharmaceutical pricing, with Senate hearings to examine the cost of prescription drugs held on June 13 and October 17, 2017. Federal legislators have proposed legislation that would require pharmaceutical manufacturers to report price increases and provide a public justification for increases that exceed given benchmarks and authorize the U.S. Department of Health and Human Services to negotiate the price of Part D prescription drugs. Other proposals would allow drug importation from Canada and potentially other countries. We cannot know what form any such measures may take or the market’s perception of how such proposals and provisions 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.

In August 2017, President Trump signed the FDA Reauthorization Act of 2017, which will reauthorize the FDA user fee programs for prescription drugs, generic drugs, medical devices, and biosimilars, under which manufacturers of such products partially pay for the FDA’s pre-market review of their product candidates. The legislation includes, ~~inter alia,~~ measures to expedite the development and approval of generic products, where generic competition is lacking even in the absence of exclusivities or listed patents. The FDA has also released a Drug Competition Action Plan, which proposes actions to broaden access to generic drugs and lower consumers’ health care costs by, among other things, improving the efficiency of the generic drug approval process and supporting the development of complex generic drugs. We cannot predict what form such regulatory actions may take and how they could affect us.

As a result of the overall trend towards cost-effectiveness criteria and managed healthcare in the U.S., third-party payers are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new drugs. These entities could refuse or limit coverage for CABOMETYX and COMETRIQ, such as by using tiered reimbursement, which would adversely affect demand for CABOMETYX and COMETRIQ. They may also refuse to provide coverage for uses of CABOMETYX and COMETRIQ for medical indications other than those for which the FDA has granted market approval. As a result, significant uncertainty exists as to whether and how much third-party payers will cover newly approved drugs, which in turn will put pressure on the pricing ofcovered outpatient drugs. Due to ~~the volatility~~general uncertainty in the current ~~economic~~regulatory and ~~market dynamics,~~healthcare policy environment, and specifically regarding positions that the Biden Administration may take with respect to these issues, we are unable to predict the impact of any ~~unforeseen or unknown~~ legislative, regulatory, third-party payer or policy actions, ~~which may include~~including potential cost containment and healthcare reform measures. ~~Such policy actions could~~If enacted, we and any third parties we may engage may be unable to adapt to any changes implemented as a result of such measures, and we may have difficulties in sustaining profitability or otherwise experience a material adverse impact on our ~~revenues~~business, financial condition and ~~prospects for profitability.~~results of operations.

Pricing for pharmaceutical products in the U.S. has come under increasing attention and scrutiny by federal and state governments, legislative bodies and enforcement agencies. ~~These activities~~This may result in actions that have the effect of reducing our revenue or harming our business or reputation.*

~~Many companies~~There continue to be U.S. Congressional inquiries, hearings and proposed and enacted federal legislation and rules, as well as executive orders, designed to, among other things: reduce or limit the prices of drugs and make them more affordable for patients (including, for example, by tying the prices that Medicare reimburses for physician-administered drugs to the prices of drugs in ~~our industry have received a governmental request for documents~~other countries); reform the structure and ~~information relating~~financing of Medicare Part D pharmaceutical benefits, including through increasing manufacturer contributions to offset Medicare beneficiary costs; bring more transparency to drug pricing rationale and ~~patient support programs. We could receive~~methodologies; implement data collection and reporting under Section 204 of Title II of Division BB of the Consolidated Appropriations Act, 2021, which requires, among other things, health plans and issuers to disclose rebates, fees and other remuneration provided by drug manufacturers related to certain pharmaceutical products; enable the government to negotiate prices under Medicare; revise rules associated with the calculation of average manufacturer price and best price under Medicaid, which affect the amount of rebates that we pay on prescription drugs under Medicaid and to covered entities under the 340B Drug Discount Program; eliminate the Anti-Kickback Statute (AKS) discount safe harbor protection for manufacturer rebate arrangements with Medicare Part D plan sponsors; create new AKS safe harbors applicable to certain point-of-sale discounts to patients and fixed fee administrative fee payment arrangements with pharmacy benefit managers; and facilitate the importation of certain lower-cost drugs from other countries. While we cannot know the final form or timing of any such legislative, regulatory and/or administrative measures, some of the pending and enacted legislative proposals or executive rulemaking, such as those incorporating International Pricing Index or Most-Favored-Nation models, if implemented without successful legal challenges, would likely have a ~~similar request,~~significant and far-reaching impact on the biopharmaceutical industry and therefore also likely have a material adverse impact on our business, financial condition and results of operations.

At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including restrictions on pricing or reimbursement at the state government level, limitations on discounts to patients, marketing cost disclosure and transparency measures, and, in some cases, policies to encourage importation from other countries (subject to federal approval) and bulk purchasing, including the National Medicaid Pooling Initiative. In particular, the obligation to provide notices of price increases to purchasers under laws such as California’s SB-17 may influence customer ordering patterns for CABOMETYX and COMETRIQ, which ~~would require us~~in turn may increase the volatility of our revenues as a reflection of changes in inventory volumes. Furthermore, adoption of these drug pricing transparency regulations, and our associated compliance obligations, may increase our general and administrative costs and/or diminish our revenues. Implementation of these federal and/or state cost-containment measures or other healthcare reforms may limit our ability to ~~incur significant expense~~generate product revenue or commercialize our products, and in the case of drug pricing transparency regulations, may result in ~~distraction for~~fluctuations in our ~~management team. Additionally, to~~results of operations.

Lengthy regulatory pricing and reimbursement procedures and cost control initiatives imposed by governments outside the ~~extent there are findings,~~ U.S. could delay the marketing of and/or ~~even allegations, of improper conduct~~result in downward pressure on the ~~part~~price 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~~resulting in a decrease in revenue.

Outside the U.S., including major markets in the EU and Japan, the pricing and reimbursement of ~~approved products, including by federal health care programs~~prescription pharmaceuticals is generally subject to governmental control. In these countries, pricing and reimbursement negotiations with governmental authorities or payers can take six to 12 months or longer after the initial marketing authorization is

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granted for a product, or after the marketing authorization for a new indication is granted. This can substantially delay broad availability of the product. To obtain reimbursement and/or pricing approval in some countries, our collaboration partners Ipsen and Takeda may also be required to conduct a study or otherwise provide data that seeks to establish the cost effectiveness of CABOMETYX compared with other available established therapies. The conduct of such ~~as Medicare~~a study could also result in delays in the commercialization of CABOMETYX. Additionally, cost-control initiatives, increasingly based on affordability and ~~Medicaid and state health care programs.~~

In addition, the Trump Administration has indicated interest in taking measures pertaining to drug pricing, including potential proposals relating to Medicare price negotiations, importation of drugs from other countries and facilitating value-based arrangements between manufacturers and payers. 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.

State and local governments continue to consider prescription drug pricing transparency proposals. In October 2017, California Governor Jerry Brown signed legislation requiring pharmaceutical manufacturers to report certain price increases. We will review the specific provisions of this new law to assess how it will impact public perception or how it might otherwise affect us. Additionally, Ohio voters will consider a ballot initiative on November 7, 2017, which would require state agencies to pay no more for prescription drugs than the price paid by the U.S. Department of Veterans Affairs. We cannot predict the outcome of this ballot initiative, the market’s perception or the potential impact on us.

~~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,accessibility, as well as ~~academic research institutions, clinical reference laboratories~~post-marketing assessments of the added value of CABOMETYX as compared to existing treatments, could decrease the price we 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 inIpsen might establish for CABOMETYX, or 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 we are able to obtain reimbursement, which would result in lower license revenues to us. New legislative and policy initiatives in the EU aimed at increasing accessibility and affordability of medicinal products, and the increased cooperation between the EU Member States, may further impact the price and reimbursement status of CABOMETYX in the future.

Legislation and regulatory action designed to reduce barriers to the development, approval and adoption of generic drugs in the U.S., and the entrance of generic competitors, could limit the revenue we derive from our products, ~~are approved, most notably advanced RCC, and in additional indications where we may seek regulatory approval. Furthermore, the complexities of such~~which could have a ~~strategy has and may continue to 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,~~material adverse impact on our business, ~~will suffer.~~financial condition and results of operations.

Under the ~~FDCA,~~Federal Food, Drug, and Cosmetic Act (FDCA), the FDA can approve an ~~Abbreviated New Drug Application, or~~ 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 New Drug Application (NDA) under section 505(b)(2) ~~NDA~~of the FDCA that relies in part on the agency’s findings of safety and/or effectiveness for a previously approved ~~drug. The filing~~drug, where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use. Both the ANDA and 505(b)(2) NDA processes are discussed in more detail in “Item 1. Business—Government Regulation—FDA Review and Approval” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 submitted to the SEC on February 10, 2021. In either case, if an ANDA or 505(b)(2) NDA applicant submits an application referencing one of our marketed products prior to the expiry of one or more our Orange Book-listed patents for the applicable product, we may litigate with ~~respect~~the potential generic competitor to ~~cabozantinib~~protect our patent rights, which would result in substantial costs, divert the attention of management, and could have an adverse impact on our stock price. ~~Moreover, if any such~~For example, MSN and Teva have separately submitted ANDAs to the FDA requesting approval to market their respective generic versions of CABOMETYX tablets. For a more detailed discussion of these litigation matters, see “Legal Proceedings” in Part II, Item 1 of this Quarterly Report on Form 10-Q. It is possible that MSN, Teva or other companies, following FDA approval of an ANDA or 505(b)(2) ~~NDAs were to be approved and the~~NDA, could introduce generic or otherwise competitor versions of our marketed products before our patents ~~covering cabozantinib were~~expire if they do not ~~upheld in litigation,~~infringe our patents or if it is determined that our patents are invalid or unenforceable, and we expect that generic cabozantinib products would be offered at a significantly lower price compared to our marketed cabozantinib products. Therefore, regardless of the regulatory approach, the introduction of a generic ~~competitor is found not to infringe these patents,~~version of cabozantinib could significantly decrease our revenues derived from the ~~resulting generic competition would negatively affect~~U.S. sales of CABOMETYX and thereby materially harm our business, financial condition and results of operations.

