Good day ladies and gentlemen and welcome to the Exelixis' First Quarter 2017 Financial Results Conference Call. My name is Leann and I will be your operator for today. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Susan Hubbard, Executive Vice President of Public Affairs and Investor Relations. Please proceed.

Thank you, Leann and thank you all for joining us for the Exelixis' first quarter 2017 financial results conference call. Joining me on today's call are Mike Morrissey, our President and CEO, Chris Senner, our Chief Financial Officer, P.J. Haley, our Senior Vice President of Commercial, and Gisela Schwab, our Chief Medical Officer, who will together review our corporate, financial, commercial and development progress for the quarter ended March 31, 2017 as well as recent key developments and corporate events. Peter Lamb, our Chief Scientific Officer is also here with us today and will participate in the Q&A session following our prepared remarks. As a reminder, we are reporting our financial results on a GAAP basis only and as usual the complete press release with our results can be accessed through our website at exelixis.com. During the course of this presentation, we will be making forward-looking statements regarding future events and the future performance of the company. This includes statements about possible developments regarding clinical, regulatory, commercial, financial and strategic matters. Actual events or results could, of course, differ materially. We refer you to the documents we file from time-to-time with the SEC which under the heading Risk Factors identify important factors that could cause actual results to differ materially from those expressed by the company verbally and in writing today, including without limitation, risk and uncertainties related to product commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, the availability of data at the reference time, our dependence on collaboration partners and our ability to maintain our rights under existing collaborations and the level of cost associated with commercialization, research and development and other activities. Now with that I will turn the call over to Mike.

All right. Thank you, Susan and thanks to everyone for joining us on the call today. We've gotten off to a good start in 2017 with strong operational performance across all components of our business. I'll begin today by providing a brief summary of the key events for the Q1 and then turn the call over to Chris, P.J., and Gisela for update on our Q1 financials, the ongoing Cabometyx RCC launch and development activities for both cabozantinib and cobimetinib. Key highlights for Q1 2017 include first, the strong commercial performance of Cabometyx in advanced RCC with net product revenues of $68.9 million for the cabozantinib franchise. Second, the use of our improved cash position to further optimize our balance sheet by paying off the Silicon Valley Bank loan with plans to repay and the remaining useful debt by mid-year. And third, we continue to make meaningful progress in R&D by advancing developments and regulatory activities for both cabozantinib and cobimetinib, reinitiating our internal discovery efforts and exploring potential business development opportunities. We are pleased to have achieved and important corporate milestone in Q1 by posting our first profitable quarter on an operating basis with diluted earnings of $0.05 per share, driven primarily by substantial growth of cabozantinib product revenues, while at the same time continuing to managed our expenses carefully and further reducing our debt. As we first articulated in July of 2015, we have been strategically focused on running the business to generate positive cash flow through standing product revenues, with the goal of reinvesting the resulting in free cash into advancing additional late stage trials for cabozantinib and building a strong products pipeline. It is gratifying for all of us here at Exelixis to have reached this important milestone. We look to expand future R&D initiatives that are balanced with future growth and product revenues, while maintaining and unwavering commitments to disciplined expense management. So with that, I’ll turn the call over to Chris who will provide more details on our Q1 2017 financials.

Thanks Mike. Total revenues for the quarter ended March 31, 2017 were $80.9 million compared to $15.4 million for the comparable period in 2016. Total revenues include $68.9 million of net product revenues compared to $9.1 million for the comparable period in 2016. The increase in net product revenues primarily reflects the impact of the commercial launch of Cabometyx in late April 2016. Our discounts and allowance from gross products revenues increased during the quarter to 11.6%. This increased versus prior quarters was primarily related to increased utilization on our focused business program, which is impacted by our commercial patients starting the year with renew deductibles, higher Medicare deductions related to patients passing to the [indiscernible] and to a lesser extend higher VA volume. As we see our business continue to evolve, we estimate that our 2017 discounts and allowances will be in the range of 12% to 14% of gross products revenue. Total revenues also include $12 million of collaboration revenues, compared to $6.3 million for the comparable period in 2016. Collaboration revenues for the quarter ended March 31, 2017, includes $4.5 million, $2.7 million and $2.3 million under our collaborations agreements with Ipsen, Takeda and Genentech, respectively, and $2.5 million in collaboration revenues from a milestone payment received from BMS related to its ROR gamma program. This quarter, we received a $50 million upfront payment from Takeda upon signing the collaboration agreement. We’ll be amortizing this upfront payment over approximately the next four years. And $2.7 million of collaboration revenue consists of two months of upfront payment amortization equal and approximately $1.9 million and approximately $800,000 of R&D reimbursement. The $2.3 million of Genentech collaboration revenue is exclusively related to royalties on net sales to Merck [ph] outside the U.S. in the fourth quarter of 2016 and the…

