Good day, ladies and gentlemen, and welcome to the Exelixis' Second Quarter 2019 Financial Results Conference Call. My name is Gigi and I'll 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, Gigi and thank you all for joining us for the Exelixis' Second Quarter 2019 Financial Results Conference Call. Joining me on today's call are Mike Morrissey, our President and CEO; Chris Senner, our Chief Financial Officer; Peter Lamb, our Chief Scientific Officer; Gisela Schwab, our Chief Medical Officer, and P.J. Haley, our Senior Vice President of Commercial who will together review our corporate, financial, research development and commercial progress for the second quarter ended June 30, 2019. We will keep our comments relatively brief to allow for questions at the end of the call. During the call today, we will refer to financial measures not calculated according to Generally Accepted Accounting Principles. Please refer to today's press release, which is posted on our website for an explanation of our reasons for using such non-GAAP measures, as well as tables deriving these measures from our GAAP results. 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 discovery, product development, 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 risks and uncertainties related to product, commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, our dependence on collaboration partners and the level of cost associated with the discovery, product development, business developments and commercialization, activities. Now with that, I will turn the call over to Mike.

Alright, thank you Susan and thanks to everyone for joining us on the call today. Exelixis had a strong Q2 with important progress across all components of our business. We maintained strong momentum as we grow CABOMETYX revenues, advance our cabozantinib development program and diversify our oncology pipeline with new agents from internal and external sources. I’ll begin today by providing a brief summary of our Q2 milestones and then turn the call over to Chris, Peter, Gisela and P.J. to review important components of our business. Key highlights for Q2 2019 includes first, net cabozantinib franchise revenue of approximately $194 million. Non-GAAP Q2 net income was approximately $91 million and non-GAAP gross earnings were $0.29 per share. Our Q2 results confirm that cabozantinib’s best-in-class TKI profile can drive strong growth in the face of competition from three different ICI-based combinations at RCC. Second, our cabozantinib development program continues to move forward aggressively as we advance four ongoing pivotal trials and highlight important progress in the prostate cancer and ICI refractory non-small cell lung cancer cohorts of the COSMIC-021 trial. And third, today’s announcement of a broad multi-target collaboration with Aurigene that complements to our efforts to build a diversified early-stage pipeline. Our progress throughout Q2 highlights the company’s performance across all components of our business during a dynamic time for both RCC and HCC indications. Our overall strategic goals remain the same. We see controlled revenues, manage expenses carefully and we invest free cash to build a diversified business capable of long-term sustainable growth. So with that, I will turn the call over to Chris who will provide more details on our Q2 2019 financials.

Thanks Mike. I'm very pleased to review our strong results for the second quarter of 2019. For the quarter, the company reported total revenues of $240.3 million. Total revenues for the second quarter included cabozantinib net product revenues of $193.7 million. Total revenues also included the recognition of $46.6 million in collaboration revenues from the company's commercial collaboration partners Ipsen and Takeda and Daiichi Sankyo. On a sequential quarter basis, CABOMETYX net product revenues increased by approximately $13.1 million or approximately 8% and was primary driven by an increase in product volume. The CABOMETYX wholesale inventory at the end of the second quarter 2018 was essentially flat when compared to the first quarter of 2019. Total revenues for the quarter ended June 30, 2019 also included collaboration revenues of $46.6 million. These collaboration revenues included $20 million milestone from Daiichi Sankyo for the commercial launch of MINNEBRO Tablets as a treatment for patients with hypertension in Japan. Collaboration revenues also included $14.9 million of royalties earned from approximately $66.5 million of cabozantinib sales by Ipsen. Our total cost of expenses for the second quarter 2019 were $148.3 million, compared to $130.9 million in the first quarter of 2019. R&D expenses are the primary driver of the increase in total cost and expenses, which increased by $18.6 million and were significantly impacted by the license agreement we signed with Iconic during the second quarter under which we provided $12.6 million in an upfront payment and initial R&D funding for the program. Income taxes for the quarter ended June 30, 2019 was $20.7 million and effective tax rate for the quarter was approximately 20.8%, compared to $900,000 and 1% respectively for the comparable period in 2018. The company reported GAAP net income of $79 million or $0.25 per share on a fully…