The U.S. federal government has also taken numerous legislative and regulatory actions to expedite the development and approval of generic drugs and biosimilars. For instance, the FDA Reauthorization Act of 2017 includes, inter alia, measures to expedite the development and approval of generic products, where generic competition is lacking even in the absence of exclusivities or listed patents. In addition, the Ensuring Innovation Act, enacted on April 23, 2021, amended the FDA’s statutory authority for granting new chemical entity (NCE) exclusivity to reflect the agency’s existing regulations and longstanding interpretation that award NCE exclusivity based on a drug’s active moiety, as opposed to its active ingredient, which is intended to limit the applicability of NCE exclusivity, thereby potentially facilitating generic competition. The FDA has also released a Drug Competition Action Plan, which proposes actions to broaden access to generic drugs and lower consumers’ healthcare costs by, among other things, improving the efficiency of the generic drug approval process and supporting the development of complex generic drugs, and the FDA has taken and continues to take steps to implement this ~~regard,~~plan. Moreover, both Congress and the FDA are considering various legislative and regulatory proposals focused on drug competition, including legislation focused on drug patenting and provision of drug to generic applicants for testing. For example, the Further Consolidated Appropriations Act, 2020, which incorporated the framework from the Creating and Restoring Equal Access To Equivalent Samples (CREATES) legislation, was signed into law as part of the 2019 year-end federal spending package. The legislation purports to promote competition in the market for drugs and biological products by facilitating the timely entry of lower-cost generic and biosimilar versions of those drugs and biological products, including by allowing ANDA, 505(b)(2) NDA or biosimilar developers to obtain access to branded drug and biological product samples. While the full impact of these provisions is unclear at this time, its provisions do have the potential to facilitate the development and future approval of generic versions of our products, introducing generic competition that could have a material adverse impact on our business, financial condition and results of operations.

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Risks Related to Healthcare Regulatory and Other Legal Compliance Matters

We are subject to healthcare laws, regulations and enforcement; our failure to comply with those laws could have a material adverse impact on our business, financial condition and results of operations.

We are subject to federal and state healthcare laws and regulations, which laws and regulations are enforced by the federal government and the states in which we conduct our business. Should our compliance controls prove ineffective at preventing or mitigating the risk and impact of improper business conduct or inaccurate reporting, we could be subject to enforcement of the following, including, without limitation:

•the federal AKS;

•the FDCA and its implementing regulations;

•federal civil and criminal false claims laws, including the civil False Claims Act, and the Civil Monetary Penalties Law;

•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 (HIPAA) and its implementing regulations, as amended;

•state law equivalents of each of the above federal laws;

•the Open Payments program of the PPACA;

•state and local laws and regulations that require drug manufacturers to file reports relating to marketing activities, payments and other remuneration and items of value provided to healthcare professionals and entities; and

•state and federal pharmaceutical price and price reporting laws and regulations.

In addition, we may be subject to the Foreign Corrupt Practices Act, a U.S. law which ~~must~~regulates certain financial relationships with foreign government officials (which could include, for example, medical professionals employed by national healthcare programs) and its foreign equivalents, as well as federal and state consumer protection and unfair competition laws.

These federal and state healthcare laws and regulations govern drug marketing practices, including off-label promotion. If our operations are found, or even alleged, to be in violation of the laws described above or other governmental regulations that apply to us, we, or our officers or employees, may be subject to significant penalties, including administrative civil and criminal penalties, damages, fines, regulatory penalties, the curtailment or restructuring of our operations, exclusion from participation in Medicare, Medicaid and other federal and state healthcare programs, imprisonment, reputational harm, additional reporting requirements and oversight, any of which would adversely affect our ability to sell our products and operate our business and also adversely affect our financial results. Furthermore, responding to any such allegation and/or defending against any such enforcement actions can be time-consuming and would require significant financial and personnel resources. Therefore, if any state or the federal government initiates an enforcement action against us, our business may be impaired, and even if we are ultimately successful in our defense, litigating these actions could result in substantial costs and divert the attention of management.

Enhanced governmental and private scrutiny over, or investigations or litigation involving, pharmaceutical manufacturer patient assistance programs and donations to patient assistance foundations created by charitable organizations could negatively impact our business practices, harm our reputation, divert the attention of management and increase our expenses.

To help patients afford our products, we have a patient assistance program and also occasionally make donations to independent charitable foundations that help financially needy patients. These types of programs designed to assist patients with affording pharmaceuticals have become the subject of Congressional interest and enhanced government scrutiny. The U.S. Department of Health and Human Services Office of Inspector General established guidelines permitting pharmaceutical manufacturers to make donations to charitable organizations that provide co-pay assistance to Medicare patients, provided that manufacturers meet certain specified compliance requirements. In the ~~same quality standards as~~event we make such donations but are found not to have complied with these guidelines and other laws or regulations respecting the ~~branded drugs, would~~operation of these programs, we could be ~~significantly less costly than ours~~subject to ~~bring~~significant damages, fines, penalties or other criminal, civil or administrative sanctions or enforcement actions. We also rely on a third-party hub provider and exercise oversight to ~~market. Companies that produce generic equivalents~~monitor patient assistance program activities. Hub providers are generally ~~able~~hired by manufacturers to ~~offer~~assist patients with insurance coverage, financial assistance and treatment support after the patients receive a prescription from their ~~products at lower prices. Thus,~~healthcare

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professional. For manufacturers of specialty pharmaceuticals (including our marketed products), the ability to have a single point of contact for their therapies helps ensure efficient medication distribution to patients. Accordingly, our hub activities are also subject to scrutiny and may create risk for us if not conducted appropriately. A variety of entities, including independent charitable foundations and pharmaceutical manufacturers, but not including our company, have received subpoenas from the U.S. Department of Justice and other enforcement authorities seeking information related to their patient assistance programs and support. Should we or our hub providers receive a subpoena or other process, regardless of whether we are ultimately found to have complied with the regulations governing patient assistance programs, this type of government investigation could negatively impact our business practices, harm our reputation, divert the attention of management and increase our expenses.

We are subject to laws and regulations relating to privacy, data protection and the collection and processing of personal data. Failure to maintain compliance with these regulations could create additional liabilities for us.

The legislative and regulatory ~~approval pathway, after~~landscape for privacy and data protection continues to evolve in the ~~introduction~~U.S. and other jurisdictions around the world. For example, the California Consumer Privacy Act of 2018 (CCPA) went into operation in 2020 and affords California residents expanded privacy rights and protections, including civil penalties for violations and statutory damages under a ~~generic competitor,~~private right of action for data security breaches. These protections will be expanded by California Privacy Rights Act of 2020 (CPRA), which will be operational in most key respects on January 1, 2023. Similar legislative proposals have passed or are being advanced in other states and Congress is also considering federal privacy legislation. In addition, most healthcare professionals and facilities are subject to privacy and security requirements under HIPAA. Although we are not considered to be a ~~significant percentage~~covered entity or business associate under HIPAA, we could be subject to penalties if we use or disclose individually identifiable health information in a manner not authorized or permitted by HIPAA. Other countries also have, or are developing, laws governing the collection, use and transmission of personal information. For example, the EU General Data Protection Regulation 2016/679 (GDPR) regulates the processing of personal data of individuals within the EU, even if, under certain circumstances, that processing occurs outside the EU, and also places restrictions on transfers of such data to countries outside of the ~~sales~~EU, including the U.S. Should we fail to provide adequate privacy or data security protections or maintain compliance with these laws and regulations, including the CCPA, CPRA and GDPR, we could be subject to sanctions or other penalties, litigation or an increase in our cost of ~~any branded product are typically lost~~doing business.

Risks Related to ~~the generic product.~~Growth of Our Product Portfolio and Research and Development

Clinical testing of cabozantinib for new indications, or of new product candidates, is a lengthy, costly, complex and uncertain process ~~and~~that may fail ultimately to demonstrate safety and efficacy.*efficacy data for those products sufficiently differentiated to compete in our highly competitive market environment.