Thank you, Chris. We are very pleased with the continued progress of the Cabometyx launch and the Q1 2017 cabozantinib franchise net product revenue of $68.9 million. Q1 Cabometyx net revenue of $62.4 million compares favorably with the Q4 net revenue of $44.7 million, representing growth of approximately 40% in the third full quarter since the launch. End customer demand increased by approximately 40% in Q1 relative to Q4. This encouraging trend was driven by robust increases in new patient starts, refills for patients already on therapy and broad expansion of the Cabometyx prescriber base. The number of prescribers who have written Cabometyx through the specialty pharmacy channel increased in Q1 by nearly 40%. We are also pleased with the growth we have seen in the specialty distributed channel of our business. In addition to strong volume growth in this segment, the number of outlets that have orders Cabometyx increased by 20% in Q1. This growth is coming from dispensing community oncology practices, hospitals and academic institutions as well as government facilities. We're particularly pleased with the growth in the community oncology clinics as we are focused on these key practices. Taking together, these data depicts solid fundamentals and momentum of the Cabometyx business. We are gratified to see that our strategy and approach to the RCC marketplace are pretty see impactful results. RCC is a mature market with the relatively small number of high volume prescribers and beyond that there are a large number of low volume prescribers. Our data would suggest that we have been competing effectively in the high-volume segment of the market. So the continued growth we saw in Q1 adoption was driven primarily by community oncologists indicating that our promotional efforts are broadening the prescriber base, which continues to be a key strategic focus of…

Thank you, P.J. I will provide an overview of the development and progress in the quarter and cover our activities into course of regulatory filing for first-line RCC on the basis of CABOSUN, the status of CELESTIAL randomize Phase 3 study in the second-line HCC, and our progress on important new development plans for combining cabozantinib with immune checkpoint inhibitors. And I will close with a brief update on cabozantinib. First I'll start with CABOSUN, a randomized Phase 2 trial that compared to cabozantinib and sunitinib in the first-line treatment of intermediate or poor risk RCC patients. Results of this trial were presented at the ESMO conference last September and published in the Journal of Clinical Oncology later in 2016. This study is being conducted by The Alliance for Clinical Trials in Oncology in collaboration with NCI-CTEP. The trial met its primary endpoint of significantly improving progression free survival as assessed by investigator in the cabozantinib arm compared to sunitinib. The results showed a clinically meaningful and significant improvement for cabozantinib as compared to sunitinib in PFS and objective response rate and a trend in overall survival, a secondary endpoint on this study. With all activities in distinct work strength in support of a planned supplemental NDA well underway we are making good progress and are on track towards and sNDA's filing in the first quarter of 2017. We will provide additional updates of progress towards this important goal as appropriate. Second, I'll provide a brief update on CELESTIAL, our Phase 3 study in second line HCC. The randomized placebo-controlled study is designed to enroll patients who have previously received sorafenib with a total of two prior therapies allowed per protocol. The primary endpoint of the trial is overall survival. The trial continues to enroll patients globally, and we are…

All right. Thank you, Gisela. I’ll close by saying that we made significant progress across the organization and achieved our first quarter of profitability on an operating basis in Q1 2017. We look forward to the opportunity to reinvest in cabozantinib development and to rebuild our pipeline to internal R&D efforts as well as potentially in licensed and/or acquire compounds where appropriate. Our unwavering focus on disciplined expense management where new R&D initiatives are aligned with robust growth and product revenues will continue to be our guiding principle as we move the company forward in 2017 and beyond. Simply stated, we are one team with one mission, to advance medicines to treat patients with cancer, giving them and their families hope for the future. I am incredibly proud of the Exelixis team who individually and collectively worked tirelessly to deliver on this mission. We have much more to do, and I’m confident that we have all the elements in place to advance both our science and business with a great deal of focus and urgency as we tackle the challenges that we will face in the future. We look forward to updating you on our progress. Thank you for your continued support and interest in Exelixis. We’re happy to now open the call for questions.