Thanks, Chris. So, we are very happy to announce a new oncology discovery collaboration with Aurigene, a small molecule drug discovery company based in Bangalore, India. This is a broad collaboration involving a total of six programs including three internally developed Aurigene programs that are either at pre-clinical developmental lead optimization stage and three additional de novo programs around mutually agreed targets. In all cases, Aurigene will be responsible for discovery and pre-clinical development activities with Exelixis having the right to license the programs at IND stage. Exelixis will then be responsible for global clinical development and commercial efforts except in India and Russia where Aurigene will retain rights. This collaboration builds on our previous small molecule and biotherapeutic deals with StemSynergy, Invenra and Iconic and shares the same philosophy of modest upfront payment with more substantial success-based milestones downstream. Aurigene has a proven track record of advancing compounds with diverse mechanisms of action into the clinic and has over a 100 scientists focused on oncology discovery. Aurigene’s small molecule approach and experience effectively complements our own internal discovery efforts. In particular, they have developed expertise in the optimization of prevalent inhibitors and with novel approaches to induced protein degradation. As such, this collaboration gives us access to approaches and targets that we would not necessarily pursue internally and expands our small molecule pre-clinical pipeline and capabilities in both the biology and chemistry point of view. With respect to our own internal discovery efforts, the build out of our – lab space is near completion and we are actively advancing compounds in multiple areas. Of particular note, we’ve now resumed screening the Exelixis compound migrates that we retained from our original discovery group meaning that we now once again have a fully integrated discovery operation from identification through the preclinical developments. With that, I will turn the call over to Gisela.

Thank you, Peter. I will focus today’s development update on cabozantinib’s next wave of trials, as we’ve made encouraging progress in this area. As announced a few weeks ago, we are making excellent progress on our COSMIC-021 trial, a Stage-1b study of cabozantinib and atezolizumab. The study is accruing patients actively across 20 expansion cohorts and we are beginning to see encouraging early results in different tumor indications. As a reminder, the key objective of the expansion cohorts is objective response rate or ORR for RECIST version 1.1. Notably, early data from the Castration-Resistant Prostate Cancer cohort or CRPC cohort in patients who have received one novel hormonal therapy and could have received prior docetaxel or any hormone-sensitive stage that’s resulted in expansion of this cohort. Additionally, our study oversight committee has recently recommended expansion of the immune checkpoint inhibitor progressive non-small cell lung cancer cohorts. This cohort includes patients who have received and failed prior standard chemotherapy and prior immune checkpoint inhibitor together or in sequence. Both cohorts are now open to adding an additional 50 patients to further evaluate the early evidence of activity seen among the first 30 patients enrolled. Additionally, we are adding a further four cohorts of CRPC patients to this study bringing the total number of cohorts in the study to 24. Two cohorts evaluating the combination of cabozantinib and atezolizumab are being added, one for metastatic CRPC patients with visceral disease or measurable extrahepatic lymph nodes and graphically rising PSA who have received one prior novel hormonal therapy and could have received prior docetaxel for hormone-sensitive disease and the other for patients meeting these criteria and who have also received prior docetaxel for metastatic Castration-Resistant Prostate Cancer. To characterize the single-agent activity of cabozantinib or atezolizumab, we are also adding two single-agent cohorts…

Thank you, Gisela. I am very pleased to discuss in detail with you today the commercial performance of CABOMETYX in the second quarter. CABOMETYX demand grew by 26% in Q2 2019 relative to Q2 2018 and grew sequentially by 9% in Q2 2019 relative to Q1 2019. Both RCC and HCC demand grew in Q2 with the majority of the growth coming from RCC. Additionally, the prescriber base grew by 45% year-over-year for Q2 and by 8% in Q2 relative to Q1. This growth was driven by new community prescribers for both RCC and HCC, as well as new academic prescribers within HCC. We are pleased that CABOMETYX continues to be the number one prescribed TKI in the RCC market. The performance of CABOMETYX remains strong despite the recent first-line approvals of various immune checkpoint inhibitors or ICI combinations. According to Brand Impact, CABOMETYX second-line RCC market share increased as more patients progressed on ICI combination therapy in the frontline setting. Also according to Brand Impact, CABOMETYX continued to capture the vast majority of patients who progressed on either with the number of second-line patients who have progressed on the combination of nivo would be increased again in Q2 and we expect this gradual trend to continue in the coming quarters as this combination regimen now has been approved for over 15 months. Based on data from Brand Impact and other sources, we are starting to see divergent trends in regards to the utilization of new PD-1 TKI combinations in Q2. The uptake of first-line pembro/axi appears rapid and is predominantly coming at the expense of nivo/ipi in the community segment. The avelumab, axitinib combo appears to be getting very little traction in the marketplace. Sunitinib and sorafenib are losing market share in terms of TRx as axitinib share increases.…