Clinical trials are inherently risky and may reveal that cabozantinib, despite its approval for certain indications, or a new product candidate, ~~even if it is approved for other indications,~~ is ineffective or has an unacceptable safety profile ~~that~~with respect to an intended use. Such results may significantly decrease the likelihood of regulatory approval inof that product for a ~~new~~particular 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 with cabozantinib as compared to mitoxantrone/prednisone. Based onMoreover, 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~~late-stage or other potentially label-enabling clinical trials may fail to confirm the results observed in ~~earlier-stage~~early-stage trials or preliminary studies. Although we have established timelines for manufacturing and clinical development of cabozantinib and our other 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,~~investigations, that could delay or prevent commercialization of cabozantinib (or of other product candidates) in new indications, and in some cases, as described in the risk factor titled, “If the COVID-19 pandemic is further prolonged or becomes more severe, our ~~product candidates, including:~~business operations and corresponding financial results could suffer, which could have a material adverse impact on our financial condition and prospects for growth,” the COVID-19 pandemic has already increased and may further increase the potential for such developments to occur. These may include:

•lack of acceptable efficacy or ~~harmful side effects;~~a tolerable safety profile;

•negative or inconclusive clinical trial results ~~may~~that require us to conduct further testing or to abandon ~~projects that we had expected to be promising;~~projects;

•discovery or commercialization by our competitors ~~may discover or commercialize~~of other compounds or therapies that show significantly improved safety or efficacy compared to cabozantinib or our other product candidates;

•our inability to identify and maintain a sufficient number of trial ~~sites, many of which may already be engaged in other clinical trial programs;~~sites;

•lower-than-anticipated patient registration or enrollment in our clinical ~~testing may be lower than we anticipate, resulting~~testing;

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•additional complexities posed by clinical trials evaluating cabozantinib or our other product candidates in combination with other therapies, including extended timelines to provide for collaboration on clinical development planning, the ~~delay or cancellation of clinical testing;~~

failure by our ~~collaborators~~collaboration partners to provide us with an adequate and timely supply ~~us on a timely basis~~of product that complies with the ~~product required~~applicable quality and regulatory requirements for a combination trial;

•failure of our third-party contract research ~~organization~~organizations or investigators to satisfy their contractual obligations, including deviating from any trial ~~protocol;~~protocols; and

•withholding of authorization from regulators or institutional review boards ~~may withhold authorization~~ to commence or conduct clinical trials ~~of a product candidate,~~ or ~~delay, suspend~~delays, suspensions or ~~terminate~~terminations of clinical research for various reasons, including noncompliance with regulatory requirements or ~~their~~a determination by these regulators and institutional review boards that participating patients are being exposed to unacceptable health risks.

If ~~we were to have significant~~there are further delays in or termination of ~~our~~the clinical testing of cabozantinib or our other product candidates ~~as a result of~~due to 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. Furthermore, we rely on our collaboration partners to fund a significant portion of our clinical development programs. Should one or all of our collaboration partners decline to support future planned clinical trials, we will be entirely responsible for financing the further development of the cabozantinib franchise or our other product candidates and, as a result, we may be unable to execute our current business plans, which could have a material adverse impact on our business, financial condition and results of operations.

We may not be able to ~~rapidly or effectively continue~~pursue the further development of the cabozantinib franchise or our other product candidates or meet current or future requirements of the FDA or regulatory authorities in other jurisdictions ~~including those identified based on~~in accordance with our ~~discussions with the FDA~~stated timelines or ~~such other regulatory authorities.~~at all. 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:

characteristics of the product candidate under investigation; 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;~~

follow-up; the number of clinical sites included in the trials; and

the length of time required to enroll ~~suitable patient subjects.~~eligible patients.

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 regulatory approvals for additional cabozantinib indications or our other product candidates, which could ~~adversely affect~~have a material adverse impact on our ~~business.~~business, financial condition and results of operations.

The activities associated with the research, development and commercialization of the cabozantinib franchise and our ~~products and~~other product candidates are subject to extensive regulation by the FDA and other regulatory agencies in the U.S. ~~and~~, as well as by comparable authorities in other ~~countries. We have only limited experience in preparing and filing the applications necessary to gain regulatory approvals.~~territories. The ~~process~~processes of obtaining regulatory approvals in the U.S. and other foreign jurisdictions is expensive and often takes many years, if approval is obtained at all, and they 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 a marketing authorization application to the ~~European Medicines Agency~~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 sNDA 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, we may encounter 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~~could cause delays in the approval or rejection of an application for cabozantinib or for our other product candidates.

Even if the FDA or a comparable authority in another jurisdiction approves cabozantinib for one or more new indications, ~~beyond advanced RCC and MTC, or one of our other product candidates, the~~such 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~~clinical trials, all of which may result in significant expense and ~~clinical trials.~~limit our and our collaboration partners’ ability to commercialize cabozantinib in one or more new indications. For example, subject to ongoing discussions

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with the FDA with respect to clinical data from COSMIC-021, we intend to submit an sNDA to the FDA seeking accelerated approval of cabozantinib in an mCRPC indication in 2021. We expect that as a condition of any potential accelerated approval, the FDA will require us to perform confirmatory post-marketing clinical trials to confirm the clinical benefit, if any, of cabozantinib in combination with Roche’s atezolizumab in patients with locally advanced or metastatic solid tumors, such as mCRPC. Failure to complete post-marketing requirements of the FDA in connection with ~~the FDA’s~~a specific 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~~ultimately restrict the commercialization of ~~cabozantinib. Further, these~~cabozantinib in that indication. Regulatory agencies ~~may~~could also impose various administrative, civil or criminal sanctions for failure to comply with regulatory requirements, including withdrawal of product approval. Further, current or any future laws or executive orders enacted or executed in response to the COVID-19 pandemic could have a material adverse impact on our business, financial condition, and results of operations.

We may be unable to expand our development pipeline, which could limit our growth and revenue potential.

~~We are committed to~~Our business is focused on the discovery, development and ~~promotion~~commercialization of new medicines ~~with the potential to improve care and outcomes~~ for ~~people with cancer.~~difficult-to-treat cancers. In this regard, we have ~~resumed internal~~invested in substantial technical, financial and human resources toward drug discovery ~~efforts~~activities 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~~Notwithstanding this investment, many programs that initially show promise ~~in identifying potential product candidates, yet~~will ultimately fail to yield product candidates for ~~clinical development for a number of reasons, including where the research methodology used may not be successful in identifying potential product candidates, or where potential~~multiple reasons. For example, product candidates may, on further study, be shown to have inadequate efficacy, harmful side effects, suboptimal pharmaceutical ~~profile~~profiles or other characteristics suggesting that they are unlikely to be ~~effective~~commercially viable products.

Apart from our ~~internal~~drug 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.~~candidates and technologies. However, the in-licensing and acquisition of product candidates and technologies is a highly competitive area, and many other companies are pursuing the same or similar product candidates and technologies to those that we may consider attractive. ~~Established~~In particular, larger companies ~~in particular, may have a competitive advantage over us due to their size, financial~~with more capital resources and more extensive clinical development and commercialization ~~capabilities.~~capabilities may have a competitive advantage over us. 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~~additional product ~~candidate~~candidates and technologies 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 and technologies, the competitive business environment may result in higher acquisition or licensing ~~costs.~~ costs, and our investment in these potential products and technologies will remain subject to the inherent risks associated with the development and commercialization of new medicines. In certain circumstances, we may also be reliant on the licensor for the continued development of the in-licensed technology and their efforts to safeguard their underlying intellectual property.

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 company, or retain key personnel of anthe acquired business. Furthermore, we could assume unknown or contingent liabilities or otherwise 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.~~financial condition and results of operations. If our drug discovery efforts, including research collaborations, in-licensing arrangements and other business development activities, do not result in suitable product candidates, our business and prospects for growth could suffer.

Risks Related to ~~Our~~Financial Matters and Capital Requirements

Our profitability could be negatively impacted if expenses associated with our extensive clinical development, business development and ~~Financial Results~~commercialization activities, both for the cabozantinib franchise and our earlier-stage product candidates, grow more quickly than the revenues we generate.

Although we reported net income of $96.1 million and $97.7 million for the three and six months ended June 30, 2021 and $111.8 million for the year ended December 31, 2020, we may not be able to maintain or increase profitability on a quarterly or annual basis, and we are unable to predict the extent of future profits or losses. The amount of our net profits or losses will depend, in part, on: the level of sales of CABOMETYX and COMETRIQ in the U.S.; our achievement of clinical, regulatory and commercial milestones, if any, under our collaboration agreements; the amount of royalties from sales of CABOMETYX and COMETRIQ outside of the U.S. under our collaboration agreements; other collaboration revenues; and the level of our expenses, including those associated with our extensive drug discovery, clinical development, business

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development and commercialization activities, both for the cabozantinib franchise and our earlier-stage product candidates. For example, we reported a net loss for the quarter ended September 30, 2020, primarily due to substantial increases in clinical trial costs, license and other collaboration costs, and personnel expenses relative to the prior fiscal quarters, and it is possible that we may experience net losses in future fiscal quarters or fiscal years, whether due to increases in costs and expenses or otherwise. We expect to continue to spend substantial amounts to fund the continued development of the cabozantinib franchise for additional indications and the commercialization of our approved products. In addition, we intend to continue to expand our oncology product pipeline through our drug discovery efforts, including research collaborations, in-licensing arrangements and other business development activities that align with our oncology drug development, regulatory and commercial expertise, which efforts could involve substantial costs. To offset these costs in the future, we will need to generate substantial revenues. If these costs exceed our current expectations, or we fail to achieve anticipated revenue targets, the market value of our common stock may decline.

