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

FORM10-Q

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended April 1, 2022
or
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-30235
exel-20220401_g1.jpg
EXELIXIS, INC.
(Exact name of registrant as specified in its charter)

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

1851 Harbor Bay Parkway
Alameda, CA 94502
(650) 837-7000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock $.001 Par Value per ShareEXELThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days).    Yes  ý No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No ý
As of May 2, 2022, there were 320,740,721 shares of the registrant’s common stock outstanding.


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

Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EXELIXIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
 
March 31, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$723,269 $647,169 
Short-term investments847,060 819,905 
Trade receivables, net190,614 282,650 
Inventory28,467 27,493 
Prepaid expenses and other current assets53,333 57,530 
Total current assets1,842,743 1,834,747 
Long-term investments404,535 371,112 
Property and equipment, net106,169 104,031 
Deferred tax assets, net98,001 111,663 
Goodwill63,684 63,684 
Other long-term assets138,986 131,002 
Total assets$2,654,118 $2,616,239 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$17,285 $24,258 
Accrued compensation and benefits42,768 61,969 
Accrued clinical trial liabilities82,885 77,544 
Rebates and fees due to customers49,997 33,700 
Accrued collaboration liabilities32,492 86,753 
Other current liabilities63,652 53,366 
Total current liabilities289,079 337,590 
Long-term portion of deferred revenues8,035 8,739 
Long-term portion of operating lease liabilities50,636 51,272 
Other long-term liabilities12,517 8,023 
Total liabilities360,267 405,624 
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.001 par value, 10,000 shares authorized and no shares issued
  
Common stock, $0.001 par value; 400,000 shares authorized; issued and outstanding: 320,268 and 318,842 at March 31, 2022, and December 31, 2021, respectively
320 319 
Additional paid-in capital2,448,130 2,427,561 
Accumulated other comprehensive loss(6,665)(758)
Accumulated deficit(147,934)(216,507)
Total stockholders' equity2,293,851 2,210,615 
Total liabilities and stockholders' equity$2,654,118 $2,616,239 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3

Table of Contents
EXELIXIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
 Three Months Ended March 31,
 20222021
Revenues:
Net product revenues$310,298 $227,212 
License revenues32,067 27,528 
Collaboration services revenues13,615 15,490 
Total revenues355,980 270,230 
Operating expenses:
Cost of goods sold13,203 13,198 
Research and development156,671 159,288 
Selling, general and administrative102,863 102,351 
Total operating expenses272,737 274,837 
Income (loss) from operations83,243 (4,607)
Interest income1,822 2,682 
Other income (expense), net164 (90)
Income (loss) before income taxes85,229 (2,015)
Provision for (benefit from) income taxes16,656 (3,616)
Net income$68,573 $1,601 
Net income per share:
Basic$0.21 $0.01 
Diluted$0.21 $0.00 
Weighted-average common shares outstanding:
Basic319,582 312,473 
Diluted323,289 321,287 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

EXELIXIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
Three Months Ended March 31,
20222021
Net income$68,573 $1,601 
Other comprehensive loss:
Net unrealized losses on available-for-sale debt securities, net of tax impact of $1,656 and $499
(5,907)(1,736)
Comprehensive income (loss)$62,666 $(135)
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4

Table of Contents
EXELIXIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
Three Months Ended March 31, 2022
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance at December 31, 2021
318,842 $319 $2,427,561 $(758)$(216,507)$2,210,615 
Net income— — — — 68,573 68,573 
Other comprehensive loss— — — (5,907)— (5,907)
Issuance of common stock under equity incentive plans1,426 1 5,512 — — 5,513 
Stock transactions associated with taxes withheld on equity awards— — (4,960)— — (4,960)
Stock-based compensation— — 20,017 — — 20,017 
Balance at March 31, 2022
320,268 $320 $2,448,130 $(6,665)$(147,934)$2,293,851 

Three Months Ended March 31, 2021
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive IncomeAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance at December 31, 2020
311,627 $312 $2,321,895 $4,476 $(447,570)$1,879,113 
Net income— — — — 1,601 1,601 
Other comprehensive loss— — — (1,736)— (1,736)
Issuance of common stock under equity incentive plans1,635 1 4,201 — — 4,202 
Stock transactions associated with taxes withheld on equity awards— — (6,646)— — (6,646)
Stock-based compensation— — 34,653 — — 34,653 
Balance at March 31, 2021
313,262 $313 $2,354,103 $2,740 $(445,969)$1,911,187 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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EXELIXIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Three Months Ended March 31,
 