All right, thanks, P.J. I’ll close by saying that Exelixis maintained strong momentum in the second quarter of 2019 and we are excited about the growth potential of our company across all aspects of our business. Notably, we continue to see strong revenue growth in Q2, both quarter-over-quarter and year-over-year due to the strength of the CABOMETYX business and our ex-U.S. deals with Ipsen and Takeda. It’s notable that the cabozantinib franchise achieved more than $250 million in global net product revenue for the first time in 2Q, 2019. With this momentum, Exelixis provides a compelling opportunity for potential long-term growth as we continue to invest in R&D with future additional cabozantinib label enabling trials and potential new product candidates. I want to thank everyone at Exelixis for their dedication and commitment as we navigate the opportunities and challenges that lie ahead. The entire team has a sense of urgency and focus to make every day count as we discover, develop and commercialize the next-generation of our medicines for cancer patients in need of better and more effective therapies. We look forward to updating you on our progress. Thank you for your continued support and interest in Exelixis and we are now happy to open the call for questions.

[Operator Instructions] Your first question comes from the line of Andy Hsieh from William Blair. Your line is now open.

Great. Thanks for taking my questions and congratulations on kind of building the Cabo franchise into a blockbuster drug. So, in terms of HCC, P.J., you kind of talked about the various setbacks of ICI trials, notably, keynote for through 240 and CheckMate 459. Just curious about how has that dynamic changed the dialogue between Exelixis sells the rep and – sales reps and also the treating physician. And also, do you see any sort of changing in prescribing pattern, so physicians are becoming more selective in their use of checkpoint inhibitors and HCC?

Hi, Andy, thanks for the question, I’ll try to take both of those one at a time. As you mentioned, in addition to the keynote 240 trial being negative, recently it was announced that front-line 459 trial of nivo versus sorafenib was not positive and those results we’ll see at ASMO. So I think, with regards to what we are seeing and hearing in the marketplace, that data not being published yet. I think it’s still kind of early days to speculate on what we are seeing there. Every, I think, malignancy is different with regards to kind of perception of ICIs to begin with. And I think, HCC will continue to evolve and potentially be built as these agents over the long-term as we mentioned move in a frontline in combination therapies. So, I think, we will continue to see how that evolves as we see the data at ASMO. With regards with Cabo, we are seeing strong performance in our labeled indication of second-line plus setting and that’s really being driven by strong efficacy data and the overall survival benefit that positions our seeing in the data from CELESTIAL what we are seeing awareness increase, that’s really driving our business and we are excited about the launch and look forward to the continued momentum there.

Great. And so, kind of moving back to the BASKET 021 study, in terms of the expansion cohorts in non-small cell lung cancer, just to clarify, are you both looking at ICI refractory and also relapsed patients or just looking at the re-relapsed patients. So, basically we have at least a partial response or a complete response.

Yes, this is Gisela. Thank you for the question. We are including both in the exploratory expansion cohort and are certainly collecting the data that you alluded to with respect to the prior response or not to a checkpoint inhibitor containing regimen and are assessing the data. So, stay tuned. We will look forward to reporting the data at the appropriate time at the upcoming conference to be determined still.

Okay. Just final question from a policy perspective. There has been some movements in Washington regarding the Medicare Part-D reimbursement. I understand it’s a something that subject to very substantial changes over time, but could you help us understand the potential impact as we work out probably different outcomes of various scenarios?

So, Andy, it’s Chris. So, I guess, just starting from the beginning here, we were tracking this in both – what the developments in Congress and also the – within the administration pretty closely. There are lot of different proposals out there, and a lot of moving pieces and not wise for me to speculate about what the outcome would be at this point, what could become law. But I would say that is, from a Medicare perspective, about 30% to 40% of our current businesses is in the Medicare Part-D segment.

Okay. Yes, that’s super helpful. Thank you very much for answering all my questions.

Thanks, Andy. Thank you.

Thank you. And our next question is from Michael Schmidt from Guggenheim. Your line is now open.