If additional capital is not available to us when we need it, we may be ~~forced~~unable to ~~limit the expansion of~~expand our product development programs or commercialization efforts.*

~~As of September 30, 2017, we had $422.3 million in cash~~offerings and investments, which included $417.6 million available for operations and $4.7 million of long-term restricted investments. Our business operations grew substantially during 2016 and experienced further development during the nine months ended September 30, 2017. In order to maintain business growth and maximize the clinical and commercial opportunities for cabozantinib and cobimetinib, we plan to continue to execute on the U.S. commercialization plans for CABOMETYX, while reinvesting in our product pipeline through the continued development of cabozantinib, research and development activities, 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 the Ipsen Collaboration Agreement;~~

the commercial success of COTELLIC and the revenues generated through 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 potential regulatory approval of cabozantinib as a treatment for patients with previously untreated advanced RCC, and in other indications, both in the U.S. and abroad;~~

~~our ability to timely prepare and submit an sNDA for cabozantinib as a treatment for patients with advanced HCC;~~

~~future clinical trial results;~~

~~our future investments in the expansion of our pipeline through drug discovery and corporate development activities;~~

~~our ability to control costs;~~

~~the cost of clinical drug supply for our clinical trials;~~

~~trends and developments in the pricing of oncologic therapeutics in the U.S. 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.~~growth.

Our commitment of cash resources to CABOMETYX and the reinvestment in our product pipeline through the continued development of the cabozantinib ~~continued research~~franchise and ~~development~~increasing drug discovery activities, as well as through ~~in-licensing and acquisition efforts,~~the execution of business development transactions, could require us to obtain additional capital. We may seek such additional capital through some or all of the following methods: corporate ~~collaborations,~~collaborations; licensing ~~arrangements,~~arrangements; and public or private debt or equity financings. Our ability to obtain additional capital may depend on prevailing economic conditions and financial, business and other factors beyond our control. Disruptions in the U.S. and global financial markets, including disruptions that have resulted and may continue to result from the COVID-19 pandemic and the related volatility in the U.S. and global economy, as well as future potential U.S. federal government shutdowns, rising interest rate environments, inflation rates, increased or changed tariffs and trade restrictions or otherwise, may adversely impact the availability and cost of credit, as well as our ability to raise additional funds in the capital markets. Economic and capital markets conditions have been, and continue to be, volatile. Continued instability in these market conditions may limit our ability to access the capital necessary to fund and grow our business. In particular, our inability to access additional funds, whether due to the COVID-19 pandemic or otherwise, could in the future inhibit our ability to engage in larger-scale strategic transactions or investments. We do not know whether additional capital will be available when needed, or that, if available, we will obtain additional capital on terms favorable to us or our stockholders. If we are unable to raise additional funds when we need them, we may

be ~~required~~unable to ~~limit the expansion of~~expand our product ~~development programs or commercialization efforts,~~offerings and maintain business growth, which could have a material adverse ~~effect~~impact on our business, ~~and growth prospects.~~

We have a history of net losses and may incur net losses in the future, and may be unable to maintain profitability.*

We have incurred net losses in every fiscal year since our inception, with the exception of the 2011 fiscal year, and as of September 30, 2017, we had an accumulated deficit of $1.9 billion. Although we reported net income of $115.7 million for the nine months ended September 30, 2017, we may not be able to maintain or increase profitability on a quarterly or annual basis and we are unable to accurately predict the extent of long-range future profits or losses. We expect to continue to spend significant additional amounts to fund the continued development and commercialization of cabozantinib. In addition, we intend to expand our product pipeline through the measured resumption of drug discovery and the evaluation of in-licensing and acquisition opportunities that align with our oncology drug expertise, which efforts could involve substantial costs. As a result, we are unable to predict the extent of any future profits or losses because we expect to continue to incur substantial operating expenses and, consequently, we will need to generate substantial revenues to maintain or increase profitability.

Since the launch of our first commercial product in January 2013, through September 30, 2017, we have generated an aggregate of $463.0 million in net product revenues, including $253.3 million for the nine months ended September 30, 2017. 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 U.S.; achievement of clinical, regulatory and commercial milestones and the amount of royalties, if any, from sales of CABOMETYX and COMETRIQ under the Ipsen Collaboration Agreement; 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.

~~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 September 30, 2017, 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.~~

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. ASU 2014-09 will not have a material impact on the recognition of revenue from product sales. ASU 2014-09 will impact the timing of recognition of revenue for our Ipsen and Takeda collaboration arrangements. We expect to reclassify deferred revenue to accumulated deficit (a concept known as “lost revenue”) for amounts associated with these collaboration arrangements upon recording our transition adjustment in the first quarter of 2018, primarily due to the timing of recognition of revenue related to intellectual property licenses that we have transferred for development and commercialization of our products. Additionally, for all of our collaboration arrangements, the timing of recognition of certain of our development and regulatory milestones could change as a result of the variable consideration guidance included in ASU 2014-09. 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 rely on Ipsen and Takeda for the commercial success of CABOMETYX in its approved indications outside of the U.S., and are ~~dependent~~unable to control the amount or timing of resources expended by these collaboration partners in the commercialization of CABOMETYX in its approved indications outside of the U.S.

We rely upon the regulatory, commercial, medical affairs, market access and other expertise and resources of our collaboration partners, Ipsen and Takeda, for commercialization of CABOMETYX in their respective territories outside of the U.S. We cannot control the amount and timing of resources that our collaboration partners dedicate to the commercialization of CABOMETYX, or to its marketing and distribution, and our ability to generate revenues from the commercialization of CABOMETYX by our collaboration partners depends on their ability to obtain and maintain regulatory approvals for, achieve market acceptance of, and to otherwise effectively market, CABOMETYX in its approved indications in their respective territories. Further, the operations of our collaboration partners, and ultimately their sales of CABOMETYX in their respective territories outside of the U.S., could be adversely affected by the degree and effectiveness of their respective corporate responses to the COVID-19 pandemic, as well as by the imposition of governmental price or other controls, political and economic instability, trade restrictions or barriers and changes in tariffs, escalating global trade and political tensions, or other factors. If our collaboration partners are unable or unwilling to invest the resources necessary to commercialize CABOMETYX successfully in the EU, Japan and other international territories where it has been approved, this could reduce the amount of revenue we are due to receive under these collaboration agreements, thus resulting in harm to our business and operations.

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Our clinical, regulatory and commercial collaborations with major companies make us reliant on those companies for their continued performance and investments, which subjects us to a number of risks.*

We have established clinical and commercial collaborations with leading biotechnology, biopharmaceutical and pharmaceutical ~~and biotechnology~~ companies including, Ipsen, Takeda, Genentech, Daiichi Sankyo, Merck (known as MSD outside of the U.S. 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,~~our products, and our dependence on ~~future collaborators for development and commercialization of additional compounds will subject~~these collaboration partners subjects us to a number of risks, ~~including:~~including, but not limited to:

~~we are not able~~•our collaboration partners’ decision to terminate our collaboration, or their failure to comply with the terms of our collaboration agreements and related ancillary agreements, either intentionally or as a result of negligent performance;

•our inability to control the amount and timing of resources that our ~~collaborators or potential future collaborators will~~collaboration partners devote to the development or commercialization of ~~drug candidates or to their marketing and distribution;~~our products;

~~we are not able to control~~ •the ~~U.S. commercial resourcing decisions made and resulting costs incurred by Genentech for cobimetinib, which costs we are obligated to share, in part, under~~possibility that our collaboration ~~agreement with Genentech;~~

~~collaborators~~partners may stop or delay clinical trials, fail to supply us on a timely basis with ~~the~~ product required for a combination trial ~~provide insufficient funding for~~(including as a ~~clinical trial program, stop a clinical trial~~result of the COVID-19 pandemic), or ~~abandon a drug candidate, repeat or conduct new clinical trials or require a new formulation of a drug candidate for clinical testing;~~deliver product that fails to meet appropriate quality and regulatory standards;

•disputes that may arise between us and our ~~collaborators~~collaboration partners 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~~arbitration;

•the possibility that ~~diverts management’s attention and resources;~~

~~collaborators~~our collaboration partners may experience financial ~~difficulties;~~difficulties, including, without limitation, difficulties arising from the impact of the COVID-19 pandemic that prevent them from fulfilling their obligations under our agreements;

~~collaborators may not be successful in their efforts~~•our collaboration partners’ inability to obtain regulatory approvals in a timely manner, or at all;

~~collaborators may not~~•our collaboration partners’ failure to comply with legal and regulatory requirements relevant to the authorization, marketing, distribution and supply of our marketed products in the territories outside the U.S. where they are approved; and

•our collaboration partners’ failure to properly maintain or defend our intellectual property rights or ~~may~~their use of our intellectual property rights or proprietary information in such a way as to invite litigation that could jeopardize or invalidate our ~~proprietary information~~intellectual property rights 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;~~

~~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.~~litigation.

If any of these risks materialize, we may not receive collaboration ~~revenue~~revenues or otherwise realize anticipated benefits from such collaborations, and our product development efforts and prospects for growth could be delayed or disrupted, all of which could have a material adverse impact on our business, financial condition and results of operations.

Our growth potential is dependent in part upon companies with which we have entered into research collaborations, in-licensing arrangements and similar business development relationships.