20222021
Net income$68,573 $1,601 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation4,490 3,227 
Stock-based compensation19,759 34,653 
Non-cash lease expense1,385 1,221 
Deferred taxes15,318 (3,388)
Other, net1,580 6,578 
Changes in operating assets and liabilities:
Trade receivables, net91,793 (17,690)
Inventory(3,520)(2,090)
Prepaid expenses and other assets(3,605)1,872 
Deferred revenue(1,169)13,422 
Accrued collaboration liabilities(54,261)1,005 
Accounts payable and other liabilities7,376 (867)
Net cash provided by operating activities147,719 39,544 
Cash flows from investing activities:
Purchases of property, equipment and other(5,609)(13,557)
Purchases of investments(336,545)(331,612)
Proceeds from maturities and sales of investments267,615 407,424 
Net cash (used in) provided by investing activities(74,539)62,255 
Cash flows from financing activities:
Proceeds from issuance of common stock under equity incentive plans4,891 2,791 
Taxes paid related to net share settlement of equity awards(4,686)(5,441)
Net cash provided by (used in) financing activities205 (2,650)
Net increase in cash, cash equivalents, and restricted cash equivalents73,385 99,149 
Cash, cash equivalents and restricted cash equivalents at beginning of period663,891 320,772 
Cash, cash equivalents and restricted cash equivalents at end of period$737,276 $419,921 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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EXELIXIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Exelixis, Inc. (Exelixis, we, our or us) is an oncology-focused biotechnology company that strives to accelerate the discovery, development and commercialization of new medicines for patients with difficult-to-treat cancers. Using our considerable drug discovery, development and commercialization resources and capabilities, we have invented and brought to market innovative therapies that appropriately balance patient benefits and risks; we will continue to build on this foundation as we strive to provide cancer patients with new treatment options that improve upon current standards of care.
Today, four products that originated in Exelixis laboratories are available to be prescribed to patients. Sales related to our flagship molecule, cabozantinib, account for the large majority of our revenues. Cabozantinib is an inhibitor of multiple tyrosine kinases including MET, AXL, VEGF receptors and RET and has been approved by the U.S. Food and Drug Administration (FDA) and in 61 other countries as: CABOMETYX® (cabozantinib) tablets approved for advanced renal cell carcinoma (RCC), both alone and in combination with Bristol-Myers Squibb Company’s (BMS) OPDIVO® (nivolumab), for previously treated hepatocellular carcinoma (HCC) and, currently by the FDA and the European Commission (EC), for previously treated, radioactive iodine (RAI)-refractory differentiated thyroid cancer (DTC); and COMETRIQ® (cabozantinib) capsules approved for progressive, metastatic medullary thyroid cancer (MTC). For physicians treating these types of cancer, cabozantinib has become or is becoming an important medicine in their selection of effective therapies.
The other two products resulting from our discovery efforts are: COTELLIC® (cobimetinib), an inhibitor of MEK approved as part of multiple combination regimens to treat specific forms of advanced melanoma and marketed under a collaboration with Genentech, Inc. a member of the Roche Group (Genentech); and MINNEBRO® (esaxerenone), an oral, non-steroidal, selective blocker of the mineralocorticoid receptor approved for the treatment of hypertension in Japan and licensed to Daiichi Sankyo Company, Limited (Daiichi Sankyo).
Our plan is to utilize our operating cash flows and cash and investments to expand the cabozantinib franchise by potentially adding new indications in areas of unmet medical need. We will also leverage our operating cash flows to continue advancing our diverse small molecule and biotherapeutics programs, exploring multiple modalities and mechanisms of action to discover new oncology drugs.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include the accounts of Exelixis and those of our wholly owned subsidiaries. These entities’ functional currency is the U.S. dollar. All intercompany balances and transactions have been eliminated.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial statements for the periods presented have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 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 fiscal year ended December 31, 2021, included in Part II, Item 8 of our Annual Report on Form 10-K filed with the SEC on February 18, 2022.
We have adopted a 52- or 53-week fiscal year policy that generally ends on the Friday closest to December 31st. Fiscal year 2022, which is a 52-week fiscal year, will end on December 30, 2022 and fiscal year 2021, which was a 52-week fiscal year, ended on December 31, 2021. For convenience, references in this report as of and for the three months ended April 1, 2022 and April 2, 2021, and as of and for the fiscal year ending December 30, 2022 are indicated as being as of and for the three months ended March 31, 2022 and March 31, 2021, and the year ending December 31, 2022, respectively.
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Segment Information
We operate in one business segment that focuses on the discovery, development and commercialization of new medicines for difficult-to-treat cancers. Our Chief Executive Officer, as the chief operating decision-maker, manages and allocates resources to our operations on a total consolidated basis. Consistent with this decision-making process, our Chief Executive Officer uses consolidated, single-segment financial information for purposes of evaluating performance, forecasting future period financial results, allocating resources and setting incentive targets.
All of our long-lived assets are located in the U.S. See “Note 2. Revenues” for enterprise-wide disclosures about product sales, revenues from major customers and revenues by geographic region.
Use of Estimates
The preparation of the accompanying Condensed Consolidated Financial Statements conforms to accounting principles generally accepted in the U.S., which requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosures. On an ongoing basis, we evaluate our significant estimates. We base our estimates on historical experience and on various other market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.
Reclassifications
Certain prior period amounts in the accompanying Condensed Consolidated Financial Statements have been reclassified to conform to the current period presentation. Such reclassifications did not impact previously reported total revenues, income from operations, net income, total assets, total liabilities or total stockholders’ equity.
Significant Accounting Policies
There have been no material changes to our significant accounting policies during the three months ended March 31, 2022, compared to the significant accounting policies disclosed in “Note 1. Organization and Summary of Significant Accounting Policies” of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Recently Adopted Accounting Pronouncements
There were no new accounting pronouncements adopted by us since our filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which could have a significant effect on our 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 fiscal year ended December 31, 2021, which could have a significant effect on our Condensed Consolidated Financial Statements.
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NOTE 2. REVENUES
Revenues consisted of the following (in thousands):
Three Months Ended March 31,
20222021
Product revenues:
Gross product revenues$448,237 $314,205 
Discounts and allowances(137,939)(86,993)
Net product revenues310,298 227,212 
Collaboration revenues:
License revenues32,067 27,528 
Collaboration services revenues13,615 15,490 
Total collaboration revenues45,682 43,018 
Total revenues$355,980 $270,230 
The percentage of total revenues by customer who individually accounted for 10% or more of our total revenues were as follows:
Three Months Ended March 31,
20222021
Affiliates of McKesson Corporation19 %13 %
Affiliates of CVS Health Corporation17 %15 %
Affiliates of AmerisourceBergen Corporation17 %14 %
Ipsen Pharma SAS10 %13 %
Affiliates of Optum Specialty Pharmacy10 %9 %
The percentage of trade receivables by customer who individually accounted for 10% or more of our trade receivables were as follows:
March 31, 2022December 31, 2021
Affiliates of McKesson Corporation22 %10 %
Ipsen Pharma SAS21 %50 %
Affiliates of AmerisourceBergen Corporation21 %11 %
Affiliates of CVS Health Corporation15 %9 %
Revenues by geographic region were as follows (in thousands):
Three Months Ended March 31,
20222021
U.S.$314,065 $229,957 
Europe34,527 33,806 
Japan7,388 6,467 
Total revenues$355,980 $270,230 
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.