[Operator Instructions] Your first question comes from Eric Schmidt with Cowen & Company. Your line is open.

Well, good afternoon. Congrats on another fine quarter. Maybe a couple of quick ones. First, just to clarify on CELESTIAL. Gisela, are you still committed to having the data, the final data, one way or another in 2017? Or if the trial doesn’t stop it's second interim might we need to wait until 2018 for the final?

So, Eric, we will have the interim analysis, the second interim analysis in the second half of 2017. And if we have to go to the final analysis, that would be a 2018 event.

Okay. Thank you. And then for Chris, you didn’t mention royalties from Ipsen. I think they reported, I think, 7.6 million in euros. What’s going on with your part of those profits?

Yeah, Eric, thanks for the question. So as you may recall, the first $50 million is at a 2% royalty. So you’re talking, I think, $135,000, $140,000 of royalties which are not that -- that are in our numbers, it just wasn’t broken.

Thank you. And I’m wondering if you might want to make any predictions on future profitability? Obviously you've achieved a lot of marketing [ph] profit from an operation standpoint this time around?

Eric, it's Mike, I'll take that one. And again we are certainly pleased with the Q1 performance, we think there is a more upside there, so we're not satisfied with the Q1, but certainly at the start of the year of on the right foot. Our stated goal previously has been to generate free cash and reinvest that free cash in the business that goes back to the last financial that we did in 2015 and that's still the operational strategy going forward. Obviously, we want to focus on growing the top-line to additional Cabo indications and new compounds, internal and external whatever, but that's the real focus going forward is to really build the business based upon using free cash that we can generate through our product skills.

Your next question comes from Stephen Willey with Stifel. Your line is open.

Yeah good afternoon and my congratulations on a solid quarter. Just I guess a couple of CELESTIAL questions. I know enrollment into the study was kind of a bit of a non-linear exercise, so I guess I'm just trying to figure out if the extension of the potential final read into '18. And is that a byproduct of the patient enrollment kinetics or is that a byproduct of I guess the slower than expected event rate [ph]?

Well it's an event driven study and so as I said earlier, we are tracking events very closely, and are now approaching the event number required for the second interim analysis. And looking at the trajectory of events, we would expect the final analysis to occur in 2018.

Okay. And then I know the study actually allows for I think more than one prior systemic therapy. And I guess just curious if you are seeing any patients who have both prior exposure now to soraphinib and maybe regorafenib as well post that Phase 3 win.

Patients are required to have been treated with prior soraphinib and the clinic said one additional other systemic therapy and we haven’t specified what that is, so we would except reporting regorafenib results to come available.

Okay. And then maybe the last question for Chris, it doesn't look like there was really any material inventory shift for like you or just wanted to make sure if there was stocking benefit in the $62 million Cabo number?

Thanks Steve that's, so [indiscernible] no, we were around three weeks of inventory and we ended last quarter with around three weeks of inventory for Cabometyx. So there was no stocking.

Perfect, appreciate the clarity, thanks guys.

And your next question comes from Michael Schmidt of Leerink Partners. Your line is open.

I had a few additional question regarding the label expansion activities that you're doing for Cabometyx. And one question on the CELESTIAL trial I had was I know you're doing a sub-group, maybe post-hawk analysis by MET expression status in the study. And I was wondering if the study is actually powered to show a benefit in that subgroup should the overall analysis should be negative potentially.

MET analysis is foreseen in the protocol and accordingly we are collecting the tissue and analysis is ongoing, but the power of the study is really dedicated to the overall study.

Okay, thanks. And then a question on your future planned studies with Bristol combining Cabo with Opdivo, potentially also in HCC. And I was wondering if what the gating factors to starting additional studies in HCC? Do you need to see the Type 1 inhibitor Phase 3 trial results? Or do you need to see the CELESTIAL Phase 3 trial results before starting additional studies? Or is it independent of that, of these data points?

Yes, we're not waiting additional results to start the work here with combining Cabo and nivolumab. As you know, this published data from Phase 2, both for our cabozantinib and nivolumab that is showing activity in this disease. And so certainly encouraged to move forward with it as it is.