To expand our early-stage product pipeline, we have augmented our drug discovery activities with multiple research collaborations and in-licensing arrangements with other companies. Our dependence on our relationships with these research and in-licensing partners subjects us to numerous risks, including, but not limited to:

•our research and in-licensing partners’ decision to terminate our relationship, or their failure to comply with the terms of our agreements, either intentionally or as a result of negligent performance;

•disputes that may arise between us and our ~~business, operating results~~research and in-licensing partners that result in the delay or termination of research activities with respect to any in-licensed assets or supporting technology platforms;

•the possibility that our research and in-licensing partners may experience financial difficulties, including, without limitation, difficulties arising from the impact of the COVID-19 pandemic, which prevent them from fulfilling their obligations under our agreements;

•our research and in-licensing partners’ failure to properly maintain or defend their intellectual property rights or their use of third-party intellectual property rights or proprietary information in such a way as to invite litigation that could jeopardize or invalidate our license to develop these assets or utilize technology platforms

•laws, regulations or practices imposed by countries outside the U.S. that could impact or inhibit scientific research or the development of healthcare products by foreign competitors or otherwise disadvantage healthcare products made by foreign competitors, as well as general political or economic instability in those countries, any of which could complicate, interfere with or impede our relationships with our ex-U.S. research, development and in-licensing partners; and

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•our research and in-licensing partners’ failure to comply with applicable healthcare laws, as well as established guidelines, laws and regulations related to Good Manufacturing Practice and Good Laboratory Practice.

If any of these risks materialize, we may not be able to expand our product pipeline or otherwise realize a return on the resources we will have invested to develop these early-stage assets, which could have a material adverse impact on our financial condition ~~could be adversely affected.~~and prospects for growth.

If third parties upon which we rely to perform clinical trials for cabozantinib in new indications or for new product candidates 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~~or other product candidates beyond ~~advanced RCC and MTC.~~currently approved indications.

We do not have the ability to conduct clinical trials for cabozantinib or for new potential product candidates independently, ~~including our post-marketing commitments in connection with the approval of 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 National Institutes of Health, 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, whether as a result of the COVID-19 pandemic or otherwise, or 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 trial or data security 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 beyond currently approved indications or obtain regulatory approval for ~~additional indications beyond~~our other product candidates. In addition, due to the ~~advanced RCC~~complexity of our research initiatives, we may be unable to engage with third-party contract research organizations that have the necessary experience and ~~MTC.~~sophistication to help advance our drug discovery efforts, which would impede our ability to identify, develop and commercialize our potential product candidates.

We lack ~~the~~our own manufacturing and distribution capabilities necessary for us to produce ~~cabozantinib~~materials required for certain preclinical activities and to produce and distribute our products for clinical development or for commercial sale, and ~~rely~~our reliance on third parties ~~to do so, which~~for these services subjects us to various risks.*

We do not own or operate manufacturing orfacilities, distribution facilities or resources for chemistry, manufacturing and control development activities, preclinical, clinical or commercial production and distribution ~~of CABOMETYX~~for our current products and ~~COMETRIQ.~~new product candidates. Instead, we ~~have multiple contractual agreements in place with~~rely on various third-party contract manufacturing organizations ~~who,~~to conduct these operations on our ~~behalf, manufacture clinical and commercial supplies of CABOMETYX and COMETRIQ, and will~~behalf. As our operations continue to ~~do so for the foreseeable future.~~grow in these areas, we continue to expand our supply chain through secondary third-party contract manufacturers, distributors and suppliers. To establish and manage ~~this~~our supply chain requires a significant financial commitment, the creation of numerous third-party contractual relationships and continued oversight of these third ~~parties.~~parties to fulfill compliance with applicable regulatory requirements. Although we maintain significant resources to directly and effectively oversee the activities and relationships with the companies in our supply chain, ~~effectively,~~ we do not have direct control over their operations.

Our third-party contract 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 preclinical, clinical development and commercial needs and applicable regulatory ~~requirements.~~requirements, including as a result of the COVID-19 pandemic. Although we have not yet experienced production delays or seen significant impairment to our supply chain as a result of the COVID-19 pandemic, our third-party contract manufacturers, distributors and suppliers could experience operational delays due to facility closures and other hardships as a result of the COVID-19 pandemic, which could impact our supply chain by potentially causing delays to or disruptions in the supply of our commercial or clinical products or product candidates. If our third-party contract manufacturers, distributors 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 if they otherwise fail or refuse to comply with their obligations to us under our ~~supply~~manufacturing, distribution and ~~manufacturing~~supply arrangements, we may not have adequate remedies for any ~~breach, and~~breach. Furthermore, their failure to supply us could impair or preclude ~~our ability to meet our~~meeting commercial or clinical product supply requirements ~~or our supply needs~~ for ~~clinical trials, including those being conducted in collaboration with~~us or our partners, which could delay product development and future commercialization efforts and have a material adverse impact on our business, financial condition and results of operations. In addition, through our third-party contract manufacturers and data service providers, we continue to provide serialized commercial products as required to comply with the Drug Supply Chain Security Act (DSCSA). If our third-party contract manufacturers or data service providers fail to support our efforts to continue to comply with DSCSA and any future federal or state electronic pedigree requirements, we may face legal penalties or be restricted from selling our products.

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If third-party scientific advisors and contractors we rely on to assist with our drug discovery efforts do not perform as expected, the expansion of our product pipeline may be delayed.

We work with scientific advisors at academic and other institutions, as well as third-party contractors in various locations throughout the world, that assist us in our research and development efforts, including in drug discovery and preclinical development strategy. These third parties are not our ~~business, operating results~~employees and ~~financial condition could~~may have other commitments or contractual obligations that limit their availability to us. Although these third-party scientific advisors and contractors 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. There has also been increased scrutiny surrounding the disclosures of payments made to medical researchers from companies in the pharmaceutical industry, and it is possible that the academic and other institutions that employ these medical researchers may prevent us from engaging them as scientific advisors and contractors or otherwise limit our access to these experts, or that the scientific advisors themselves may now be more reluctant to work with industry partners. Even if these scientific advisors and contractors with whom we have engaged intend to meet their contractual obligations, their ability to perform services may be impacted by external factors, as we experienced in the early stages of the COVID-19 pandemic. If we experience additional delays in the receipt of services, lose work performed by these scientific advisors and contractors or are unable to engage them in the first place, our discovery and development efforts with respect to the matters on which they were working or would work in the future may be significantly delayed or otherwise adversely affected. Additionally, as part of the Ipsen Collaboration Agreement, we are responsible for the manufacturing and supply of finished, labeled cabozantinib products. Failure to meet our supply obligations under the

~~collaboration could impair Ipsen’s ability to successfully commercialize cabozantinib and generate revenues to which we are entitled under the collaboration.~~

Risks Related to Our Information Technology and Intellectual Property

Data breaches, cyber-attacks and ~~cyber-attacks~~other failures in our information technology operations and infrastructure could compromise our intellectual property or other sensitive information, damage our operations and cause significant ~~damage~~harm to our business and reputation.

In the ordinary course of our business, we and our third-party service providers, such as contract research organizations, 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~~collaboration partners. We have also outsourced significant elements of our information technology infrastructure to third parties and, as a result, such 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~~reputation, and while we have ~~been increasingly subject~~enhanced and are continuing to ~~a wide variety~~enhance our cybersecurity efforts commensurate with the growth and complexity 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 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~~business, our systems and those of ~~our vendors~~third-party service providers may be ~~subject~~vulnerable to ~~unauthorized~~a cyber-attack. The level of vulnerabilities that exist under normal conditions may have been exacerbated by the fact that, during the COVID-19 pandemic, the portion of our workforce operating remotely has increased, at least temporarily, and some phishing attacks are specifically designed to target remote workers. In addition, we are heavily dependent on the functioning of our information technology infrastructure to carry out our business processes, such as external and internal communications or access ~~by hackers~~to clinical data and other key business information. Accordingly, both inadvertent disruptions to this infrastructure and cyber-attacks could cause us to incur significant remediation or ~~breached due~~litigation costs, result in product development delays, disrupt critical business operations, expend key information technology resources and divert the attention of management.

Although the aggregate impact of cyber-attacks on our operations and financial condition has not been material to ~~operator error, malfeasance or other system disruptions. It is often difficult~~date, we and our third-party service providers have frequently been the target of threats of this nature and expect them to ~~anticipate or immediately detect such incidents and the damage caused by such incidents. These~~continue. Any data ~~breaches and any~~breach and/or unauthorized access or disclosure of our information or intellectual property could compromise our intellectual property and expose our sensitive business ~~information.~~information or sensitive business information of our collaboration partners, which may lead to significant liability for us. A data security breach could also lead to public exposure of personal information of our clinical trial patients, ~~customers~~employees or others and ~~others. Cyber-attacks could cause~~result in harm to our reputation and business, compel us to ~~incur significant remediation costs,~~comply with federal and/or state breach notification laws and foreign law equivalents including the GDPR, subject us to investigations and mandatory corrective action, or otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information, which could disrupt our business, result in ~~product development delays, disrupt key business~~increased costs or loss of revenue, and/or result in significant financial exposure. Furthermore, the costs of maintaining or upgrading our cybersecurity systems (including the recruitment and retention of experienced information technology professionals, who are in high demand) at the level necessary to keep up with our expanding operations and ~~divert attention of management~~prevent against potential attacks are increasing, and ~~key information technology resources. Our~~despite our best efforts, our network security and data recovery measures and those of our ~~vendors~~third-party service providers may still not be adequate to protect against such security breaches and ~~disruptions. These incidents~~disruptions, which could ~~also subject us to liability, expose us to significant expense and~~ cause ~~significant~~material harm to our ~~reputation~~business, financial condition and ~~business.~~results of operations.