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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 milestone 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.
Net product revenues by product were as follows (in thousands):
Three Months Ended March 31,
20222021
CABOMETYX$302,812 $223,595 
COMETRIQ7,486 3,617 
Net product revenues$310,298 $227,212 
Product Sales Discounts and Allowances
The activities and ending reserve balances for each significant category of discounts and allowances, which constitute variable consideration, were as follows (in thousands):
Chargebacks, Discounts for Prompt Payment and Other
Other Customer Credits/Fees and Co-pay Assistance
Rebates
Total
Balance at December 31, 2021
$14,625 $8,875 $24,825 $48,325 
Provision related to sales made in:
Current period86,620 12,087 38,734 137,441 
Prior periods154 (43)387 498 
Payments and customer credits issued(83,004)(10,227)(24,641)(117,872)
Balance at March 31, 2022
$18,395 $10,692 $39,305 $68,392 
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 Balance Sheets.
Contract Assets and Liabilities
We receive payments from our collaboration partners based on billing schedules established in each contract. Amounts are recorded as accounts receivable when our right to consideration is unconditional. We may also recognize revenue in advance of the contractual billing schedule and such amounts are recorded as a contract asset when recognized. We may be required to defer recognition of revenue for upfront and milestone payments until we perform our obligations under these arrangements, and such amounts are recorded as deferred revenue upon receipt or when due. For those contracts that have multiple performance obligations, contract assets and liabilities are reported on a net basis at the contract level. Contract assets are primarily related to Ipsen Pharma SAS (Ipsen) and contract liabilities are primarily related to deferred revenues from Takeda Pharmaceutical Company Limited (Takeda).
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Contract assets and liabilities were as follows (in thousands):
March 31, 2022December 31, 2021
Contract assets (1)
$3,235 $1,665 
Contract liabilities:
Current portion (2)
$7,349 $7,814 
Long-term portion (3)
8,035 8,739 
Total contract liabilities$15,384 $16,553 
____________________
(1)    Presented in other long-term assets in the accompanying Condensed Consolidated Balance Sheets.
(2)    Presented in other current liabilities in the accompanying Condensed Consolidated Balance Sheets.
(3)    Presented in the long-term portion of deferred revenues in the accompanying Condensed Consolidated Balance Sheets
During the three months ended March 31, 2022, and 2021, we recognized $2.4 million and $2.5 million, respectively, in revenues that were included in the beginning deferred revenues balance for those periods.
During the three months ended March 31, 2022, and 2021, we recognized $31.7 million and $27.8 million, respectively, in revenues for performance obligations satisfied in previous periods. Such revenues were primarily related to royalty payments allocated to the license performance obligations for our collaborations with Ipsen, Takeda, Daiichi Sankyo and Genentech.
As of March 31, 2022, $87.4 million of the combined transaction prices for our Ipsen and Takeda collaborations were allocated to our research and development services performance obligations that had not yet been satisfied. See “Note 3. Collaboration Agreements and Business Development Activities” of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for information about the expected timing to satisfy these performance obligations.

NOTE 3. COLLABORATION AGREEMENTS AND BUSINESS DEVELOPMENT ACTIVITIES
We have established multiple collaborations with leading pharmaceutical companies for the commercialization and further development of our cabozantinib franchise. Additionally, we have entered into several research collaboration and in-licensing arrangements to further enhance our early-stage pipeline and expand our ability to discover, develop and commercialize novel therapies with the goal of providing new treatment options for cancer patients and their physicians. Historically, we also entered into other collaborations with leading pharmaceutical companies pursuant to which we out-licensed other compounds and programs in our portfolio.
See “Note 3. Collaboration Agreements and Business Development Activities” to our Consolidated Financial Statements included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, or as further described below, for additional information on certain of our collaboration agreements and in-licensing arrangements.
Cabozantinib Collaborations
Ipsen Collaboration
In February 2016, we entered into a collaboration agreement with Ipsen for the commercialization and further development of cabozantinib. Under the terms of the collaboration agreement, as amended, Ipsen received exclusive commercialization rights for current and potential future cabozantinib indications outside of the U.S. and Japan. We have also agreed to collaborate with Ipsen on the development of cabozantinib for current and potential future indications. The parties’ efforts are governed through a joint steering committee and appropriate subcommittees established to guide and oversee the collaboration’s operation and strategic direction; provided, however, that we retain final decision-making authority with respect to cabozantinib’s ongoing development.
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Revenues under the collaboration agreement with Ipsen were as follows (in thousands):
Three Months Ended March 31,
20222021
License revenues$24,614 $22,451 
Collaboration services revenues9,913 11,355 
Total$34,527 $33,806 
As of March 31, 2022, $46.7 million of the transaction price was allocated to our research and development services performance obligations that have not yet been satisfied.
Takeda Collaboration
In January 2017, we entered into a collaboration and license agreement with Takeda for the commercialization and further development of cabozantinib. Pursuant to this collaboration and license agreement, as amended, Takeda has exclusive commercialization rights for current and potential future cabozantinib indications in Japan, and the parties have agreed to collaborate on the clinical development of cabozantinib in Japan. The operation and strategic direction of the parties’ collaboration is governed through a joint executive committee and appropriate subcommittees.
Revenues under the collaboration agreement with Takeda were as follows (in thousands):
Three Months Ended March 31,
20222021
License revenues$2,365 $1,301 
Collaboration services revenues3,702 4,135 
Total$6,067 $5,436 
As of March 31, 2022, $40.6 million of the transaction price was allocated to our research and development services performance obligations that have not yet been satisfied.
Royalty Pharma
In October 2002, we established a product development and commercialization collaboration agreement with GlaxoSmithKline (GSK), that required us to pay a 3% royalty to GSK on the worldwide net sales of any product incorporating cabozantinib by us and our collaboration partners. Effective January 1, 2021, Royalty Pharma plc (Royal 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 Royalty Pharma in connection with our sales of cabozantinib are included in cost of goods sold and in connection with sales by our collaboration partners are included as a reduction of collaboration services revenues. Such royalties were $13.1 million and $10.1 million during the three months ended March 31, 2022, and 2021, respectively.
Genentech Collaboration
In December 2006, we out-licensed the development and commercialization of cobimetinib to Genentech under a worldwide collaboration agreement. In November 2015, the 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.