Hey guys. Congrats on the progress and thanks for taking my questions. I just had a follow-up on the market dynamics in kidney cancer. P.J., you mentioned that you are still seeing basically the majority, the vast majority of patients coming off of - going on to CABO upon progression, I was just wondering if it would be fair to assume a similar dynamic? Once the Keytruda, the pembro/axi combo gain some more share in the frontline setting, especially when you maybe considering the PFS as a little bit longer than fully IO combo?

Yes, Michael, thanks for the question. I am happy to elaborate. I guess, as we mentioned, we are getting the vast majority of the patients as you mentioned, excuse me, coming off ICI combination, certainly NIVO will be in the second-line setting and that’s driving our continued growth in market share there. With regards to the dynamic of the patient, we think it’s still the majority of patients who are on Nivo would be now or who have received it, I should say since launch and yet to progress. So, we view that sort of second-line segment of the market in terms of ICI pre-treated patients is continuing to grow. With regards to Pembro/axi coming into the marketplace, I think we are really expecting more of the same without sort of going into the leads on PFS or treatment-free survival, that type of thing. I think, what we are hearing in the marketplace and from KOLs and advisory boards is that, we will continue to be the second-line treatment of choice regardless of whether they receive PD-1 TKI or Nivo maybe in the first-line. So we just kind of expect that dynamic to continue to play out and we’ve seen it now as I kind of mentioned for about 15 months. And I think it will really just be more of the same with both of the regimens really or three of the regimens now approved in the first-line. And I think what we expect is that’s being driven by the totality of the combo data and significantly the overall survival benefit that we demonstrated in the second-line.

Great. Thanks. And then, maybe one for Gisela. Obviously, great to see the continued expansion of the COSMIC-021 study. Just wondering maybe bigger picture- wise, how do you think about the potential development path forward for Cabo and Atezo in specifically in lung and prostate cancers? For example, what would you say a potential benchmark for success here to advance those into pivotal trial studies?

Yes, thanks for the cushion. We certainly are encouraged by the signs of acuity in the initial cohorts both in the CRPC cohort and the small cell lung cancer cohort in patients who have received ICI and chemotherapy. I think the cohort expansions will allow us to further evaluate activity in this setting and we are certainly excited about thinking about development path into future studies. But it’s a little bit too early to speak to that at this current time.

Okay, great. Thanks. And maybe one last one on the Aurigene collaboration. Just wondering if you could comment some more on the – I think the pre-existing programs that you mentioned if you could comment little bit more about what area that is in and maybe how far along those are in development?

Yes, this is Peter. I can comment generally about that. You are correct. The entire deal encompasses six programs which three programs are pre-existing Aurigene programs and then as I commented, there will be three new programs which will begin around mutually agreed targets. For the pre-existing programs, in terms of their status, they are either in preclinical development or what I would call lead optimization right now. I think beyond that, I don’t give specific guidance about when or if they might kind of advance into the clinic on specifically what those targets are I think consistent with the way we’ve discussed our internal programs but for competitive reasons at this point, we are not specifying what the targets are. I think as I commented, one of the advantages of this collaboration to us is, the complement parity with our internal discovery group, I think some of the experience Aurigene has in some of the areas that I highlighted like prevalent inhibitors and induced protein degradation, just broader spectrum of kind of interesting targets that we can address as well as just giving additional firepower on the chemistry and biology side.

Okay. Thanks for taking my questions.

Thank you, Michael.

Thank you. Our next question is from Kennen MacKay from RBC Capital Markets. Your line is now open.

Hey, thanks for taking the question and congrats on the quarter. Maybe a quick one for Mike or Gisela. Just thinking about the baseline patient characteristics for CheckMate 9ER and thinking about how that compares to the recent avelumab plus axi trial or the Pembro plus axi trial, how should we think about the control arm, sort of potentially performing in CheckMate 9ER versus those trials. Is this something where the PFS event rate accumulation would – maybe more like the control arm in the avelumab axi trial or the Pembro axi trial? Obviously, some dramatic differences there.

Yes, I think, it’s always difficult to compare between independently performed trials, because as you said, patient populations vary a little bit. That’s said though in CheckMate 9ER are risk groups of patients who have RCC are included per the IMDC criteria and obviously I can’t go into great detail here. We are still looking forward to results in early 2020 and so we will see the data at that point and can describe it in more detail.