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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 lawful and 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,~~parties, and 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 U.S. and elsewhere. The costs of defending our patents or enforcing our proprietary rights in post-issuance administrative proceedings and litigation ~~may~~can be substantial and the outcome can be uncertain. An adverse outcome may allow third parties to use our intellectual property without a license and/or allow third parties to introduce generic and other competing products, any of which would negatively impact our business. Third parties may also attempt to invalidate or design around our patents, or assert that they are invalid or otherwise unenforceable, and seek to introduce generic versions of cabozantinib. For example, we received Paragraph IV certification notice letters from MSN and Teva concerning the respective ANDAs that each had filed with the FDA seeking approval to market their respective generic versions of CABOMETYX tablets. Should MSN, Teva or any other third parties receive FDA approval of an ANDA or a 505(b)(2) NDA with respect to cabozantinib, it is possible that such company or companies could introduce generic versions of our marketed products before our patents expire if they do not infringe our patents or if it is determined that our patents are invalid or unenforceable, and the resulting generic competition could have a material adverse impact on our business, financial condition and results of operations.

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. They may also be negatively impacted by the decisions of foreign courts, which could limit the protection contemplated by the original regulatory approval and our ability to thwart the development of 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 U.S., 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~~Initiatives seeking compulsory licensing of life-saving drugs isare also becoming increasingly ~~popular~~prevalent in developing countries either through direct legislation or international initiatives. ~~Such~~Governments in those developing countries could require that we grant compulsory licenses ~~could be extended~~ to ~~include~~allow competitors to manufacture and sell their own versions of our products or product candidates, ~~which could limit~~thereby reducing our ~~potential revenue opportunities.~~product sales. 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~~partners and consultants, we cannot ~~assure you~~provide assurance 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.

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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 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~~accomplish or could require substantial time and expense. ~~Third parties~~In addition, we may ~~accuse us~~be subject to claims that our employees or independent contractors have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of ~~employing~~ their ~~proprietary technology without authorization. In addition,~~former employers, or that they used or sought to use patent inventions belonging to their former employers. Furthermore, third parties may obtain patents that relate to our technologies and claim that use of such technologies infringes on their ~~patents.~~patents or otherwise employs their proprietary technology without authorization. Regardless of their merit, such claims could require us to incur substantial costs ~~including~~and divert the ~~diversion~~attention of management and key technical personnel in defending ourselves against any such claims or enforcing our own patents. In the event ~~that a~~of any third party’s successful claim of patent infringement ~~is brought against us,~~or misappropriation of trade secrets, we may lose valuable intellectual property rights or personnel, which could impede or prevent the achievement of our product development goals, or we may be required to pay damages and obtain one or more licenses from these third ~~parties.~~parties, subjecting us to substantial royalty payment obligations. We may not be able to obtain these licenses ~~at a~~on commercially reasonable ~~cost,~~terms, 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.

Risks Related to Our Operations, Managing Our Growth and Employee Matters

If the COVID-19 pandemic is further prolonged or becomes more severe, our business operations and corresponding financial results could suffer, which could have a material adverse impact on our financial condition and prospects for growth.

To date, the COVID-19 pandemic has had a modest impact on our business operations, in particular with respect to our clinical trial, drug discovery and commercial activities. For example, to varying degrees and at different rates across our clinical trials, we experienced declines in screening and enrollment activity during the early days of the COVID-19 pandemic, as well as delays in new site activations and restrictions on the access to treatment sites that is necessary to monitor clinical study progress and administration. As the COVID-19 pandemic continues to have a significant presence in various parts of the world, the impact on our clinical development operations could continue or grow more severe. We anticipate that a further prolonged, or more severe, global public health crisis could limit our ability to identify and work with clinical investigators at clinical trial sites globally to enroll, initiate and maintain treatment per protocol of patients for our ongoing clinical trials. Disruptions to medical and administrative operations at clinical trial sites and the implementation of crisis management initiatives have and may continue to reduce personnel and other resources necessary to conduct our clinical trials, which could delay our clinical trial plans or require certain trials to be temporarily suspended. Moreover, quarantines and travel restrictions have impeded and may continue to impede patient movement or interrupt healthcare services, which we anticipate over time, could also interfere with and potentially negatively impact clinical trial execution, and ultimately results. In addition, increased costs connected with our efforts to mitigate the adverse impacts resulting from the COVID-19 pandemic on our clinical trials could cause the expenses we incur in conducting those clinical trials to increase considerably. Specifically, with respect to our clinical trials evaluating cabozantinib in combination with therapies that must be administered via professional intravenous infusion, such as COSMIC-312, COSMIC-313, COSMIC-021, CONTACT-01, CONTACT-02, CONTACT-03, our early-stage trials evaluating XL092, XL102 and other product candidates to the extent they may incorporate additional therapies that must be administered via professional intravenous infusion, or our early-stage trial evaluating XB002 that must be administered via professional intravenous infusion, limited patient movement or interrupted healthcare services at medical institutions have delayed in some instances, and may continue to delay or prevent, on-site infusion of XB002 or therapies being evaluated in combination with cabozantinib or our other product candidates. If a sizable portion of patients in our combination studies are unable or unwilling to receive all components of the combination therapy being tested in accordance with the applicable clinical trial protocol, it could cause those studies to be delayed, suspended or prevented from producing statistically significant results.Depending upon the duration and severity of the COVID-19 pandemic, we could also experience delays in the commencement of new clinical trials of cabozantinib, or our earlier-stage investigative product candidates. The COVID-19 pandemic could also impede clinical operations and delay our planning and preparation timelines for new clinical trials, as well as adversely affect our ability to

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obtain regulatory approval for clinical protocols and increase the operating expenses associated with these new clinical trials.

In addition, the COVID-19 pandemic caused us to suspend drug discovery work in our laboratories temporarily while we observed the shelter in place orders issued by the State of California and Alameda County. We also experienced some modest delays with respect to the portion of drug discovery work outsourced to third-party contractors in regions first impacted by COVID-19. While both drug discovery work in our laboratories and outsourced drug discovery activities have since fully resumed, we may be ~~subject~~unable to ~~damages resulting~~maximize the potential of these programs due to the imposition of increased safety protocols, and should the COVID-19 pandemic grow in severity, we may have to again scale back or suspend activities in the future. We are also reliant on laboratory materials manufactured and distributed from ~~claims~~areas impacted by both the COVID-19 pandemic and other natural disasters, for which supply has become limited. If we are unable to obtain the requisite materials to conduct our planned drug discovery activities, we may be required to redirect the focus of, or even suspend, such activities. With respect to the preclinical development work and drug discovery activities outsourced to third-party contractors, the COVID-19 pandemic could again impede these third parties from providing timely deliverables to us in the future. Should the COVID-19 pandemic be further prolonged or grow in severity, we may ultimately be unable to achieve our drug discovery and preclinical development objectives within the previously disclosed timelines, which could have a material adverse impact on our prospects for growth.

While we believe that our commercial business has, to date, only experienced a modest impact related to the COVID-19 pandemic, it remains possible that over a longer period, changes to our standard sales and marketing practices, including any shifts from in-person back to primarily telephonic and virtual interactions with healthcare professionals, could negatively impact the flow of important information regarding our medicines, which along with obstacles to patient access to healthcare professionals, could diminish sales of our marketed products.

Although as of the date of this Quarterly Report on Form 10-Q, we continue to maintain substantial safety stock inventories for our ~~employees~~drug substance and drug products and have not experienced production delays or ~~independent contractors~~seen significant impairment to our supply chain as a result of the COVID-19 pandemic, our third-party contract manufacturers and suppliers could experience operational delays due to facility closures and other hardships as a result of the COVID-19 pandemic, which could impact our supply chain by potentially causing delays to or disruptions in the supply of our commercial or clinical products or product candidates. These delays or disruptions could be further exacerbated if the COVID-19 pandemic begins to impact essential distribution systems, which could substantially increase delivery times and costs, or otherwise adversely affect our ability to provide our products to customers and clinical trial sites and generate product revenues.

In response to the COVID-19 pandemic, we have ~~wrongfully used or disclosed alleged trade secrets~~taken numerous precautions, some temporary and others still in place, to help mitigate the risk of ~~their former employers.~~

~~Many~~transmission of the virus, including: initially reducing the number of our employees working on-site at our Alameda headquarters; maintaining enhanced safety and ~~independent contractors were previously employed at universities or other biotechnology, biopharmaceutical or pharmaceutical companies, including~~social distancing protocols for those employees who have returned to working on-site and initiating an on-site COVID-19 testing program; restricting non-essential business travel for our ~~competitors or~~employees; and partially limiting the circumstances under which our field employees may engage in in-person promotional activities with healthcare professionals. Over a longer period, these measures could delay our research and development programs, reduce engagements with 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 costsprescribers for our products, 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 preventimpede our ability to ~~commercialize certain~~execute on our long-term business plans. Further, extended periods of primarily remote work could impede the focused attention of management or reduce the productivity of teams that would otherwise be working closely together.