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License revenues under the collaboration agreement with Genentech were as follows (in thousands):
 Three Months Ended March 31,
 20222021
Profits on U.S. commercialization$2,139 $1,794 
Royalty revenues on ex-U.S. sales$1,628 $951 
Research Collaborations, In-Licensing Arrangements and Other Business Development Activities
Our research collaborations, in-licensing arrangements and other strategic transactions include upfront payments, development, regulatory, commercial milestone payments and royalty payments, contingent upon the occurrence of certain future events linked to the success of the asset in development. Certain of our research collaborations provide us exclusive options that give us the right to license programs developed under the research collaborations for further discovery and development. When we decide to exercise the options, we are required to pay an exercise fee and then assume the responsibilities for all subsequent clinical development, manufacturing and commercialization. In conjunction with each of these collaborative in-licensing arrangements, we were subject to upfront payments and will make payments for potential future development milestones of up to $254.3 million, regulatory milestones of up to $426.5 million and commercial milestones of up to $1,911.5 million, each in the aggregate per product or target, as well as royalties on future net product sales.
In conjunction with an asset purchase agreement entered into in 2021, we will make a $4.0 million payment upon the completion of the technology transfer of certain materials and documents specified in the asset purchase agreement. 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 4. CASH AND INVESTMENTS
Cash, Cash Equivalents and Restricted Cash Equivalents
A reconciliation of cash, cash equivalents, and restricted cash equivalents reported in the accompanying Condensed Consolidated Balance Sheets to the amount reported within the accompanying Condensed Consolidated Statements of Cash Flows was as follows (in thousands):
 
March 31, 2022December 31, 2021
Cash and cash equivalents$723,269 $647,169 
Restricted cash equivalents included in other long-term assets14,007 16,722 
Cash, cash equivalents, and restricted cash equivalents as reported in the accompanying Condensed Consolidated Statements of Cash Flows$737,276 $663,891 
Restricted cash equivalents are used to collateralize letters of credit and consist of money-market funds and certificates of deposit with original maturities of 90 days or less. The restricted cash equivalents are classified as other long-term assets based upon the remaining term of the underlying restriction. As of March 31, 2022, restricted cash equivalents included $12.5 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. Our January 2021 standby letter of credit will remain effective through June 30, 2022.
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Cash, Cash Equivalents, Restricted Cash Equivalents and Investments
Cash, cash equivalents, restricted cash equivalents and investments consisted of the following (in thousands):
March 31, 2022
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Debt securities available-for-sale:
Commercial paper$954,283 $5 $(26)$954,262 
Corporate bonds529,129 95 (7,123)522,101 
U.S. Treasury and government-sponsored enterprises197,605  (1,141)196,464 
Municipal bonds13,455  (169)13,286 
Total debt securities available-for-sale1,694,472 100 (8,459)1,686,113 
Cash97,602   97,602 
Money market funds87,255   87,255 
Certificates of deposit117,901   117,901 
Total cash, cash equivalents, restricted cash equivalents and investments$1,997,230 $100 $(8,459)$1,988,871 

December 31, 2021
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Debt securities available-for-sale:
Commercial paper$945,801 $42 $(2)$945,841 
Corporate bonds541,774 876 (1,672)540,978 
U.S. Treasury and government-sponsored enterprises33,965 1 (21)33,945 
Municipal bonds12,924 15 (35)12,904 
Total debt securities available-for-sale1,534,464 934 (1,730)1,533,668 
Cash135,653   135,653 
Money market funds66,531   66,531 
Certificates of deposit119,056   119,056 
Total cash, cash equivalents, restricted cash equivalents and investments
$1,855,704 $934 $(1,730)$1,854,908 

Interest receivable was $2.6 million and $2.9 million as of March 31, 2022 and December 31, 2021, respectively, and is included in prepaid expenses and other current assets in the accompanying Condensed Consolidated Balance Sheets.
Realized gains and losses on the sales of investments were insignificant during the three months ended March 31, 2022, and 2021.
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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):
March 31, 2022
Fair ValueGross Unrealized Losses
Corporate bonds$456,676 $(7,123)
U.S. Treasury and government-sponsored enterprises196,464 (1,141)
Commercial paper32,460 (26)
Municipal bonds13,286 (169)
Total$698,886 $(8,459)
December 31, 2021
Fair ValueGross Unrealized Losses
Corporate bonds$385,053 $(1,672)
Commercial paper
43,290 (2)
U.S. Treasury and government-sponsored enterprises18,962 (21)
Municipal bonds7,475 (35)
Total$454,780 $(1,730)
There were 197 and 133 investments in an unrealized loss position as of March 31, 2022 and December 31, 2021, respectively. All securities presented above have been in an unrealized loss position for less than twelve months except for two corporate bond securities with an aggregate fair value of $6.3 million and an aggregate immaterial unrealized loss as of March 31, 2022. During the three months ended March 31, 2022, and 2021, we did not record an allowance for credit losses or other impairment charges on our investment securities. Based upon our quarterly impairment review, we determined that the unrealized losses were not attributed to credit risk but were primarily associated with changes in interest rates and market liquidity. Based on the scheduled maturities of our investments, we determined that it was more likely than not that we will hold these investments for a period of time sufficient for a recovery of our cost basis.
The fair value of debt securities available-for-sale by contractual maturity was as follows (in thousands):
 