Okay. Gotcha. Thank you. Fine. And then, maybe another one for you, just wondering if you could help us understand what the efficacy bar wise or range wise or the requirements start to step up from the 30 to 50 patient expansions that you’ve mentioned in CRPC and non-small cell lung cancer of COSMIC-021. Thanks.

Sure. Certainly, exploratory expansion cohorts in the trial with the primary objective is to assess preliminary activity and we are doing so by evaluating objective response rate for traditional with this criteria which is 1.1. The study oversight committee has flexibility to expand in the cohorts based upon activity profile and safety profile served in a given cohort and I think that in context what it’s - in general the patient population. And so, that’s how decisions are being made in a relatively flexible way for expansion of cohorts. So, I can’t to speak to the numeric numbers of objective responses in an ongoing trial, but I think that sort of paints the picture.

Gotcha. Thank you very much, before – Chris I actually don’t have my usual inventory housekeeping questions for you. I wanted to compliment you on your slide then mentioned that have Slide 9 of all the all the way impacting Cabo's grow, you are really making my life easy. Thanks for that.

Always, Kennen.

We try hard.

Thank you. Our next question is from Yaron Werber from Cowen. Your line is now open.

Hi, thank you and thanks for taking the question and congrats on the good showing despite competition. So, I have a couple of questions and one is, just a little bit of understanding. So, tell that the way you are communicating the HCC portion if I heard correctly, it’s approximately 5% of the total sales this quarter or about $9 million. But last quarter it was about 50% of the growth or $2 million to $3 million. I am trying to triangulate those numbers so to jive with what you are seeing in the marketplace so far.

Yes, thanks for the question, Yaron. This is P.J. With regards to the 5% we are thinking about it in terms of really overall demand or volume sounds we can track pretty closely the revenue there. We have the 9% growth in demand this quarter. We continue to be pleased with the reception both in RCC and HCC really driven by the overall survival benefit in both these tumors. We are not breaking out – to answer your question specific growth rates in RCC and HCC this quarter. But we are seeing the majority of the growth coming from RCC which we are certainly pleased with as you mentioned in the phase of a lot of competition, three ICI combinations. So, seeing that growth in RCC is encouraging and seeing continued growth in the early days of the launch in HCC is as well.

Are you seeing net market growth right now in RCC? Or is that you are reclining share in the competition among the other regimens?

Well, I think, you know, the way we’ve always talked about predominantly the RCC market is that it’s a pretty mature market. Now there is over a dozen regimens approved for RCC. So, the market overall is stable, except for the sense – with that as the combination is being approved, there is more drugs being used now per patient. So, the way I’d really frame it though is, we see a stable business in the first-line in the phase of the new competition and then we really see continued growth in the second-line and anticipate that patient population of ICI experienced patients continuing to grow as those patient dynamics flow for the coming quarters and as I mentioned previously, the totality of our data and the overall survival position in Cabo well all the feedback we get to continue to be the leading agent in that population and getting the vast majority of those patients.

Okay. And then question on, XL092, so the ongoing study specifically selecting for renal carcinoma, non-small cell and then the malignant solid neoplasms as well. So, in that storage bucket are you – what are you expecting? Are you hoping to get essentially more prostate patients into that that bucket and sort of have a fast follow-on strategy to the original cabo design in that segment. I am trying to get a sense of the overall trial design for 092.

Sure, sure. I’d be happy to describe it more in detail. So, the dose escalation study, cohort dose escalation study in a three plus three design where patients would advance malignancies can be included as we evaluate rising doses of 092. And then we have added to the study expansion cohorts, so beginning once the recommended two dose or maximum tolerated dose has been identified and it allows us to look at initial activity of single-agent 092 in currently in non-small cell lung cancer and in CRPC. So that’s the basic set up.

Thank you.

Thank you .

Thank you. Our next question is from Jennifer Shen from Needham. Your line is now open.

Hi. Thank you for taking my question. This is Chad’s associate. I have questions about the different distribution between the community versus academic positions in terms of the percentage of prescriber for RCC and perhaps kind of give us some color on the HCC growth in terms of TRx in the community if you have that number. Thank you so much.