In addition, as a result of broad economic shifts during and as a consequence of efforts to address unemployment and other negative economic effects of the COVID-19 pandemic, we may experience reductions in the net price of our products. For example, there may be a substantial shift from private health insurance coverage to government insurance coverage, or additional downward pressure on the prices government purchasers will pay for our products due to significant increases in government debt incurred in connection with relief efforts, as well as significant increases in demand for our patient assistance and/or free drug program or other impacts that may not be foreseeable, all or any of which would adversely affect our product ~~candidates,~~revenues.

While we expect the COVID-19 pandemic to continue to have varying degrees of adverse impact on our business operations and, potentially in the future, our financial results, the extent of such adverse impact will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time. Such developments include continued spread of the Delta variant in the U.S. and other countries and the potential emergence of other SARS-CoV-2 variants that may prove especially contagious or virulent, the ultimate duration of the pandemic and resulting disruptions to normal business and personal activities in the U.S. and in other countries, and the effectiveness of actions taken globally to contain and treat the disease, including the rate at which vaccinations are made available, the percentage of the

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population that becomes vaccinated and the effectiveness of the vaccines against Delta or other SARS-CoV-2 variants. These continuing or future effects could ~~severely harm~~materially and adversely affect our ~~business.~~

~~Risks Related to Employees~~business, financial condition, results of operations and ~~Location~~growth prospects, and exacerbate the other risks and uncertainties described elsewhere in this ‘‘Risk Factors’’ section.

If we are unable to manage our growth, there could be a material adverse impact on our business, financial condition and results of operations, and our 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.~~operations, in particular as we continue to expand the cabozantinib franchise into new indications and grow our pipeline of product candidates. This growth places significant demands on our management ~~operational~~ and ~~financial~~ resources, and our current and planned personnel ~~systems, procedures~~ and ~~controls~~operating practices may not be adequate to support our growth. To effectively manage our growth, we must continue to improve existing, and implement new, facilities, operational and financial systems, and procedures and controls, ~~and must~~as well as 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~~plan 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, including as a result of the COVID-19 pandemic or otherwise, or we are unsuccessful in recruiting qualified management personnel, there could be a material adverse impact on our business, financial condition and results of ~~operations and prospects may be adversely affected.~~operations.

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.~~plans. Retaining and, where necessary, recruiting qualified clinical, commercial, scientific and ~~scientific~~pharmaceutical operations personnel will be critical to support activities related to advancing the development program for the cabozantinib franchise and our other ~~compounds,~~product candidates, successfully executing upon our commercialization plan for the cabozantinib franchise and our ~~internal~~ proprietary research and development efforts. Competition is intense for experienced clinical, commercial, scientific and ~~scientific~~pharmaceutical operations 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. Similarly, the COVID-19 pandemic could negatively impact the health of key personnel or make it difficult to recruit qualified personnel for critical positions. 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 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 the San Francisco Bay Area, 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.

We plan to move our headquarters and may face disruption and turnover of employees.*

In 2018, we plan to move our corporate headquarters from South San Francisco, California to Alameda, California. As a result, we expect to incur additional expenses, including those related to tenant improvements to and furniture for the new corporate headquarters, as well as moving and exit costs, and may encounter disruption of operations related to the move, all of which could have an adverse effect on our financial condition and results of operations. In addition, relocation of our corporate headquarters may make it more difficult to retain certain of our employees, and any resulting need to recruit and train new employees could be disruptive to our 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~~biological materials, and ~~biological materials. Our~~our operations can produce hazardous waste products. We cannot eliminate the risk of accidental contamination or discharge, ~~and~~or any resultant injury from these ~~materials. Federal, state~~materials, and ~~local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. We~~we may face liability under applicable laws for any injury or contamination that results from our use or the use by our collaboration partners or other third parties of these ~~materials, and such~~materials. Such liability may exceed our insurance coverage and our total ~~assets. Compliance~~assets, and in addition, we may be required to indemnify our collaboration partners against all damages and other liabilities arising out of our development activities or products produced in connection with our collaborations with them. Moreover, our continued 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~~collaboration partners 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.~~develop in the future. We ~~have obtained~~maintain 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.~~cabozantinib. 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,

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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.

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 sales, marketing, medical affairs and distribution capabilities for CABOMETYX, COMETRIQ and COTELLIC;~~

~~our ability to obtain regulatory approval for cabozantinib as a treatment for patients with previously untreated advanced RCC;~~

~~our ability to timely prepare and submit an sNDA for cabozantinib as a treatment for patients with advanced HCC;~~

~~the achievement of stated regulatory and commercial milestones, under our collaboration agreements;~~

~~the progress and scope of other development and commercialization activities for cabozantinib and our other compounds;~~

~~future clinical trial results;~~

~~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.

Our stock price has been and may in the future be ~~extremely~~highly volatile.*

The trading price of our common stock has been highly volatile, and ~~we believe the trading price of our common stock will~~it may remain highly volatile ~~and may~~or 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 or other regulatory approval or non-approval, or delays in the FDA or other regulatory review process ofwith respect to cabozantinib, our collaboration partners’ product candidates being developed in combination with cabozantinib, or our ~~collaborators’~~competitors’ product ~~candidates or those of our competitors or actions taken by regulatory agencies with respect to our, our collaborators’ or our competitors’ clinical trials;~~candidates;

•the commercial ~~success~~performance of both CABOMETYX and COMETRIQ and the revenues we generate from those approved ~~products;~~products, including royalties paid under our collaboration and license agreements;

•adverse or inconclusive results or announcements related to our or our collaboration partners’ clinical trials or delays in those clinical trials;

•the timing of achievement of our clinical, regulatory, partnering, commercial and other milestones ~~such as~~for the ~~commencement of clinical development, the completion of a clinical trial, the filing for regulatory approval or the establishment of collaborative arrangements for~~ cabozantinib franchise or any of our other programs or ~~compounds;~~product candidates;

•our ability to make future investments in the expansion of our pipeline through drug discovery, including future research collaborations, in-licensing arrangements and other business development activities;

•our ability to obtain the materials and services, including an adequate product supply for any approved drug product, from our third-party vendors or do so at acceptable prices;

•the timing and amount of expenses incurred for clinical development and manufacturing of cabozantinib;

•actions taken by regulatory agencies, both in the U.S. and abroad, with respect to cabozantinib or our clinical trials for cabozantinib;

•unanticipated regulatory actions taken by the FDA as a result of changing FDA standards and practices concerning the review of product candidates, including approvals at earlier stages of clinical development or with lesser developed data sets and expedited reviews;

•the announcement of new products or clinical trial data by our competitors;

•the announcement of regulatory applications, such as MSN’s and Teva’s respective ANDAs, seeking approval of generic versions of our marketed products;

•quarterly variations in our or our competitors’ results of operations;

~~developments~~•changes in our relationships with our ~~collaborators,~~collaboration partners, including the termination or modification of our ~~agreements;~~agreements, or other events or conflicts that may affect our collaboration partners’ timing and willingness to develop, or if approved, commercialize our products and product candidates out-licensed to them;

•the announcement of an in-licensed product candidate or strategic acquisition;

~~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;~~analysts, or financial guidance from our management team, and any failure to achieve the operating results projected by securities analysts or by our management team;

•the 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;

•additions and departures of key personnel or board members;

~~FDA or international regulatory actions;~~

~~third-party coverage and reimbursement policies;~~

•the 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.~~competitors, such as the impact of the COVID-19 pandemic on financial markets.

These and other factors ~~as well as general economic, political and market conditions, may materially adversely affect~~could have material adverse impact on 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

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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,~~or global political ~~regulatory~~ and economic conditions, ~~or in laws and~~including the effects of the COVID-19 pandemic, policies governing foreign trade and ~~health care~~healthcare spending and delivery, ~~including the~~or future potential repeal and/or replacement of all or portions of the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, or greater restrictions on free trade stemming from Trump Administration policies,U.S. federal government shutdowns, the financial markets could continue to experience significant volatility that could also continue to 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~~the attention ~~and resources,~~of management, which could have a material ~~and~~ adverse ~~effect~~impact on our ~~business.~~

~~Future sales~~business, financial condition and results of ~~our common stock 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 awards, upon a purchase under our employee stock purchase plan and upon exercise of certain outstanding warrants. The issuance and sale of substantial amounts of our common stock 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.operations.

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; and

~~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, other than the NOLs expected to be utilized to offset income in 2017, is conditioned upon our attaining profitability and generating U.S. federal taxable income. We have incurred significant cumulative operating losses since our inception; thus, we do not know whether or when we will generate the U.S. federal taxable income necessary to utilize our remaining NOLs. A full valuation allowance has been provided for the entire amount of our remaining NOLs.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On September 11, 2017, we issued an aggregate of 877,451 shares of common stock pursuant to the cashless exercises of warrants issued to an accredited investor transferee that were originally issued to Deerfield Partners, L.P. and Deerfield International Master Fund, L.P. in January 2014 in connection with a financing arrangement. The warrants were exercisable for an aggregate of 1,000,000 shares of common stock and had an exercise price of $3.445 per share. The number of shares issued upon exercise was net of 122,549 shares withheld to effect the cashless exercise of such warrants in accordance with their terms.Not applicable.