March 31, 2022December 31, 2021
Maturing in one year or less$1,290,576 $1,168,256 
Maturing after one year through five years395,537 365,412 
Total debt securities available-for-sale$1,686,113 $1,533,668 
NOTE 5. FAIR VALUE MEASUREMENTS
Fair value reflects the amounts that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy has the following three levels:
Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2 - inputs other than level 1 that are observable either directly or indirectly, such as quoted prices in active markets for similar instruments or on industry models using data inputs, such as interest rates and prices that can be directly observed or corroborated in active markets; and
Level 3 - unobservable inputs that are supported by little or no market activity that are significant to the fair value measurement.
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The classifications within the fair value hierarchy of our financial assets that were measured and recorded at fair value on a recurring basis were as follows (in thousands):
March 31, 2022
Level 1
Level 2
Total
Commercial paper$ $954,262 $954,262 
Corporate bonds 522,101 522,101 
U.S. Treasury and government-sponsored enterprises 196,464 196,464 
Municipal bonds 13,286 13,286 
Total debt securities available-for-sale 1,686,113 1,686,113 
Money market funds87,255  87,255 
Certificates of deposit 117,901 117,901 
Total financial assets carried at fair value$87,255 $1,804,014 $1,891,269 
December 31, 2021
Level 1
Level 2
Total
Commercial paper$ $945,841 $945,841 
Corporate bonds 540,978 540,978 
U.S. Treasury and government-sponsored enterprises 33,945 33,945 
Municipal bonds 12,904 12,904 
Total debt securities available-for-sale 1,533,668 1,533,668 
Money market funds66,531  66,531 
Certificates of deposit 119,056 119,056 
Total financial assets carried at fair value$66,531 $1,652,724 $1,719,255 
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
We have entered into forward contracts to hedge certain operational exposures for the changes in foreign currency exchanges rates associated with assets or liabilities denominated in foreign currencies, primarily the Euro.
As of March 31, 2022, we had one forward contract outstanding to sell €7.5 million. The forward contract with 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 forward contract is considered a Level 2 in the fair value hierarchy of our fair value measurements. For the three months ended March 31, 2022, and 2021, we recognized $0.2 million and $0.4 million, respectively, of net gains on the maturity of our forward contracts, which is included in other income (expense), net on our Condensed Consolidated Statements of Income.
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NOTE 6. INVENTORY
Inventory consisted of the following (in thousands):
 
March 31, 2022December 31, 2021
Raw materials$10,858 $8,867 
Work in process27,778 27,717 
Finished goods14,653 12,927 
Total$53,289 $49,511 
Balance Sheet classification:
Current portion included in inventory$28,467 $27,493 
Long-term portion included in other long-term assets24,822 22,018 
Total$53,289 $49,511 
NOTE 7. STOCK-BASED COMPENSATION
We allocated the stock-based compensation expense for our equity incentive plans and our Employee Stock Purchase Plan (ESPP) as follows (in thousands):
Three Months Ended March 31,
20222021
Research and development$8,899 $12,396 
Selling, general and administrative10,860 22,257 
Total stock-based compensation expense$19,759 $34,653 
Stock-based compensation for each type of award under our equity incentive plans and ESPP were as follows (in thousands):
Three Months Ended March 31,
20222021
Stock options$3,678 $4,694 
Restricted stock units13,073 11,669 
Performance stock units1,709 17,947 
ESPP1,299 343 
Total stock-based compensation expense$19,759 $34,653 
As of March 31, 2022, 4,152,901 shares were available for grant under the Exelixis, Inc. 2017 Equity Incentive Plan (as amended and restated, the 2017 Plan). The share reserve is reduced by 1 share for each share issued pursuant to a stock option and 1.5 shares for full value awards granted in the form of restricted stock units (RSUs). 
During the three months ended March 31, 2022, we granted 233,476 stock options with a weighted average exercise price of $19.02 per share and a weighted average grant date fair value of $7.51 per share. As of March 31, 2022, there were 12,635,435 stock options outstanding and $24.8 million of related unrecognized compensation expense.
In March 2022, we awarded to certain employees an aggregate of 1,003,482 (the target amount) RSUs that are subject to a total shareholder return (TSR) market condition (the TSR-based RSUs). The TSR market condition is based on our relative TSR percentile rank compared to companies in the NASDAQ Biotechnology Index during the performance period, which is January 1, 2022 through January 3, 2025. Depending on the results relative to the TSR market condition, the holders of the TSR-based RSUs may earn up to 175% of the target amount of shares. 50% of the shares earned pursuant to the TSR-based RSU awards will vest at the end of the performance period, and the remainder will vest approximately one year later, subject to employee’s continuous service. These TSR-based RSUs will be forfeited if the market condition at or above a threshold level is not achieved at the end of the performance period on January 3, 2025.
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We used a Monte Carlo simulation model and the following assumptions to determine the grant date fair value of $33.17 per share for the TSR-based RSUs:
Fair value of the Company’s common stock on grant date
$20.70 
Expected volatility
46.85 %
Risk-free interest rate
1.59 %
Dividend yield
 %
The Monte Carlo simulation model also assumed correlations of returns of the stock prices of the Company’s common stock and the common stock of a peer group of companies and historical stock price volatility of the peer group of companies. The valuation model also used terms based on the length of the performance period and compound annual growth rate goals for total stockholder return based on the provisions of the award.
During the three months ended March 31, 2022, we granted 3,549,973 service-based RSUs with a weighted average grant date fair value of $20.51 per share. As of March 31, 2022, there were 11,635,329 RSUs outstanding, including the TSR-based RSUs, and $209.6 million of related unrecognized compensation expense.
Stock options and service-based RSUs granted to employees during the three months ended March 31, 2022 have vesting conditions and contractual lives of a similar nature to those described in “Note 8. Employee Benefit Plans” of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
As of March 31, 2022, there were 5,698,281 performance-based restricted stock units (PSUs) outstanding and $116.0 million of related unrecognized stock-based 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 Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

NOTE 8. PROVISION FOR (BENEFIT FROM) INCOME TAXES
The effective tax rate for the three months ended March 31, 2022 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 period and the generation of federal tax credits, partially offset by state taxes. The effective rate for the three months ended March 31, 2021 differed from the U.S. federal statutory tax rate of 21% primarily due to excess tax benefits related to the exercise of certain stock options, in relation to the generation of a small pre-tax loss during the period.