Okay, thanks. And then I had a question on the Daiichi Sankyo molecule CS-3150 that you have licensed with them. And looking on a clinical trial of Cabo [ph] I noticed their Phase 3 program, it looks like it's nearing an end in the next few months, and I was wondering if you have, or if you can remind us on the economic interest on that molecule and maybe what's their timelines regarding data disclosure from the Phase 3 program there. Thank you.

Yes, hi, this is Peter, I can take that question. So just by way of reminder, CS-3150 is a potent selective nonsteroidal minerocorticoid receptor antagonist that was discovered in Exelixis and which is now partnered with Daiichi Sankyo. Daiichi is responsible for all of the ongoing clinical development activities and will be responsible for any future commercial activity. In terms of the status of the compound, Daiichi moved it into a pivotal Phase III trial back in September of last year. This was in Japanese patients with essential hypertension, and we were certainly pleased to see that, that trial reached full enrollment in the first quarter of this year. And I think Daiichi have reported at least that they're expecting top line data from that trial in the second half of their financial year 2017. But obviously, I'll have to refer you to Daiichi for more clarification also exactly when they might be expecting it. In terms of our economic interest under the contract, we're eligible for a series of clinical regulatory and commercial milestones associated with the advancement of the compound as well as low double-digit royalties on any potential future sales.

Thanks. And is this molecule aimed at the Japanese market only? Or are they looking to register worldwide potentially?

So the data, all of the development that Daiichi has been doing has been in the Japanese market in terms of what they're planning for the future. Again, I have to refer you to them.

Great. Thank you.

And your next question comes from Andy Hsieh with William Blair. Your line is open.

Hi this is Andy and Fae on for John [indiscernible]. We have two questions. First one is for P.J. I think before, maybe a year ago, I believe you guys talked about the breakdown for subscribers is about 70%, 30% community versus academic. Does that ratio still stand? Secondly, just a question on spending. Obviously going forward, the combination trials, there are several parties involved, are the responsibilities of Takeda and Ipsen, are they geography-based? Or is that a percentage that they responsible may be structurally, can you walk us through the expense? Thank you.

Yes, Andy. This P.J. Thanks for the question. I think kind of going back to my memory banks here to into remember what we said a long time ago. I think, technically oncology markets you see sort of that 80-20, 70-30 split in academic to community. What I could say about Cabometyx in the current RCC market is that we've talked about as there's a large number -- or excuse me, small number of high-volume prescribers, many of them are academic. We are competing extremely effectively in that market. So if you actually look at our slides, you could see that over time we've expanded our community base. So we're sort at a point where we're at about, give or take, 60%, 65% in the community. And that's an increasing number, which I view is a very good sign for the business for 2 reasons; One, because we got rapid adoption among the KOLs in the academic prescribers which is always a good place to start out a launch; And two, because we really have great momentum in the community and we see that expanding again this quarter as we increase our business by 80% of our growth came from the community and our prescriber growth grew by 40% of new prescribers through the specialty pharmacy channels. So it's about, like I said, 60%, 65% community and increasing as we look over the past few quarters, which is I think is a healthy place to be.

Okay, Andy, this is Chris. From a cautionary point of view on the R&D side, so if you look at the current ongoing trials, we fund 100% of them, and Takeda reimburses us around 20% for those. If you look at the future trials that we may do, including the BMS trials, which we are sharing the cost and as Gisela noted in her prepared remarks, Ipsen has opted in for that, and Ipsen will pay 35% of our share of those studies. And as of right now, because it's still new, Takeda hasn't made a decision to update or not but if they do opt-in, they would share 20% of our share of the BMS combination trial cost.

And your next question comes from Edward Tenthoff with Piper Jaffray. Your line is open.

Quick question. I apologies, if this was asked or this was something that you can't comment on. But I wanted to get a sense if you know about front-line utilization? I know obviously, we don't promote on that, especially with the filing coming, and it was easier to interpret earlier when we kind of see through COMETRIQ sales picking up. But do you have any sense of whether there is some adoption in the front-line?

Hi, Ted, this is P.J. First of all I'll remind you that we certainly only promote Cabometyx or any of our products within the labeled indication. And with regards to commenting on off-label utilization by policy with one exception in the past, we're not doing that now or currently moving forward. What I'll say is we've had really great strength in both the second and third and later line settings. So we've seen good growth there in the prescriber base, in the volume demand up 40%, the revenue up 40%. And we think we still have a lot of opportunity and room to grow by both extending the prescriber base, a lot of prescribers haven’t written yet as well as moving it more into the second line setting.

Your next question comes from Andrew Peters with Deutsche Bank. Your line is open.

Let me add my congrats. It’s great to see their continued progress. A couple of questions from me. I guess first on the Bristol collaboration. Can you walk through, I guess, what are the limiting steps on getting the bladder and HCC studies started? And as you think about the other potential trials that you talked about, can you just walk through the sort of discussion that you’re having with Bristol in terms of what those potential other indications could look like and the extent of those studies? And then just secondly, in the past, you’ve talked about the potential for multiple deals beyond just say, a Bristol and a Roche. Is there the possibility to expect additional collaborations over the course of the year? And how do you think about continued business development in terms of the partnership on CABOSUN? Thanks.

Okay. This is Gisela. Just starting with your first question regarding limiting steps to get the study started. It’s really agreement on the study design, development of protocols and the usual startup activity that are associated with the new clinical trials. So these are being worked on and are advancing quite nicely. And regarding indications beyond the ones we’ve named, I can’t comment on this just yet other than to say that there are some discussions ongoing.

Yeah, it’s Mike. Maybe I’ll try and answer your second question. Again, as we said previously, we’re really interested in exploring as much, if you will, real estate as possible across both hot and cold tumors in terms of different histologies as well as different I/O opportunities. In that regard, we’re talking to everybody in some shape, manner or form. I don’t want to give any guidance on that. I don’t want to speak with any clarity on that right now. But we’re looking to again I think really expand the number of opportunities we have across the board to look at different tumor types with Cabo-I/O combinations. So stay tuned on that. Certainly, we’re pleased with the initial steps forward with the BMS and Roche collaborations, and there’s lot more to do, and we’re going to trying to get done as we go forward.

Great. Thank you and congrats again.

Your next question comes from Chad Messer with Needham & Company. Your line is open.

Great. Thanks for taking my question and I’ll add my congratulations on the quarter and just crossing that threshold over into operational profitability. It’s something only a select few biotech companies ever accomplish. Just wondering now that you’re about a year into the launch in RCC with cabo, do you have an understanding of what sort of driving prescriber decisions to use cabo second line versus later? Something about disease characteristics or secrets of other treatments? Or any kind of pattern that you can grab on to that will be driving earlier versus later use?

Yeah, great question. Why don’t we have P.J start that off and I'll try to provide some color commentary as needed, okay? P.J.?

Okay, great. Thanks for the question, Chad. I will say, I think that depends on prescribers generously, it's very clear from our market research as well as feedback that we get from customers through advisory boards and other meetings that if physicians, oncologists are aware of the data, really, of the trifecta benefit in overall survival progressive company survival and response rate, they're willing to utilize the drug. Typically, oncology, often, they will start in the third-line setting or later line settings and move it up. So that's what we're seeing. We're seeing prescribers as they get some experience with the drug, move it forward from the third line or later into the second-line setting, which is certainly an encouraging sign and a sign that they're having a good experience with the drug. That said, I think there are some potential patient types that could be potentially preferential, patients who might be symptomatic or have rapidly progressive disease, they want a response to their disease quickly. What we hear from customers is that the Cabometyx is a great option for those patients. That said, our label really is broad and we can promote it to all patient types. So it's really encouraging what we're hearing now. As you mentioned, we're a year into the launch, and we think we have a lot more work we can do as we get more prescribers educated on the drug, grab an opportunity to try it and continue to grow the business going forward.

[Operator Instructions]. And your next question comes from Stephen Willey with Stifel. Your line is open.

Yeah, thanks for the follow up. Just a quick question on CABOSUN actually. So I know you guys are going to be filing in the third quarter this year. But I guess I'm just curious if there's going to be any opportunity for us to see the centralized review results, I guess, either presented at some conference venue or communicated to us by you guys prior to there being some kind of formal sNDA decision?

Yes, I think the IRC review, obviously, is a critical step. And I think as I've said before and reiterate today, that we would expect this data to be made public in a scientific conference, and in that context, we would certainly discuss it as well.

Perfect, Thanks for the follow up.

At this time, there are no further questions. And so I will turn the call over to today's hosts, Ms. Susan Hubbard. Ms. Hubbard?

Okay, great. And thank you all for joining us today. We welcome your follow-up calls with additional questions that you may have. Thanks again.