All of the shares of common stock identified above were issued pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended, or the Securities Act, afforded by Section 3(a)(9) of the Securities Act. We received no cash proceeds from such issuances of common stock.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. 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

Exhibit
Number
Exhibit Description Incorporation by Reference
Filed
Herewith
Form File Number
Exhibit/
Appendix
Reference
Filing Date
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 3.1 10/15/2014
3.5
Certificate of Change of Registered Agent and/or Registered Office of Exelixis, Inc.
8-K 000-30235 3.2 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
10.1*
Third Amendment dated July 19, 2017, to Collaboration Agreement between Exelixis, Inc. and Genentech dated December 22, 2006
10-Q 000-30235 10.5 8/2/2017
10.2**
Second Amendment dated September 14, 2017, to Collaboration and License Agreement by and between Exelixis, Inc. and Ipsen Pharma SAS
X
10.3
Exelixis, Inc. Non-Employee Director Equity Compensation Policy
X
10.4
Exelixis, Inc. Change in Control and Severance Benefit Plan, as amended and restated.
X
12.1
Statement Re Computation of Earnings to Fixed Charges
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 Rule 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 Document X
101.LAB XBRL Taxonomy Extension Labels Linkbase Document X
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X

Exhibit

Number

Exhibit Description

Incorporation by Reference

Filed

Herewith

Form

File Number

Exhibit/

Appendix

Reference

Filing Date

3.1

Restated Certificate of Incorporation of Exelixis, Inc.

3.2

Amended and Restated Bylaws of Exelixis, Inc.

8-K

000-30235

3.1

3/3/2021

4.1

Specimen Common Stock Certificate

31.1

Certification of Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and Rule 15d-14(a)

31.2

Certification of Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and Rule 15d-14(a)

32.1‡

Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350

101.INS

XBRL Instance Document

The XBRL instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File

Formatted as Inline XBRL and contained in Exhibit 101.



*			~~Confidential treatment granted for certain portions of this exhibit.~~
**			~~Confidential treatment requested for certain portions of this exhibit.~~
‡			This certification accompanies this Quarterly Report on Form 10-Q, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of Exelixis, Inc. 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 Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			EXELIXIS, INC.

August 5, 2021			E~~XELIXIS,~~ I~~NC.~~
By:
~~November 1, 2017~~	~~By:~~	/s/ C~~HRISTOPHER~~ ~~J. SENNER~~
~~Date~~		Christopher J. Senner
Date				Christopher J. Senner
				Executive Vice President and Chief Financial Officer
				(Duly Authorized Officer and Principal Financial and Accounting Officer)

5657



	September 30, 2017			December 31, 2016*
ASSETS
Current assets:
Cash and cash equivalents	$	149,357		$	151,686
Short-term investments	217,741			268,117
Trade and other receivables	90,005			40,444
Inventory, net	5,806			3,338
Prepaid expenses and other current assets	8,012			5,416
Total current assets	470,921			469,001
Long-term investments	50,569			55,601
Long-term restricted cash and investments	4,650			4,150
Property and equipment, net	19,256			2,071
Goodwill	63,684			63,684
Other long-term assets	692			1,232
Total assets	$	609,772		$	595,739
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,988		$	6,565
Accrued compensation and benefits	19,914			20,334
Accrued clinical trial liabilities	16,181			14,131
Accrued collaboration liabilities	9,137			2,046
Current portion of deferred revenue	31,377			19,665
Convertible notes	—			109,122
Term loan payable	—			80,000
Other current liabilities	26,356			16,923
Total current liabilities	108,953			268,786
Long-term portion of deferred revenue	246,092			237,094
Other long-term liabilities	16,012			541
Total liabilities	371,057			506,421
Commitments
Stockholders’ equity
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: 295,700,576 and 289,923,798 at September 30, 2017 and December 31, 2016, respectively	296			290
Additional paid-in capital	2,106,132			2,072,591
Accumulated other comprehensive loss	(52		)	(416		)
Accumulated deficit	(1,867,661		)	(1,983,147		)
Total stockholders’ equity	238,715			89,318
Total liabilities and stockholders’ equity	$	609,772		$	595,739



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
Revenues:
Net product revenues	$	96,416	$	42,742		$	253,297		$	83,459
Collaboration revenues	56,094		19,452			79,108			30,414
Total revenues	152,510		62,194			332,405			113,873
Operating expenses:
Cost of goods sold	4,658		2,455			10,875			4,700
Research and development	28,543		20,256			79,967			72,166
Selling, general and administrative	38,129		32,463			113,116			103,143
Restructuring (recovery) charge	—		(244		)	(32		)	871
Total operating expenses	71,330		54,930			203,926			180,880
Income (loss) from operations	81,180		7,264			128,479			(67,007		)
Other income (expense), net:
Interest income and other, net	3,408		3,059			6,098			4,010
Interest expense	—		(7,834		)	(8,679		)	(28,575		)
Loss on extinguishment of debt	—		(13,773		)	(6,239		)	(13,773		)
Total other income (expense), net	3,408		(18,548		)	(8,820		)	(38,338		)
Income (loss) before income taxes	84,588		(11,284		)	119,659			(105,345		)
Income tax expense	3,206		—			3,921			—
Net income (loss)	$	81,382	$	(11,284	)	$	115,738		$	(105,345	)
Net income (loss) per share, basic	$	0.28	$	(0.04	)	$	0.39		$	(0.44	)
Net income (loss) per share, diluted	$	0.26	$	(0.04	)	$	0.37		$	(0.44	)
Shares used in computing net income (loss) per share, basic	294,269		256,319			292,776			238,024
Shares used in computing net income (loss) per share, diluted	312,940		256,319			311,555			238,024



	Three Months Ended September 30,		Nine Months Ended September 30,
Amortization of upfront payment	$	2,830	$	7,547
Development cost reimbursements	1,193		3,301
Collaboration revenues under the Takeda Collaboration Agreement	$	4,023	$	10,848



	September 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents	$	149,357	$	—	$	—		$	149,357
Short-term investments	217,805		17		(81		)	217,741
Long-term investments	50,557		41		(29		)	50,569
Long-term restricted cash and investments	4,650		—		—			4,650
Total cash and investments	$	422,369	$	58	$	(110	)	$	422,317



	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash and cash equivalents	$	151,686	$	—	$	—		$	151,686
Short-term investments	268,234		13		(130		)	268,117
Long-term investments	55,792		1		(192		)	55,601
Long-term restricted cash and investments	4,150		—		—			4,150
Total cash and investments	$	479,862	$	14	$	(322	)	$	479,554



	Mature within One Year		After One Year through Five Years		Fair Value
Money market funds	$	42,797	$	—	$	42,797
Commercial paper	168,738		—		168,738
Corporate bonds	136,592		50,568		187,160
U.S. Treasury and government sponsored enterprises	14,644		—		14,644
Total investments	$	362,771	$	50,568	$	413,339



	September 30, 2017			December 31, 2016
Raw materials	$	378		$	863
Work in process	2,951			2,343
Finished goods	2,856			738
Total	6,185			3,944
Less: non-current portion included in Other long-term assets	(379		)	(606		)
Inventory, net	$	5,806		$	3,338



	September 30, 2017			December 31, 2016
Computer equipment and software	$	14,242		$	13,738
Leasehold improvements	4,715			6,646
Laboratory equipment	5,836			4,310
Furniture and fixtures	1,954			2,240
Construction-in-progress	15,627			19
	42,374			26,953
Less: accumulated depreciation and amortization	(23,118		)	(24,882		)
Property and equipment, net	$	19,256		$	2,071



	September 30, 2017		December 31, 2016
Secured Convertible Notes due 2018 (“Deerfield Notes”)	$	—	$	109,122
Term loan payable	—		80,000
Total debt	$	—	$	189,122



	Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Options outstanding at December 31, 2016	24,999,665		$	4.91
Granted	821,260		$	21.60
Exercised	(4,282,847	)	$	3.94
Forfeited	(204,525	)	$	8.14
Options outstanding at September 30, 2017	21,333,553		$	5.72	4.08 years	$	395,212
Exercisable at September 30, 2017	15,961,685		$	4.41	3.59 years	$	316,415



	Shares		Weighted Average Grant Date Fair Value Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
RSUs outstanding at December 31, 2016	2,469,791		$	8.69
Awarded	331,847		$	22.03
Vested and released	(348,294	)	$	4.63
Forfeited	(111,603	)	$	10.89
RSUs outstanding at September 30, 2017	2,341,741		$	11.08	1.55 years	$	56,740



	Operating leases		Other financing obligations⁽¹⁾
Remainder of 2017	$	1,006	$	—
Year Ending December 31,
2018	2,802		566
2019	605		1,477
2020	630		1,685
2021	637		1,745
2022	646		1,814
Thereafter	3,465		10,441
	$	9,791	$	17,728



	Chargebacks and discounts for prompt payment			Other customer credits and co-pay assistance			Rebates			Returns			Total
Balance at December 31, 2016	$	1,802		$	794		$	2,627		$	351		$	5,574
Provision related to sales made in:
Current period	22,823			5,135			8,389			—			36,347
Prior periods	(864		)	—			584			—			(280		)
Payments and customer credits issued	(22,221		)	(4,501		)	(7,533		)	(351		)	(34,606		)
Balance at September 30, 2017	$	1,540		$	1,428		$	4,067		$	—		$	7,035