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 March 31,
20222021
Numerator:
Net income$68,573 $1,601 
Denominator:
Weighted-average common shares outstanding — basic319,582 312,473 
Dilutive securities3,707 8,814 
Weighted-average common shares outstanding — diluted323,289 321,287 
Net income per share — basic$0.21 $0.01 
Net income per share — diluted$0.21 $0.00 
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Dilutive securities included outstanding stock options, unvested RSUs, including TSR-based RSUs, PSUs and ESPP contributions.
Certain potential common shares were excluded from our calculation of weighted-average common shares outstanding - diluted because either they would have had an anti-dilutive effect on net income per share or they were related to shares from PSUs that were contingently issuable and the contingency had not been satisfied at the end of the reporting period. The weighted-average potential common shares excluded from our calculation were as follows (in thousands):
Three Months Ended March 31,
20222021
Anti-dilutive securities and contingently issuable shares excluded16,522 10,007 

NOTE 10. COMMITMENTS AND CONTINGENCIES
Overview
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. Patents No. 8,877,776 (salt and polymorphic forms), 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, for CABOMETYX. MSN’s initial notice letter did not provide a Paragraph IV certification against U.S. Patents No. 7,579,473 (composition of matter) or 8,497,284 (methods of treatment), each of which is listed in the Orange Book. 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 infringement of 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 the asserted claims of U.S. Patent No. 8,877,776 are invalid and not infringed. On May 5, 2020, we received notice from MSN that it had amended its ANDA to include additional Paragraph IV certifications. In particular, the ANDA requested approval to market a generic version of CABOMETYX tablets prior to expiration of two previously unasserted CABOMETYX patents: U.S. Patents No. 7,579,473 and 8,497,284. On May 11, 2020, we filed a complaint in the Delaware District Court for patent infringement against MSN asserting infringement of U.S. Patents No. 7,579,473 and 8,497,284 arising from MSN’s amended ANDA filing with the FDA. Neither of our complaints have alleged infringement of U.S. Patents No. 9,724,342, 10,034,873 and 10,039,757. On May 22, 2020, MSN filed its response to the complaint, alleging that the asserted claims of U.S. Patents No. 7,579,473 and 8,497,284 are 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 (salt and polymorphic forms) is invalid and would not be infringed by MSN if its generic version of CABOMETYX tablets were approved by the FDA. U.S. Patent No. 9,809,549 is not listed in the Orange Book. 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.
On October 1, 2021, pursuant to a stipulation between us and MSN, the Delaware District Court entered an order that (i) MSN’s submission of its ANDA constitutes infringement of certain claims relating to U.S. Patents No. 7,579,473 and 8,497,284, if those claims are not found to be invalid, and (ii) upon approval, MSN’s commercial manufacture, use, sale or offer for sale within the U.S., and importation into the U.S., of MSN’s ANDA product prior to the expiration of U.S. Patents No. 7,579,473 and 8,497,284 would also infringe certain claims of each patent, if those claims are not found to be invalid. Then, on October 12, 2021, pursuant to a separate stipulation between us and MSN, the Delaware District Court entered an order dismissing MSN’s counterclaims with respect to U.S. Patent No. 9,809,549. In our complaints, we are seeking, among other relief, an order that the effective date of any FDA approval of MSN’s ANDA be a date no earlier than the expiration of all of U.S. Patents No. 7,579,473, 8,497,284 and 8,877,776, the latest of which expires on October 8, 2030, and equitable relief enjoining MSN from infringing these patents. In an effort to streamline the case, the parties have narrowed their assertions. On April 8, 2022, MSN withdrew its validity challenge to U.S. Patent No. 8,877,776. On April 14, 2022, we agreed not to assert U.S. Patent No. 8,497,284 at trial and MSN has, correspondingly, agreed to withdraw its validity challenges to U.S. Patent No. 8,497,284, as well as claims 1-4 and 6-7 of U.S. Patent No. 7,579,473. As a result of this narrowing, the upcoming trial will address two issues: (1) infringement of claims 1 and 2 of the U.S. Patent No. 8,877,776; and (2) validity of claim 5 of the U.S. Patent No. 7,579,473. A three-day bench trial has been scheduled to begin on May 16, 2022.
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On January 11, 2022, we received notice from MSN that it had further 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 three previously-unasserted CABOMETYX patents that are now listed in the Orange Book: U.S. Patents No. 11,091,439 (salt and polymorphic forms), 11,091,440 (formulations) and 11,098,015 (methods of treatment). On February 23, 2022, we filed a complaint in the Delaware District Court for patent infringement against MSN asserting infringement of U.S. Patents No. 11,091,439, 11,091,440 and 11,098,015 (the 2022 MSN ANDA Complaint) arising from MSN’s further amendment of its ANDA filing with the FDA. In the 2022 MSN ANDA Complaint, we are seeking, among other remedies, equitable relief enjoining MSN from infringing these patents, as well as an order that the effective date of any FDA approval of MSN’s ANDA would be a date no earlier than the expiration of the patents identified in the 2022 MSN ANDA Complaint, the latest of which expires on January 15, 2030. The 2022 MSN ANDA Complaint is a new case against MSN involving Exelixis patents that are different from those asserted in the consolidated Civil Action Nos. 19-02017 and 20-00633 described above. On February 25, 2022, MSN filed its response to the complaint, alleging that the asserted claims of U.S. Patents No. 11,091,439, 11,091,440 and 11,098,015 are invalid and not infringed. A bench trial in connection with the 2022 MSN ANDA Complaint has been scheduled for May 2023.
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. Patents No. 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 (Teva Parent), asserting infringement of U.S. Patents No. 9,724,342, 10,034,873 and 10,039,757 arising from Teva’s ANDA filing with the FDA. On August 27, 2021, Teva filed its answer and counterclaims to the complaint, alleging that the asserted claims of U.S. Patents No. 9,724,342, 10,034,873 and 10,039,757 are invalid and not infringed, and on August 23, 2021, we and Teva entered into a stipulation wherein Teva Parent was dismissed without prejudice from this lawsuit and agreed to be bound by any stipulation, judgment, order or decision rendered as to Teva, including any appeals and any order granting preliminary or permanent injunctive relief against Teva. On September 17, 2021, we filed an answer to Teva’s counterclaims. We are seeking, among other relief, an order that the effective date of any FDA approval of Teva’s ANDA be a date no earlier than the expiration of all of U.S. Patents No. 9,724,342, 10,034,873 and 10,039,757, the latest of which expires on July 9, 2033, and equitable relief enjoining Teva from infringing these patents. On February 8, 2022, the parties filed a stipulation to stay all proceedings, which was granted by the Delaware District Court on February 9, 2022. On February 11, 2022, this case was administratively closed.
The sale of any generic version of CABOMETYX earlier than its patent expiration could significantly decrease our revenues derived from the U.S. sales of CABOMETYX and thereby materially harm our business, financial condition and results of operations. It is not possible at this time to determine the likelihood of an unfavorable outcome or estimate of the amount or range of any potential loss.
We may also from time to time become a party or subject to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. Some of these proceedings have involved, and may involve in the future, claims that are subject to substantial uncertainties and unascertainable damages.