Hi, Jennifer, this is P.J. Happy to answer and thanks for the question. In RCC, I think what we’ve seen and talked about is over time, as I have mentioned, it’s a really mature market. So, certainly it’s heavy community utilization overall not not really specifically sharing exact numbers, but I think I’d call them that 70% to 80% range roughly I that marketplace. What we really pleased with this, because we see great traction in the community there over time and then, subsequently, I think the progress we’ve made in RCC and kind of the brand perception has really helped us then in the HCC launch as we know physicians have responded really favorably to seeing really the overall survival benefit in both tumors and think about CABOMETYX for their patients. With regards to TRx, in HCC the IMF doesn’t break out that data. So, what I would say though is that, we are seeing growth really across the board in terms of our demand in HCC as it’s early days in launch and we are seeing continued adoption and new prescriber adoption in both academia and the community as we continue to build on the momentum here.

Thank you so much for your answer.

Thank you. Our next question is from Peter Lawson from SunTrust. Your line is now open.

Hey this is Peter. Chris, just on as we are thinking about our Q3 numbers, is there anything in either last year of this quarter we should be thinking about be setting up difficult comp for Cabo?

Hey, Peter, it’s Chris. I wouldn’t say there is anything specific that in Q3, perhaps in Q3 last year compared to Q2 last year that will happen this year. I mean, from a business perspective. Q3 last year I think we had some milestones but we are not providing guidance on milestones at this point in time. So, I don’t think that maybe using Q3 versus Q2.

Good. Thank you. And then, are we seeing any kind of I guess, off-label use of cabo with PD1. Any comments you can make around that? And then the proportion of post-IO RCC patients you are seeing. It’s not still around 90%.

Hi, Peter, this is P.J. We didn’t want to comment or speculate on any off-label utilization of cabo, I don't think that's appropriate. What we are seeing is really the vast majority of patients in that setting in terms of post ICI combinations getting CABOMETYX and we were very pleased with that. And as I mentioned, it's kind of driven by the totality of the data and strong perceptions of efficacy and overall survival in the marketplace and all the indicators we have is that that will continue in that sort of segment in the marketplace will continue to gradually grow in the coming quarters.

Got you. Thank you. And then what's going to be, do you think the effect on the duration of treatment for Cabo if it's following I-O plus TKI?

You know, I think, this is PJ again Peter. I don't think we'd want to speculate on the potential impact of duration, it's obviously very early days to in kind of how this market dynamic is evolving in terms of sequencing. We are pleased that we have the traction and the momentum we have. But I guess it's too early to comment on any duration.

Great. Okay. Thanks a much. I'll jump back into the queue.

Thank you. Our next question is from George Farmer from BMO Capital Markets. Your line is now open.

Hi, thanks for taking my question. I'd like to talk about the data on Slide 30 again. Regarding the share of scripts for other various TKIs. So it looks like the ICI-TKI combo is gaining steam really kind of at the expense of pazopanib and sunitinib and that cable looks steady, but if your second-line share is stable, then should you be losing something on the front-line? And is that kind of a trend that you think is going to continue?

All right. Yes George, this is PJ. I'll be happy to provide some context on that. So, I think I would be - I guess caution against sort of reading into this data, sort of that sort of way and I'll give a few caveats as to why. So this is overall prescription data, first of all so for all the drugs is comprised of any indications of utilization. It's also just the TKI market and not the other agents. So, there is third-line components. There is other things. So I think, it's a very good anchor for us, as we look at competition and benchmark ourselves to it relative to the other TKIs. But we have a variety of sources we use and pretty sophisticated analytics behind all of this. So, I wouldn't interpret it that way. But, as I did mention the totality of what we are seeing is pem/axi taking share primarily from Ivo/ipi, which really since is encouraging to us, as we think about the potential for the cabo-nivo trial in 90 arc is clearly PD1, TKI is being received well in the marketplace and particularly in the community setting.

Okay. That makes sense . And then, I have a question about the Aurigene collaboration. You mentioned that it was a brand around two different types of compounds, covalent inhibitors and protein degraders, which one are you guys focused on? Do you like – do you prefer one over the other? And is your deal around, any one particular class weighted in particular over the other?

Yes. This is Peter. I wouldn't characterize it like that. I kind of highlighted those as technologies that they have that are complementary to us. And I think they both have their attractions. But I also shouldn't necessarily think that that everything we do with them might fall into one of those two classes. So, kind of agnostic, it's all – it's all driven by the data as the programs advances to as to which way which we go. And this is going to be a collaboration, where – with we are very much involved and we are going to be applying the same kind of standards and quality metrics to what Aurigene is doing as we do to our own internal – our own internal programs.

All right. So do you think we could see Exelixis someday developing a protein degrader, is that possible?

It's possible. I don't know. Let me leave it at that. But I can’t guarantee.

Okay. Great. Thanks very much.

Sure, George. Thank you.

Thank you. Our next question is from Stephen Willey from Stifel. Your line is now open.

Yeah. Thanks for taking the questions and congratulations on the quarter. Just a quick question on the recent prostate expansion, I guess, just looking at the competitive landscape there. Just kind of curious as to how a decision to move forward into a potential registrational trial will be informed not only by the data that’s collected out of the now recently expanded cohort, but also based, I guess upon what the Roche is currently doing in Phase 3, where I believe they have an atezo-enzalutamide combo in the refractory setting right now.

Yes. I think it's a broad question, of course, of the prostate cancer treatment landscape is evolving in a way. And I think I'd offer a couple of thoughts. One being that, based upon the activities seen and the efficacies seen and with various novel hormonal agents in the castration-sensitive state of the disease, a lot of therapies are moving up in the line of – in the treatment of prostate cancer. Likewise, for patients with high-volume disease more patients see docetaxel use in the hormone-sensitive stage based upon the charted study. So, overall, the treatments are being utilized earlier. In terms of the Roche atezolizumab-enzalutamide study, I guess I'd refer it to Roche to understand where that stands, because, obviously we won't make comments on their studies and proprietary information. So, I think I'll leave it at there, I think in terms of our own data as I mentioned earlier on the call, we are very encouraged by the observations that we've made in the initial expansion cohort in particular in the patient population with measurable disease and so we are expanding upon that actually involve more patients.

Okay. And then maybe just a follow-up on COSMIC. I know bladder was one of the cohorts that was pre-specified as one of the initial tumor types of interest and the NIH data would suggest that you have some pretty interesting synergy in combination with PD1 inhibition. And I think Mike, you've previously talked a little bit about how the dynamic competitive landscape in bladder maybe caused you a little bit of hesitation with respect to deciding to move forward there. But I guess, how do you think about that dynamic landscape relative to what's becoming probably maybe an even more competitive landscape and long, certainly some of the changes that were just mentioned occurring in prostate. You've got commercial infrastructure in place already on the GU side. Just kind of curious as to if thoughts of revisiting bladder have changed at all. Thanks.

Yes, Steve. Thanks for the question. Yeah, I would frame it at a high level in the context of data, commercial opportunity, and competition and really understand, especially with the cohorts the widening cohorts and the deepening cohorts within 021 where we have room to maneuver and where we think we can win and potentially win big based upon those three components of the analysis. So, there is lots of work that goes was into that. There is – it's not a simple answer. But the algebra that we have to do to make sure that we are making the right investments in a very thoughtful and pragmatic fashion really include those different components, so. But I think what you are seeing is that we are moving forward, at least in terms of expanding 021 in a way that we think makes sense based upon those different components. And I think you'll see that continue over time data pending, right. So, to your question about bladder, lots going on there, still waiting for frontline I-O or PD-1 chemo data. Certainly some of the ADCs look really encouraging in the post-I-O setting, so that space is certainly not getting less complicated as well. So, I think we're doing the right work clinically, commercially, and from a CI point of view or a IC point of view and looking to make sure that we again invest wisely and thoughtfully based upon the totality of data.

All right. Appreciate the color. Thanks for taking the questions.

Yes,.

Thanks, Steve.

Thank you. Our next question is from Paul Choi from Goldman Sachs. Your line is now open.

Thank you and let me add my congratulations as well on the consistent execution. My first question is for P.J. on the commercial side. Can you maybe remind us what portion of your commercial side business, your non-government business is contracted for? And if anything is potentially up for renewal or renegotiation in the near-term? And then, on the gross to net side, as you think about potential the growing Cabo business and potential expansion next year with a positive CheckMate 9ER trial. How are you thinking about that maybe changing over the intermediate term?

Yes, Paul, this is P.J. With regards to sort of our contracting and payer strategy, we have certainly never spoken about that publicly, and don't think it's really appropriate to do so for a variety of reasons, not at least of which is just being the competitor – competitive nature of the industry. So, I wouldn't want to speculate on that.

And Paul, it's Chris. So, on the gross to net, yes, for this year, I commented last quarter that gross to net would be between 19 – we are projecting it to be between 19% and 20%. And I wouldn't want to project that next year gross to net since we haven't even given revenue guidance at this point in time. So, that's it. I mean that's the best answer I can give at this point in time for the gross to net for next year.

Okay. Thanks for that. And then, maybe one for Peter. Peter, can you maybe go a little bit more into detail about what you found attractive with regard to Aurigene's capabilities? As I'm looking at the programs, it seems like they have some well-identified targets that are – will be somewhat familiar to investors. So, what did you see as points of differentiation there? And then on a related note, can you maybe tell us for the three identified programs and the six programs in total, what kind of potential buyer bucks might be involved in terms of total consideration?

Yes. So, thanks for the question. So, yes, I think the things that we found – or I found compelling about Aurigene really is, they have a – I think a very good track record in terms of discovery collaborations. They have advanced 14 partnered programs into clinical trials and there are still ongoing US clinical trials. We certainly have critical mass on the discovery side in both biology and chemistry and also well established preclinical development capabilities. Obviously, we like to the targets that they were working on in terms of the kind of pre-existing programs. Our view was that, they kind of fell into the category of being interesting, well-validated, at least pre-clinically, but still certainly with kind of room to run and differentiate on the – from a clinical point of view. I mentioned a couple of times now, a couple of approaches that they applied historically that we certainly don't have experience with respect to the covalent and innovation and protein degradation. So, that also was the feature. From a financial point of view, as we say it was pulled into the same bucket philosophically is our previous collaborations kind of modest upfronts. We're paying $10 million upfront for the three pre-identified programs and then for each de novo program will be another $2.5 million upfront payment. Certainly beyond that, we are providing some research funding as an option exercise fee and then some of the usual clinical, regulatory and commercial milestones. I can’t step through them all, but anyone who is interested, I would point you to our 10-Q filing for all the information.

Okay. Thanks for that and congrats again on the quarter.

Thank you, Paul.

Thank you. [Operator Instructions] And our next question is from Jeffrey Hung from Morgan Stanley. Your line is now open.

Thanks for taking the questions. Last quarter inventory was on the lower-end of the historical range. Can you provide any color on what led to the slight decrease in wholesaler inventory? And how should we think about the appropriate level for inventory weeks on hand as the year continues?

Yes, Jeff, it's Chris. So, yeah, our inventory level, I mean from an absolute basis is essentially flat from weeks on hand perspective, it was down as the math works with the volume increase in same and virtually the same, absolute inventory number year we've saw it come down. So it's in that 2.5 range right now. We tried to ensure that inventory is in that 2.5 to 3 week range. That's all based on demand that the wholesalers think that's coming through their channel. Beyond that, there is no other real aspects to wholesale inventory that's, that is relevant at this point.

Okay great. Thanks. And then you've made strides establishing agreements, such as Iconic or Aurigene to expand your pipeline beyond Cabo. So, given the amount of cash you have, do you think that there is still need to strike additional partnerships or deals? And if so, we have the profile of the potential outside programs such as stage of development changed as you've made the recent agreements?

Yes, Jeff, it's Mike. Thanks for the question. I think our strategy here and certainly our communication on the topic has been pretty consistent. So we have been looking to rebuild our pipeline in terms of generating early-stage, mid-stage, late-stage assets that give us a diversified portfolio of potential products. So, we've done, I think over the last several quarters like a pretty good job of developing collaborations that allow us to build those early-stage assets. I think the total right now in terms of shots on goal is what 15 or so if you look at the four collaborations combined, plus what we've got internally, so. So that's a good start there and obviously they are all not going to make it. And we expect some attrition and normal kinds of things there. But certainly, we've got a strong stable of really interesting targets and pathways and modalities now to be able to pursue early-stage. As we've said consistently over the last six to nine months is that we are looking for mid to late-stage to even potentially commercial assets and that search continues with the goal to be able to again diversify our late-stage product portfolio, as well. So, those are more involved obviously certainly a much more diligence is involved and certainly much more expensive. But we're looking to again do the right deal at the right time for the right value across those late-stage components. So, as we get those done, stay tuned. We will talk about them in more detail.

Great. Thanks. And then, one quick clarification on the Aurigene collaboration. Are the option payments relevant for all six projects or only for the three new discovery programs?

I know that there will be option exercise payments for all six programs. I think of that far.

Okay, great. Thank you.

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

Thank you, Gigi and thank you all for joining us today. We certainly welcome your follow-up calls with any additional questions you may have that we were unable to address during today's call.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program you may now disconnect.