NOTE 11. SUBSEQUENT EVENTS
Build-to-Suit Lease
In April 2022, the office building (New Premises) associated with our October 2019 build-to-suit lease agreement (Build-to-Suit Lease) was substantially completed. The New Premises is approximately 220,000 square feet and is in Alameda, California, adjacent to our existing corporate headquarters. The Build-to-Suit Lease term is 242 months, includes two five-year options to extend the term of the lease and a one-time option to terminate the lease after 180 months. In addition to the lease payments, we are also responsible for paying operating expenses related to the New Premises. For more information about our Build-to-Suit Lease, see “Note 11. Commitments and Contingencies” of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements. These statements are based on Exelixis, Inc.’s (Exelixis, we, our or us) current expectations, assumptions, estimates and projections about our business and our industry and involve known and unknown risks, uncertainties and other factors that may cause our company’s or our industry’s results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in, or contemplated by, the forward-looking statements. Our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as those discussed elsewhere in this report. These and many other factors could affect our future financial and operating results. We undertake no obligation to update any forward-looking statement to reflect events after the date of this report.
This discussion and analysis should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this report and the consolidated financial statements and accompanying notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (SEC) on February 18, 2022.
Overview
We are an oncology-focused biotechnology company that strives to accelerate the discovery, development and commercialization of new medicines for patients with difficult-to-treat cancers. Using our considerable drug discovery, development and commercialization resources and capabilities, we have invented and brought to market innovative therapies that appropriately balance patient benefits and risks; we will continue to build on this foundation as we strive to provide cancer patients with new treatment options that improve upon current standards of care.
Today, four products that originated in Exelixis laboratories are available to be prescribed to patients. Sales related to our flagship molecule, cabozantinib, account for the large majority of our revenues. Cabozantinib is an inhibitor of multiple tyrosine kinases including MET, AXL, VEGF receptors and RET and has been approved by the U.S. Food and Drug Administration (FDA) and in 61 other countries as: CABOMETYX® (cabozantinib) tablets approved for advanced renal cell carcinoma (RCC), both alone and in combination with Bristol-Myers Squibb Company’s (BMS) OPDIVO® (nivolumab), for previously treated hepatocellular carcinoma (HCC) and, currently by the FDA and European Commission (EC), for previously treated, radioactive iodine (RAI)-refractory differentiated thyroid cancer (DTC); and COMETRIQ® (cabozantinib) capsules approved for progressive, metastatic medullary thyroid cancer (MTC). For physicians treating these types of cancer, cabozantinib has become or is becoming an important medicine in their selection of effective therapies.
The other two products resulting from our discovery efforts are: COTELLIC® (cobimetinib), an inhibitor of MEK, approved as part of multiple combination regimens to treat specific forms of advanced melanoma and marketed under a collaboration with Genentech, Inc., a member of the Roche Group (Genentech); and MINNEBRO® (esaxerenone), an oral, non-steroidal, selective blocker of the mineralocorticoid receptor, approved for the treatment of hypertension in Japan and licensed to Daiichi Sankyo, Company, Limited (Daiichi Sankyo).
Our plan is to utilize our operating cash flows and cash and investments to expand the cabozantinib franchise by potentially adding new indications in areas of unmet medical need. We will also leverage our operating cash flows to continue advancing our diverse small molecule and biotherapeutics programs, exploring multiple modalities and mechanisms of action to discover new oncology drugs. So far, these drug discovery and preclinical activities have resulted in four clinical-stage compounds: XL092, a next-generation oral tyrosine kinase inhibitor (TKI); XB002, an antibody drug conjugate (ADC) that targets tissue factor (TF); XL102, a potent, selective and orally bioavailable covalent inhibitor of cyclin-dependent kinase 7 (CDK7); and XL114, a novel anti-cancer compound that inhibits the CARD11-BCL10-MALT1 (CBM) complex.
Cabozantinib Franchise
The FDA first approved CABOMETYX as a monotherapy for previously treated patients with advanced RCC in April 2016, and then for previously untreated patients with advanced RCC in December 2017. In January 2021, the CABOMETYX label was expanded to include first-line advanced RCC in combination with OPDIVO, which was the first CABOMETYX regimen approved for treatment in combination with an immune checkpoint inhibitor (ICI). In addition to RCC, in January 2019, the FDA approved CABOMETYX for the treatment of patients with HCC previously treated with sorafenib, and then in September 2021, the FDA approved CABOMETYX for the treatment of adult and pediatric patients 12 years of age and older
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with locally advanced or metastatic DTC that has progressed following prior VEGF receptor-targeted therapy and who are RAI-refractory or ineligible.
To develop and commercialize CABOMETYX and COMETRIQ outside the U.S., we have entered into license agreements with Ipsen and Takeda. We granted to Ipsen the rights to develop and commercialize cabozantinib outside of the U.S. and Japan, and to Takeda we 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 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), the United Kingdom (U.K.) 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 EC for CABOMETYX in combination with OPDIVO as a first-line treatment for patients with advanced RCC, followed by additional regulatory approvals for the combination in other territories beyond the EU. Most recently, in May 2022, we announced that Ipsen received regulatory approval from the EC for CABOMETYX as a monotherapy for the treatment of adult patients with locally advanced or metastatic, RAI-refractory or ineligible DTC and who have progressed during or after prior systemic therapy. 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 August 2021, Takeda and Ono Pharmaceutical Co., Ltd. (Ono), BMS’ development and commercialization partner in Japan, received Manufacturing and Marketing Approval from the Japanese MHLW of CABOMETYX in combination with OPDIVO as a treatment for unresectable or metastatic RCC.
In addition to our regulatory and commercialization efforts in the U.S. and the support provided to our collaboration partners for rest-of-world regulatory and commercialization activities, we are also pursuing other indications for cabozantinib that have the potential to increase the number of cancer patients who could potentially benefit from this medicine. We continue to evaluate cabozantinib, both as a single agent and in combination with ICIs, in a broad development program comprising over 100 ongoing or planned clinical trials across multiple tumor types. We, along with our collaboration partners, sponsor some of the trials, and independent investigators conduct the remaining trials through our Cooperative Research and Development Agreement (CRADA) with the National Cancer Institute’s Cancer Therapy Evaluation Program (NCI-CTEP) or our investigator sponsored trial (IST) program. The data from these third-party clinical trials have helped advance our development program for the cabozantinib franchise by informing subsequent label-enabling trials, including COSMIC-311, our phase 3 pivotal trial evaluating cabozantinib in previously treated patients with RAI-refractory DTC, from which positive results served as the basis for the FDA’s and EC’s approvals of CABOMETYX for DTC.
Building on preclinical and clinical observations that cabozantinib in combination with ICIs may promote a more immune-permissive tumor environment, 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 CABOMETYX and OPDIVO compared to sunitinib in previously untreated, advanced or metastatic RCC, and positive results from CheckMate -9ER served as the basis for the FDA’s, EC’s and MHLW’s approvals of CABOMETYX in combination with OPDIVO as a first-line treatment of patients with advanced RCC in January 2021, March 2021 and August 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 expect to report top-line results of the event-driven analyses from the trial in July 2022.
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, beginning in 2017 with COSMIC-021, a broad phase 1b study evaluating the safety and tolerability of cabozantinib in combination with atezolizumab in patients with a wide variety of locally advanced or metastatic solid tumors. The data from COSMIC-021 have been instrumental in guiding our clinical development strategy for cabozantinib in combination with ICIs, including supporting the initiation of COSMIC-312, a phase 3 pivotal trial evaluating cabozantinib in combination with atezolizumab versus sorafenib in previously untreated advanced HCC, and three phase 3 pivotal trials in collaboration with Roche, CONTACT-01, CONTACT-02 and CONTACT-03, evaluating the combination of cabozantinib with atezolizumab in patients with metastatic non-small cell lung cancer (NSCLC), metastatic castration-resistant prostate cancer (mCRPC) and advanced RCC, respectively. CONTACT-01 and CONTACT-03 are sponsored by Roche and co-funded by us, and we announced the completion of enrollment for the two trials in November 2021 and January 2022, respectively, with interim results from both trials expected in the second half of 2022; CONTACT-02 is sponsored by us and co-funded by Roche, with enrollment ongoing globally. In June 2021, we
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announced that the COSMIC-312 phase 3 trial met one of the primary endpoints, demonstrating significant improvement in blinded independent radiology committee (BIRC) assessed PFS at the planned primary analysis, reducing the risk of disease progression or death by 37% compared with sorafenib. However, the final analysis for the second primary endpoint of overall survival (OS), which we announced in March 2022, showed neither improvement nor detriment in OS for cabozantinib in combination with atezolizumab versus sorafenib. Based on this outcome for OS and the rapidly evolving treatment landscape for previously untreated HCC, we do not intend to submit a supplemental New Drug Application (sNDA) to the FDA for the combination regimen.
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 enter the clinic following our re-initiation of drug discovery activities in 2017 was XL092, a next-generation oral TKI 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 a similar target profile while improving key characteristics, including the pharmacokinetic half-life. To date, we have initiated 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 either atezolizumab or avelumab, an ICI developed by Merck KGaA Damstadt, Germany and Pfizer Inc. We have established recommended doses for single-agent XL092 and XL092 in combination with atezolizumab and have begun enrolling expansion cohorts for patients with clear cell RCC, hormone-receptor positive breast cancer and mCRPC, and we are continuing to enroll patients into dose-escalation cohorts for XL092 in combination with avelumab; additional expansion cohorts for STELLAR-001 may include non-clear cell RCC, colorectal cancer (CRC) and urothelial carcinoma (UC). STELLAR-002 is a phase 1b clinical trial evaluating XL092 in combination with either nivolumab or with nivolumab and ipilimumab. An amendment is also underway to remove the previously included triplet combination of XL092, nivolumab and Nektar Therapeutics’ bempegaldesleukin; we are also negotiating with a partner to replace that combination regimen with a different XL092 triplet combination regimen. We are enrolling patients with advanced solid tumors in dose-escalation cohorts, and 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. To better understand the individual contribution of the therapies, treatment arms in the expansion cohorts may include XL092 as a single-agent in addition to the ICI combination regimens. We plan to initiate the first global phase 3 pivotal trial for the compound in the second quarter of 2022, and other phase 3 pivotal trials may follow throughout the year. This first planned global phase 3 pivotal trial, STELLAR-303, will evaluate XL092 in combination with atezolizumab versus regorafenib in patients with metastatic non-microsatellite instability-high CRC who have progressed after or are intolerant to the current standard of care.
We also augment our small molecule discovery activities through research collaborations and in-licensing arrangements with other companies. The most advanced compounds to emerge from these arrangements are XL102 , the lead program targeting CDK7 under our collaboration with Aurigene Discovery Technologies Limited (Aurigene), and XL114, Aurigene’s novel anti-cancer compound that inhibits the CBM complex. Based on encouraging preclinical data, we exercised our exclusive options to license XL102 and XL114 from Aurigene and initiated phase 1 clinical trials evaluating XL102 and XL114 in January 2021 and April 2022, respectively, and we expect to provide clinical updates from the phase study of XL102 in the second half of 2022.
Beyond small molecules, we have also launched rigorous efforts to discover and advance various biotherapeutics that have the potential to become anti-cancer therapies, such as bispecific antibodies, ADCs and other innovative treatments. 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 this biotherapeutic approach has been validated by multiple regulatory approvals for the commercial sale of ADCs in the past several years. To facilitate the growth of these programs, we have established multiple research collaborations and in-licensing arrangements and entered into other strategic transactions that provide us with 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 multispecific antibodies. We have already made significant progress under these arrangements and believe we will continue to do so in the remainder of 2022 and in future years: