Exelixis

2015 ANNUAL REPORT

To Our Stockholders:

In 2015, the Exelixis team made significant progress on our commitment to bring new treatment options to
patients with cancer. Our lead compound, cabozantinib, delivered positive data from our pivotal trial in patients
with advanced kidney cancer and moved closer to potential regulatory approvals in the United States (U.S.) and
European Union (EU). Cobimetinib, discovered by Exelixis and moving forward in the hands of our partner,
received three regulatory approvals in territories around the world. At the same time, we continued to plan for the
next phase of Exelixis’ growth through sound financial management and the selection of a partner for regions
outside the U.S., Canada, and Japan to help us maximize the potential for a global cabozantinib franchise.

Cabozantinib generated a significant amount of clinical data last year, but none were as anticipated as the

results from METEOR, our phase 3 pivotal trial in 658 patients with previously-treated advanced renal cell
carcinoma (RCC). The five-year survival rate for patients with advanced or late-stage metastatic RCC is under
ten percent with no identified cure for the disease, so physicians and patients have been vocal in their calls for
new treatment options.1 The METEOR trial met its primary endpoint of progression-free survival (PFS) with
high statistical significance, delivering a 42 percent reduction in the rate of disease progression or death for
cabozantinib as compared to everolimus, an active standard of care therapy for previously-treated patients. The
initial analyses also identified a strong trend in overall survival (OS), a secondary endpoint in the trial, favoring
cabozantinib. Subsequent presentations highlighted a statistically significant benefit to objective response rate
(ORR) and confirmed that the benefits in PFS and ORR were consistent across various subgroups.

Based on the METEOR results, Exelixis submitted U.S. and EU regulatory applications for cabozantinib as

a treatment for patients with advanced RCC who have received one prior therapy. In the U.S., cabozantinib
received Breakthrough Therapy designation and Priority Review, with a Prescription Drug User Fee Act action
date of June 22, 2016. In the EU, regulators granted accelerated assessment, making our application eligible for a
shortened 150-day review. Following consultation with regulators, we conducted a second interim analysis for
OS and shared the results with them in February 2016. This second interim analysis for OS demonstrated that
cabozantinib conveyed a highly statistically significant and clinically meaningful increase in OS versus
everolimus, and presentation of these results is planned at a medical meeting later this year. In totality, the
METEOR results are unprecedented, making cabozantinib the only therapy to demonstrate statistically
significant improvements in the three key efficacy parameters of OS, PFS and ORR as compared with an active
standard of care treatment in a large, pivotal trial of patients with previously-treated RCC.

Since receipt of the positive results from METEOR, Exelixis has moved expeditiously to be fully prepared

to bring cabozantinib to the RCC community in the event of approvals this year. In late February 2016, we
completed the staffing necessary to be launch-ready in the United States. We believe the totality of clinical data
from METEOR has the potential to significantly differentiate cabozantinib from the other therapies used by
physicians who treat the approximately 17,000 RCC patients in the U.S. who have progressed through first-line
therapy and are seeking additional treatment options.2

1 http://www.cancer.org/cancer/kidneycancer/detailedguide/kidney-cancer-adult-survival-rates
2 ACS Cancer Facts and Figures 2015; Heng et al., Ann Oncol (2012) vol. 23 no. 6; internal data on file; Motzer et al., N Engl J Med (2007) vol. 356 no. 2;

NCIN (UK) report, April 2014, Available at http://www.ncin.org.uk/view?rid=2676.

Outside the U.S., cabozantinib’s commercialization in RCC will be led by Ipsen Pharma SAS (Ipsen), the

global specialty-driven biotechnology firm with which we entered into an exclusive licensing agreement in
February 2016. Under the agreement, Exelixis granted Ipsen exclusive commercialization rights for current and
future cabozantinib indications outside of the U.S., Canada and Japan. In exchange, Exelixis received a $200
million upfront payment and is eligible to receive a $60 million regulatory milestone payment for approval for
RCC in the EU, as well as additional milestones for EU filing and approval for advanced hepatocellular cancer
(HCC). Exelixis is also eligible to receive up to $545 million in potential commercial milestones plus tiered
royalties up to 26 percent on Ipsen’s net sales of cabozantinib in its territories. In Ipsen, we gain a partner with
significant commercial experience in Europe and other key regions around the world, while we maintain our
focus on maximizing the U.S. commercial launch in advanced RCC later this year, pending regulatory approval.

The agreement with Ipsen also includes a collaboration on the development of cabozantinib for current and
potential future indications, bringing added momentum to a broad, global clinical development program already
encompassing more than 45 ongoing or planned clinical trials. These trials include Exelixis-sponsored studies
such as CELESTIAL, the phase 3 pivotal trial in advanced HCC for which data are anticipated in 2017, as well as
trials sponsored by our collaborators at the National Cancer Institute (NCI) and through our investigator-
sponsored trial program. Recent highlights from the development program have included positive data from two
trials of cabozantinib in molecularly-defined subtypes of non-small cell lung cancer, as well as continued
progress on clinical trials in other tumor types setting up potential data announcements this year. In particular,
the NCI-sponsored phase 1b trial combining cabozantinib with several immunotherapies in patients with
genitourinary tumors, including RCC, could provide initial results in 2016. We also anticipate data in 2016 from
a second NCI-sponsored trial, CABOSUN, a phase 2 study of cabozantinib versus sunitinib in previously-
untreated patients with intermediate or poor risk advanced RCC, which will give us some insight into how
cabozantinib may perform in the first-line setting.

While Exelixis focused its efforts on cabozantinib in 2015, another compound discovered in our

laboratories, cobimetinib, moved forward in the hands of our partner Genentech, a member of the Roche Group.
Most notably, cobimetinib, in combination with vemurafenib, received regulatory approval in Switzerland, the
U.S. and the EU as a treatment for patients with BRAF V600E or V600K mutation-positive advanced melanoma;
Canadian approval followed in February 2016. In all approved countries, cobimetinib is marketed as
COTELLIC™. Per our collaboration agreement, Exelixis is working alongside Genentech to commercialize
COTELLIC in the U.S., where we are entitled to an initial equal share of profits and losses, and where we field
25 percent of the sales force. Outside of the U.S., we receive low double-digit royalties on sales. In October
2015, we and Genentech also announced that coBRIM, the phase 3 pivotal trial of cobimetinib and vemurafenib
that served as the basis for the COTELLIC regulatory filings, met its OS secondary endpoint.

Cobimetinib continues to be the subject of a broad clinical development program aimed at evaluating its
potential in combination with a variety of investigational and approved therapies in disease settings including
KRAS-mutant metastatic colorectal cancer, metastatic melanoma, and metastatic triple-negative breast cancer.

In the midst of this clinical and commercial progress, we continued to execute on our plan for the long-term
growth of the company. Exelixis ended 2015 with cash on hand of $253.3 million, including $146 million raised
through an equity offering in the third quarter.3 With the cash on hand at the start of 2016, as well as disciplined
expense management and the upfront payment and anticipated milestones from our agreement with Ipsen, we
expect the company to be in a very healthy cash position by year-end, with a committed objective toward
becoming cash flow positive. Our singular focus for 2016 will be executing on the potential U.S. launch in
advanced RCC, a significant milestone we have been aspiring to since the early days of our work in this disease
setting.

3

Includes cash and cash equivalents, short- and long-term investments and short- and long-term restricted cash and investments

The past year has been an eventful one, but 2016 has the potential to be even more impactful. By year-end,
we could see regulatory approvals for cabozantinib as a treatment for advanced RCC in the U.S. and EU, as well
as continued execution on the U.S. launch of COTELLIC and that compound’s clinical development program. As
we reflect on our recent progress and future plans, we remain grateful for the support of all our stakeholders: the
physicians, patients and caregivers who make our clinical trials possible; the stockholders who see the potential
of our products and product candidates; and the Exelixis team members whose efforts have been unwavering. We
are excited for what the future holds for Exelixis and for the patients we serve.

Michael M. Morrissey, Ph.D.
President and Chief Executive Officer
Exelixis, Inc.

Forward-Looking Statements
The statements in this Annual Report relating to business plans and commitments, potential regulatory events,
the therapeutic and commercial potential of cabozantinib and cobimetinib, receipt of potential milestone
payments and royalties under collaboration agreements, clinical development plans, future data presentations and
results, financial resources and goals are forward-looking statements that involve many risks and uncertainties. In
some cases, forward-looking statements are indicated by the use of words such as “commitment,” “potential,”
“moving forward,” “continue,” “plan,” “believe,” “will, “eligible,” “focus,” “anticipate,” “may,” “entitled,”
“expect,” “could,” “future,” and similar words and phrases, including the negatives of these terms, or other
variations of these terms. Our actual results could differ materially from those contained in these forward-looking
statements due to a number of factors, including those discussed in Part I, Item 1A—“Risk Factors” included in
the Form 10-K which is part of this Annual Report. We disclaim any obligation to update any forward-looking
statements contained in this Annual Report.

[THIS PAGE INTENTIONALLY LEFT BLANK]

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

(Mark One)

FORM 10-K

È

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: January 1, 2016, or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to
Commission File Number: 0-30235

EXELIXIS, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

04-3257395
(I.R.S. Employer
Identification Number)

210 East Grand Ave.
South San Francisco, CA 94080
(650) 837-7000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock $.001 Par Value per Share

Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC

Securities Registered Pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes È No ‘

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the

Act. Yes ‘ No È

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 È No ‘

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes È No ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. È

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a

smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer È Accelerated filer ‘ Non-accelerated filer (Do not check if a smaller reporting

company) ‘ Smaller reporting company ‘

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the

Act). Yes ‘ No È

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by

reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as
of the last business day of the registrant’s most recently completed second fiscal quarter: $663,207,633 (Based on the closing
sales price of the registrant’s common stock on that date. Excludes an aggregate of 3,588,303 shares of the registrant’s
common stock held by persons who were directors and/or executive officers of the registrant at July 3, 2015 on the basis that
such persons may be deemed to have been affiliates of the registrant at such date. Exclusion of such shares should not be
construed to indicate that any such person possesses the power, direct or indirect, to direct or cause the direction of the
management or policies of the registrant or that such person is controlled by or under common control with the registrant.)

As of February 19, 2016, there were 228,191,131 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission

pursuant to Regulation 14A, not later than April 30, 2016, in connection with the registrant’s 2016 Annual Meeting of
Stockholders are incorporated herein by reference into Part III of this Annual Report on Form 10-K.

EXELIXIS, INC.

ANNUAL REPORT ON FORM 10-K

INDEX

PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . .
Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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PART I

Some of the statements under the captions “Risk Factors,” “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and “Business” and elsewhere in this Annual Report on Form
10-K are forward-looking statements. These statements are based on our current expectations, assumptions,
estimates and projections about our business and our industry and involve known and unknown risks,
uncertainties and other factors that may cause our company’s or our industry’s results, levels of activity,
performance or achievements to be materially different from any future results, levels of activity, performance or
achievements expressed or implied in, or contemplated by, the forward-looking statements. Words such as
“believe,” “anticipate,” “expect,” “intend,” “plan,” “focus,” “assume,” “goal,” “objective,” “will,” “may,”
“would,” “could,” “estimate,” “predict,” “target,” “potential,” “continue,” “encouraging” or the negative of
such terms or other similar expressions identify forward-looking statements. Our actual results and the timing of
events may differ significantly from the results discussed in the forward-looking statements. Factors that might
cause such a difference include those discussed in “Item 1A. Risk Factors” as well as those discussed elsewhere
in this Annual Report on Form 10-K. These and many other factors could affect our future financial and
operating results. We undertake no obligation to update any forward-looking statement to reflect events after the
date of this report.

Exelixis has adopted a 52- or 53-week fiscal year that generally ends on the Friday closest to

December 31st. Fiscal year 2011, a 52-week year, ended on December 30, 2011, fiscal year 2012, a 23-week
year, ended on December 28, 2012, fiscal year 2013, a 52-week year, ended on December 27, 2013, fiscal year
2014, a 53-week year, ended on January 2, 2015, fiscal year 2015, a 52-week year, ended on January 1, 2016,
and fiscal year 2016 will end on December 30, 2016. For convenience, references in this report as of and for the
fiscal years ended December 30, 2011, December 28, 2012, December 27, 2013, January 2, 2015 and January 1,
2016, are indicated on a calendar year basis, ended December 31, 2011, 2012, 2013, 2014 and 2015,
respectively. The quarter ended January 2, 2015 is a 14-week fiscal quarter; all other interim periods presented
are 13-week fiscal quarters.

ITEM 1. BUSINESS

Overview

Exelixis, Inc. (“Exelixis,” “we,” “our” or “us”) is a biopharmaceutical company that discovers, develops and
commercializes small molecule therapies for the treatment of cancer. Our business focuses predominantly on the
development and commercialization of cabozantinib, an internally-discovered inhibitor of multiple receptor
tyrosine kinases, in various tumor indications. Cabozantinib is currently approved in the United States and
European Union for the treatment of progressive, metastatic medullary thyroid cancer, or MTC, and is marketed
under the brand name COMETRIQ®.

In the past year, we obtained positive clinical results from our phase 3 pivotal trial METEOR (Metastatic
RCC Phase 3 Study Evaluating Cabozantinib vs. Everolimus), suggesting that cabozantinib also has the potential
to make a meaningful difference in the lives of patients suffering from advanced renal cell carcinoma, or RCC, a
serious form of cancer with a significantly larger patient population than MTC. Following the positive results
from METEOR, the U.S. Food and Drug Administration, or FDA, granted Breakthrough Therapy and Fast Track
designations for cabozantinib in RCC. These data from METEOR ultimately formed the basis of a New Drug
Application, or NDA, submission to the FDA, which was completed in December 2015. On January 27, 2016,
the FDA granted priority review to the NDA, with a Prescription Drug User Fee Act, or PDUFA, action date of
June 22, 2016. We are actively preparing for a potential commercial launch of cabozantinib in advanced RCC,
and we are now launch-ready, from a staffing perspective, for this indication should a positive regulatory
decision come in the United States.

1

In January 2016, our Marketing Authorization Application, or MAA, for cabozantinib as a treatment for

patients with advanced RCC who have received one prior therapy was accepted for review and granted
accelerated assessment by the European Medicines Agency, or EMA. On February 29, 2016, we entered into a
collaboration and license agreement with Ipsen Pharma SAS, or Ipsen, pursuant to which Ipsen has exclusive
commercialization rights for current and potential future cabozantinib indications outside of the United States,
Canada and Japan. The companies have agreed to collaborate on the development of cabozantinib for current and
potential future indications. With respect to remaining markets, we are evaluating opportunities to partner
cabozantinib in Japan and intend to seek regulatory approval for cabozantinib in Canada and commercialize the
drug there ourselves.

Beyond MTC and RCC, we are engaged in a broad development program to explore the clinical potential of
cabozantinib in additional tumor types. This program includes late stage trials that we conduct ourselves, such as
CELESTIAL (Cabozantinib Phase 3 Controlled Study In Hepatocellular Carcinoma), our phase 3 trial of
cabozantinib in advanced hepatocellular carcinoma, or HCC, and earlier stage trials conducted through our
Cooperative Research and Development Agreement, or CRADA, with the National Cancer Institute’s Cancer
Therapy Evaluation Program, or NCI-CTEP, or our investigator sponsored trial, or IST, program. We intend to
use these earlier stage trials to prioritize our later stage development program.

During 2015, there was also significant progress with respect to the clinical development, regulatory status

and commercial potential of certain of our partnered compounds. For example, cobimetinib, a compound we out-
licensed in 2006 to Genentech, Inc. (a member of the Roche Group), or Genentech, was approved by the FDA on
November 10, 2015, under the brand name COTELLICTM, in combination with vemurafenib, as a treatment for
patients with BRAF V600E or V600K mutation-positive advanced melanoma. COTELLIC in combination with
vemurafenib has also been approved in Switzerland, the European Union and Canada for use in the same
indication. Genentech has launched COTELLIC in these markets, and in the United States we contribute 25% of
the sales force to the commercialization effort. Pursuant to the terms of our collaboration agreement with Roche/
Genentech for cobimetinib, we are entitled to an initial equal share of U.S. profits and losses for cobimetinib,
with our share decreasing as sales increase. We are entitled to low double-digit royalties on ex-U.S. net sales.
Cobimetinib is also being evaluated in a broad development program comprising several clinical trials
investigating cobimetinib in combination with a variety of agents in multiple tumor types.

Our Strategy

Our primary objective is to build cabozantinib into a significant oncology franchise as a single agent, and
potentially in combination with other therapies. The strategy to achieve this objective comprises the following
elements:

• Capitalizing on the Opportunity for the Potential Commercialization of Cabozantinib in

Advanced RCC.

The second and later-line RCC market is large and growing. Published studies suggest that these
settings encompass approximately 17,000 drug-eligible patients in the United States and 37,000
globally. However, only modest progress has been made in treating this disease. Everolimus and
axitinib, the most frequently prescribed treatment options for patients suffering from second or later
line RCC, were approved on the basis of modest improvements in progression free-survival, or PFS.
These agents did not demonstrate a benefit in overall survival, or OS. Despite this limitation, however,
these products continue to generate significant sales.

In November of 2015, the FDA approved nivolumab, an immune-oncology agent, for the treatment of
patients with RCC who have received prior anti-angiogenic therapy. FDA’s approval was based on
nivolumab improving the duration of OS as compared with everolimus; however, nivolumab did not
show an improvement in the duration of PFS, the measure of therapeutic benefit familiar to RCC-
treating physicians based on the historic standard of care.

2

On February 1, 2016, we announced that a second interim analysis of OS, a secondary endpoint in the
METEOR pivotal trial, showed a highly statistically significant and clinically meaningful increase in
OS for patients randomized to cabozantinib as compared to everolimus. These data built upon
previously reported positive results that demonstrated that cabozantinib, as compared to everolimus,
had nearly doubled PFS, the primary endpoint, and showed a consistent benefit in objective response
rate, or ORR. As a result, among all the existing agents evaluated in large pivotal trials in patients with
advanced RCC, including nivolumab, cabozantinib is the first and only therapy to unequivocally
demonstrate robust and statistically-significant improvements in all three key efficacy parameters of
OS, PFS, and ORR. Cabozantinib’s safety profile in the METEOR study was consistent with that of
other tyrosine kinase inhibitors, or TKIs, approved in RCC, and the rate of treatment discontinuation
for adverse events unrelated to disease progression was low and similar to that of everolimus. Based on
the strength and consistency of the clinical benefits demonstrated in the METEOR trial by
cabozantinib, we believe that, if it is approved, physicians who treat patients with advanced RCC may
view cabozantinib as a therapeutic option that is uniquely differentiated from the other medicines that
are available or in late-stage development for this disease.

Given the strength of cabozantinib’s clinical profile in advanced RCC, we have rapidly expanded our
commercialization capabilities in anticipation of this medicine’s potential approvals in the United
States and European Union. In the United States, once approved, we intend to make cabozantinib
accessible to previously treated patients with advanced RCC with our own commercial efforts as
quickly as possible. For territories outside the United States, Canada and Japan, our collaboration with
Ipsen, a company already engaged in global distribution of oncology medicines, will enable us to make
the compound more broadly available around the world and fully capitalize on its potential.

• Exploring the Opportunity for Cabozantinib in Advanced HCC.

Published studies indicate that an estimated 700,000 new cases of HCC present each year worldwide,
with 39,000 of these cases resident in the United States. While, patients with localized disease may be
candidates for surgery or other therapies such as embolization, treatment options for advanced disease
are limited. Currently, sorafenib is the only approved agent for treatment of advanced, unresectable
HCC. However, patients typically progress despite sorafenib treatment, at which point there is no
approved therapy available to them. While a number of vascular endothelial growth factor, or VEGF,
receptor targeting agents have been tested in phase 2/3 trials in the post-sorafenib setting, none have
shown benefit vs placebo. Thus, second-line advanced HCC represents an area of substantial unmet
medical need.

The receptor tyrosine kinase MET is the receptor for hepatocyte growth factor, and plays a crucial role
in liver development and regeneration. Expression of MET is elevated in HCC, particularly in
metastatic HCC, and high MET levels are associated with reduced OS and resistance to sorafenib
treatment. In preclinical models, upregulation of MET has been shown to drive escape from VEGF
receptor inhibition, and to promote an increase in invasion and metastases. Consistent with this,
treatment of HCC patients with sorafenib can result in increases in tumor MET expression. These
findings provide a strong parallel with the RCC setting, where high levels of MET expression and
activation are also associated with poor prognosis and resistance to and escape from first-line treatment
with VEGF receptor inhibitors.

We believe that targeting both MET and VEGF receptors with cabozantinib in HCC may provide
benefit in second-line HCC by maintaining VEGF receptor inhibition while also targeting MET, which
is thought to be a key oncogenic and resistance pathway. In an initial test of this hypothesis, a cohort of
HCC patients, including a subset whose disease had progressed despite prior sorafenib treatment, was
enrolled in our phase 2 randomized discontinuation study, or RDT. Based on the encouraging data that
emerged from this trial, we launched CELESTIAL, our phase 3 pivotal trial comparing cabozantinib to
placebo in patients with advanced HCC who had received previous treatment with sorafenib. We
anticipate top-line results from CELESTIAL in 2017.

3

• Developing Cabozantinib in Other Indications by Leveraging External Resources.

In an effort to broadly survey the activity of cabozantinib both as a single agent and in combination
with other therapies, we have engaged in a CRADA with NCI-CTEP and an IST program. This
approach has enabled us to investigate cabozantinib for the treatment of a wide variety of cancer
indications in over 45 ongoing or planned clinical trials. In this manner, we engage with leading
clinicians in the United States and internationally to expand our collective understanding of
cabozantinib’s potential, while conserving our internal resources for late stage trials based on the
signals that may emerge from these earlier trials. We believe this staged approach to building
cabozantinib’s value with a far lesser upfront expenditure of funds has been rational and cost-effective.
We expect results this year from several clinical studies being conducted under our collaboration with
NCI-CTEP, including a phase 2 trial comparing cabozantinib to sunitinib in the first-line treatment of
intermediate or poor risk RCC patients, a phase 1b trial of cabozantinib plus nivolumab alone, or in
combination with ipilimumab, in patients with genitourinary tumors, including bladder cancer and
RCC and a phase 2 trial evaluating single agent cabozantinib in recurrent endometrial cancer.

• Continuing to Execute Successfully on the COMETRIQ commercialization plan for MTC.

As COMETRIQ, cabozantinib is an important treatment option for patients suffering from progressive,
metastatic MTC. Although this patient population is relatively small, the COMETRIQ opportunity in
MTC has afforded us valuable commercialization experience, and revenue from COMETRIQ sales
contributes to the working capital we require to operate our day-to-day business activities. We
therefore intend to continue to execute on our COMETRIQ commercialization plans in the U.S. and
internationally, with our collaboration partner, Ipsen, by promoting this medicine’s use appropriately
and ensuring that patients have access.

Beyond our efforts for cabozantinib, we are working with our corporate partners under the terms of our
various collaboration agreements to realize the potential value of the compounds and programs we have out-
licensed to them. In the aggregate, these partnered compounds could be of significant value to us if their
development programs progress successfully. For additional information regarding our work with our corporate
partners, please see the section entitled Collaborations.

Cabozantinib Development Program

Cabozantinib inhibits the activity of tyrosine kinases, including VEGF receptors, MET, AXL and RET.
These receptor tyrosine kinases are involved in both normal cellular function and in pathologic processes such as
oncogenesis, metastasis, tumor angiogenesis, and maintenance of the tumor microenvironment. We are
evaluating cabozantinib in a broad development program comprising over 45 ongoing or planned clinical trials
across multiple indications. We are the sponsor of some of those trials, including our two pivotal studies in
advanced RCC and HCC, with the remaining trials being conducted through our CRADA with NCI-CTEP or our
IST program. Based on the widespread interest we observe among clinical oncologists in taking part in further
investigation of cabozantinib, we believe the drug’s therapeutic profile continues to be attractive to this
community as a potential improvement over existing therapies for many types of cancer.

RCC

In July 2015, we announced positive results of METEOR, a phase 3 pivotal trial comparing cabozantinib in

a tablet formulation to everolimus in patients with advanced RCC who have experienced disease progression
following treatment with at least one prior VEGF receptor inhibitor. The METEOR results now offer us the
potential opportunity to commercialize cabozantinib in a market with a significantly larger patient population
than that for MTC. We have expanded our medical affairs and commercial capabilities so that we are in a
position to execute successfully on the potential RCC opportunity, while continuing to build a foundation that
will permit us to take advantage of potential future approved indications for cabozantinib.

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METEOR was initiated in May 2013. The trial was designed to enroll 650 patients at approximately 200 sites.
Patients were stratified based on the number of prior VEGF receptor inhibitors received, and on commonly applied
RCC risk criteria. Patients were randomized 1:1 to receive 60 mg of cabozantinib daily or 10 mg of everolimus
daily, and no cross-over was allowed between the study arms. The METEOR trial was designed to provide adequate
power to assess both the primary endpoint of PFS, and the secondary endpoint of OS. The trial protocol specified
that the primary analysis of PFS would be conducted among the first 375 patients randomized while the secondary
endpoint of OS would be conducted among all 650 patients randomized. This design was employed to ensure
sufficient follow up and a PFS profile that would not be primarily weighted toward early events. Such
disproportionate weighting of events was a potential risk if the entire study population required for the secondary
endpoint analysis of OS had also served as the population for the primary analysis of PFS. On September 26, 2015,
The New England Journal of Medicine published the complete, detailed positive top-line results from the primary
analysis of METEOR, and these results were also presented during the Presidential Session I at the European
Cancer Congress 2015. The trial met its primary endpoint, demonstrating a statistically significant increase in PFS
for cabozantinib, as determined by an independent radiology review committee, or IRRC, among the first 375
patients enrolled. The median PFS was 7.4 months for the cabozantinib arm versus 3.8 months for the everolimus
arm, and the hazard ratio [HR] was 0.58 (95% confidence interval [CI] 0.45-0.75, p<001), corresponding to a 42%
reduction in the rate of disease progression or death for cabozantinib compared to everolimus. The trial also showed
a strong positive trend for the secondary endpoint of OS, although at the time of the July 2015 interim analysis, the
p-value to achieve statistical significance was not reached. On February 1, 2016, we announced that in a second
interim analysis for OS, the results showed a highly statistically significant and clinically meaningful increase in OS
for patients randomized to cabozantinib as compared to everolimus.

In January 2016, an analysis of PFS among all 658 patients enrolled was presented at the 2016

Genitourinary Cancers Symposium, and revealed consistent results with the primary analysis showing a median
PFS of 7.4 months for the cabozantinib arm versus 3.9 months for the everolimus arm, and a HR of 0.52 (95% CI
0.43-0.64, p<0.001), corresponding to a 48% reduction in the rate of disease progression or death for
cabozantinib as compared to everolimus. In addition, subgroup analyses for PFS showed consistent beneficial
effect of cabozantinib versus everolimus; subgroups included: ECOG performance status; commonly applied
RCC risk groups as described by Motzer et al.; organ involvement, including bone and visceral metastases and
overall tumor burden; extent and type of prior VEGF receptor inhibitor therapy; and prior PD-1/PD-L1 therapy.
For patients without prior PD-1/PD-L1 therapy, median PFS was 7.4 months for cabozantinib and 3.9 months for
everolimus (HR = 0.54, 95% CI 0.44-0.66). For patients who had received prior PD-1/PD-L1 therapy, the median
PFS for cabozantinib was not reached, and the median PFS for everolimus was 4.1 months (HR = 0.22, 95% CI
0.07-0.65). Subgroup analyses for ORR also showed consistent benefit for cabozantinib as compared to
everolimus. A review of adverse events, or AEs, demonstrated that the frequency of AEs of any grade regardless
of causality was approximately balanced between study arms, and the rate of treatment discontinuation due to
adverse events was 9% and 10% for cabozantinib and everolimus, respectively.

On the basis of the data from the METEOR trial, we completed the submission of our rolling NDA with the
FDA in December 2015, and on January 27, 2016, the FDA granted priority review to the NDA, with a PDUFA
action date of June 22, 2016. The FDA previously granted both Breakthrough Therapy and Fast Track
designations to cabozantinib for the treatment of patients with advanced RCC who have received one prior
therapy. In January 2016, the EMA accepted for review our MAA for cabozantinib as a treatment for patients
with advanced RCC who have received one prior therapy. The EMA’s Committee for Medicinal Products for
Human Use previously granted accelerated assessment to cabozantinib for RCC, and as a result, our MAA will
be eligible for accelerated review.

We have designed our commercial and medical affairs organizations and strategic commercial approach to

maintain flexibility in response to market opportunities. In the United States, we have increased our sales,
marketing, medical affairs and distribution capabilities and we are now ready, from a staffing perspective, to
launch cabozantinib for the treatment of patients with advanced RCC. Internationally, our collaboration with
Ipsen provides us with the ability to capitalize on cabozantinib’s international clinical and commercial potential.

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HCC

The most advanced clinical program for cabozantinib beyond progressive, metastatic MTC and advanced
RCC is focused on the treatment of advanced HCC. Based on the encouraging data that emerged from a cohort of
HCC patients treated with cabozantinib in our phase 2 RDT, we launched CELESTIAL, our phase 3 pivotal trial
comparing cabozantinib to placebo in patients with advanced HCC who had received previous treatment with
sorafenib. The trial is designed to enroll 760 patients at approximately 200 sites. Patients are being randomized
2:1 to receive 60 mg of cabozantinib daily or placebo. The primary endpoint for CELESTIAL is OS, and the
secondary endpoints include ORR and PFS. We anticipate top-line results from CELESTIAL in 2017.

Trials Conducted through our CRADA with NCI-CTEP and our IST Program

We have initiated or are evaluating the initiation of pivotal trials exploring cabozantinib’s potential in other
tumor types, based on our belief that these investigations will increase the value of the cabozantinib asset, spread
the development and commercialization risk for cabozantinib across multiple opportunities, and eventually
enhance future revenue growth. Our CRADA with NCI-CTEP, which commenced in November 2011, and our
IST program initiated in October 2010 have enabled us to expand the cabozantinib development program beyond
our internal development efforts. We intend to continue to expand the cabozantinib development program based
on encouraging interim data that emerge from these programs, in addition to data that have emerged from our
phase 2 RDT. Objective tumor responses have been observed in patients treated with cabozantinib in more than
20 individual tumor types investigated in phase 1 and 2 clinical trials to date, reflecting the medicine’s broad
clinical potential. In addition, we have observed resolution of metastatic bone lesions on bone scan in patients
with metastatic castration-resistant prostate cancer, or mCRPC, metastatic breast cancer or melanoma in the
RDT, in patients with RCC or differentiated thyroid cancer in a phase 1 clinical trial, and in patients with bladder
cancer in an NCI-CTEP-sponsored phase 2 clinical trial.

To support the future development of cabozantinib, our Medical Affairs department is responsible for
responding to unsolicited physician inquiries with appropriate scientific and medical education and information,
supporting scientific presentations and publications, and overseeing the IST process. Our IST program helps us to
continue to evaluate cabozantinib across a broad range of tumor types, including non-small cell lung cancer, or
NSCLC, bladder cancer, melanoma, breast cancer, differentiated thyroid cancer and others, to support further
prioritization of our clinical and commercial options.

NSCLC

In November 2014, we announced positive top-line results from a randomized phase 2 trial of cabozantinib
and erlotinib alone or in combination as second- or third-line therapy in patients with stage IV EGFR wild-type
NSCLC. This trial (Study E1512) is sponsored through our CRADA with NCI-CTEP. Study E1512 was designed
and is being conducted by the ECOG-ACRIN Cancer Research Group. Study E1512 enrolled 125 patients with
EGFR wild-type metastatic NSCLC who had received at least one or two prior chemotherapy regimens; of these,
113 patients were evaluable for efficacy and 118 patients were evaluable for safety. Patients were randomized
1:1:1 to receive erlotinib (150 mg daily), cabozantinib (60 mg daily), or the combination of erlotinib plus
cabozantinib (150 mg plus 40 mg daily).

On May 31, 2015, positive results from this trial were reported at the American Society of Clinical

Oncology, or ASCO, 2015 Congress. The study met its primary endpoint, demonstrating significant increases in
PFS for cabozantinib and the combination of cabozantinib plus erlotinib when individually compared to the
erlotinib arm. The median PFS for the combination of cabozantinib and erlotinib was 4.7 months versus 1.9
months for erlotinib alone, a more than two-fold increase that corresponds to a 65% reduction in the risk of
disease worsening (HR=0.35, 80% CI 0.23-0.52, p=0.0005). The median PFS for cabozantinib monotherapy was
4.2 months versus 1.9 months for erlotinib alone, and the HR was 0.38 (80% CI 0.27-0.55, p=0.0004),

6

corresponding to a 62% reduction in the rate of disease worsening. OS was a secondary endpoint of the trial.
Median OS was 13.3 months for the combination of cabozantinib and erlotinib, and 9.2 months for cabozantinib
alone, as compared to 4.1 months for erlotinib alone. When individually compared to the erlotinib arm, HR for
OS was 0.44 (p=0.004), corresponding to a 56% reduction in the rate of death for the combination of
cabozantinib plus erlotinib, and 0.59 (p=0.03), corresponding to a 41% reduction in the rate of death for the
cabozantinib monotherapy arm. ORR, another secondary endpoint, was 8% for the combination arm (2 partial
responses [PR]), 14% (4 PRs) for the cabozantinib monotherapy arm, and 3% (1 PR) for the erlotinib arm. Stable
disease as a best response was observed in 47% of patients in the combination arm and 42% in the cabozantinib
monotherapy arm, compared with 17% in the erlotinib arm. One hundred and eighteen patients were evaluable
for safety. The most common treatment-related adverse events, or AEs, grade 3 or higher, for the combination
arm (n=39) were: diarrhea (27%), fatigue (15%), and syncope (8%). For the cabozantinib monotherapy arm, the
most common AEs, grade 3 or higher, were: hypertension (26%), fatigue (15%), mucositis (10%) and
thromboembolic events (8%). The most common AEs, grade 3 or higher, for the erlotinib arm were fatigue
(12%) and diarrhea (8%). Overall, the rate of grade 3 or higher adverse events was 72% in the combination arm
and 67% in the cabozantinib monotherapy arm, compared with the erlotinib arm (35%).

Informed by these clinical results, we are actively working with clinical collaborators to explore
cabozantinib’s further development in NSCLC, including potential combination approaches with immune-
oncology agents.

Other Cancer Indications

Clinical trials approved to date under the CRADA include the following:

•

Phase 2 or phase 1/2 clinical trials to help prioritize future pivotal trials of cabozantinib in disease
settings where there is substantial unmet medical need and in which cabozantinib has previously
demonstrated clinical activity, consisting of randomized phase 2 clinical trials in first line RCC
(CABOSUN), ocular melanoma, prostate cancer and second/third line EGFR-wt NSCLC;

• Additional phase 2 or phase 1/2 clinical trials to explore cabozantinib’s potential utility in other tumor
types, including endometrial cancer, bladder cancer, sarcomas, NSCLC (EGFR-activating mutation
positive), differentiated thyroid cancer, triple-negative breast cancer, hormone-receptor-positive breast
cancer, cutaneous melanoma (molecularly selected patients), pancreatic neuroendocrine and carcinoid
tumors. Positive results in these indications could lead to further study in randomized phase 2 or
phase 3 clinical trials; and

• Additional phase 1 clinical trials to further evaluate cabozantinib, consisting of a combination trial of
cabozantinib and immune-oncology agents (nivolumab with or without ipilumumab) in genitourinary
tumors, a trial to evaluate the safety and pharmacokinetics of cabozantinib in pediatric patients, and a
trial of cabozantinib in patients with advanced solid tumors and human immunodeficiency virus.

Commencement of each of the proposed trials approved under the CRADA is subject to protocol

development and satisfaction of certain other conditions. The proposed trials approved under the CRADA will be
conducted under an investigational new drug, or IND, application held by NCI-CTEP. We believe our CRADA
reflects a major commitment by NCI-CTEP to support the broad exploration of cabozantinib’s potential in a wide
variety of cancers, each representing a substantial unmet medical need. NCI-CTEP provides funding for as many
as 20 active clinical trials each year for a five-year period. We believe the agreement will enable us to broadly
expand the cabozantinib development program in a cost-efficient manner.

We expect results this year from the following clinical studies being conducted under our collaboration with

NCI-CTEP:

• CABOSUN, the randomized phase 2 trial comparing cabozantinib to sunitinib in the treatment of
intermediate or poor risk first-line RCC patients, which completed enrollment in early 2015 and is
being conducted by The Alliance for Clinical Trials in Oncology;

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• A phase 1b trial of cabozantinib plus nivolumab alone, or in combination with ipilimumab, in patients

with genitourinary tumors, including bladder cancer and RCC; and

• A phase 2 trial evaluating single agent cabozantinib in recurrent endometrial cancer.

Cabozantinib is also being evaluated in a variety of indications under our IST program. Patients have
enrolled in 28 trials, 18 of which are currently accruing patients. An additional study is expected to initiate
accrual soon.

COMETRIQ (cabozantinib) capsules for MTC

MTC is a rare form of thyroid cancer. We currently estimate that there are between 500 and 700 first and

second line metastatic MTC patients diagnosed in the United States each year who will be eligible for
COMETRIQ. Following FDA approval on November 29, 2012, COMETRIQ capsules became commercially
available in the United States in January 2013. In March 2014, the European Commission granted COMETRIQ
conditional marketing authorization for the treatment of adult patients with progressive, unresectable locally
advanced or metastatic MTC.

EXAM Pivotal Trial

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

EXAM served as the basis for the regulatory approval of COMETRIQ in the United States and European
Union. A statistically significant prolongation in PFS was demonstrated among COMETRIQ-treated patients
compared to those receiving placebo [HR 0.28 (95% CI: 0.19-0.40); p<0.0001], with median PFS of 11.2 months
in the COMETRIQ arm and 4.0 months in the placebo arm. Partial responses were observed only among patients
in the COMETRIQ arm (27% vs. 0%; p<0.0001). The median duration of objective response was 14.7 months
(95% CI: 11.1-19.3) for patients treated with COMETRIQ. In November 2014, we announced completion of the
OS analysis, the secondary endpoint of the study. Consistent with an earlier interim analysis, there was no
statistically significant difference in OS between the treatment arms. The median OS was 26.6 months for the
COMETRQ arm and 21.1 months for the placebo arm (HR = 0.85; 95% CI 0.64-1.12; p = 0.2409). The subgroup
analysis by RET M918T mutation status, a known negative prognostic factor in MTC, revealed a large
improvement in OS of 25.4 months for COMETRIQ-treated patients positive for the RET M918T mutation; the
median OS was 44.3 months for the COMETRIQ arm and 18.9 months for the placebo arm (HR = 0.60; 95% CI
0.38-0.95; p = 0.026, not adjusted for multiple subgroup testing). We presented the final results at the ASCO
2015 Congress and submitted the results to regulatory authorities to satisfy post-marketing commitments.

8

Post-marketing Commitments

In connection with the approval of COMETRIQ for the treatment of progressive, metastatic MTC, we are

subject to the following post-marketing requirements:

• A clinical study comparing a lower dose of COMETRIQ with the labeled dose of 140 mg. This study is

evaluating safety and PFS in progressive, metastatic MTC patients.

•

Submission of the OS analysis from the EXAM study (see above).

• Two clinical pharmacology studies assessing the pharmacokinetics of COMETRIQ, one to address the
effect of administering COMETRIQ in conjunction with agents that increase gastric pH such as proton
pump inhibitors, and the other study to assess the pharmacokinetics of COMETRIQ in patients with
hepatic impairment. Both studies have been completed.

•

Four non-clinical studies to further assess the carcinogenicity, mutagenicity and teratogenicity of
COMETRIQ. The mutagenicity and teratogenicity studies and one of the two carcinogenicity studies
have been completed.

Commercialization

We market COMETRIQ in the United States using an internal commercial team.

To help ensure that all eligible progressive, metastatic MTC patients have appropriate access to

COMETRIQ, we have established a comprehensive reimbursement and support program called Exelixis Access
Services. Through Exelixis Access Services, we: provide co-pay assistance to qualified, commercially insured
patients to help minimize out-of-pocket costs; provide free drug to uninsured patients who meet certain clinical
and financial criteria; and make contributions to an independent co-pay assistance charity to help patients who do
not qualify for our co-pay assistance program. In addition, Exelixis Access Services is designed to provide
comprehensive reimbursement support services, such as prior authorization support, benefits investigation and, if
needed, appeals support. COMETRIQ is distributed in the United States exclusively through Diplomat Specialty
Pharmacy, an independent specialty pharmacy that allows for efficient delivery of the medication by mail
directly to patients.

To respond to external inquiries regarding the appropriate clinical use of COMETRIQ, our Medical Affairs

department is responsible for responding to physician inquiries with regularly updated and well-substantiated
scientific, medical education and information.

COMETRIQ in the European Union

In February 2009, COMETRIQ received orphan drug designation in the European Union from the
Committee for Orphan Medicinal Products for the treatment of MTC. The European Commission granted
COMETRIQ conditional approval for the treatment of adult patients with progressive, unresectable, locally
advanced or metastatic MTC in March 2014.

During 2013, we entered into an agreement with Swedish Orphan Biovitrum, or Sobi, to support the
distribution and commercialization of COMETRIQ for the approved MTC indication primarily in the European
Union, Switzerland, Norway, Russia and Turkey, and potentially other countries in the event that COMETRIQ is
approved for commercial sale in such jurisdictions. In January 2015, the parties amended and restructured their
agreement, which was due to expire on December 31, 2015, extending its term to December 31, 2019. The
agreement remains limited to the approved MTC indication in the indicated territories, and we continue to
maintain commercial rights for all other potential cabozantinib oncology indications on a global basis. Under the
amended terms, however, our payments to Sobi transitioned from fixed fees paid by Exelixis to Sobi to support
initial build out of the COMETRIQ European infrastructure to a sales margin-based approach.

9

The terms of our commercialization agreement with Sobi provide us with the ability to terminate the

agreement at will upon payment of certain pre-determined termination fees. In connection with the establishment
of our collaboration with Ipsen, we intend to provide Sobi with notice of termination and following a transition
period, Ipsen will become responsible for the continued distribution and commercialization of COMETRIQ for
the approved MTC indication in territories currently supported by Sobi and potentially other countries in the
event that COMETRIQ is approved for commercial sale in such territories.

Named Patient Use Program

Through our agreement with Sobi, we established the infrastructure to make COMETRIQ available upon
request under a named patient use, or NPU, program in countries of the European Union and in other regions
outside of the United States where it is not yet commercially approved. An NPU program provides access to
drugs unapproved in that country, but approved elsewhere, for a single patient or a group of patients in a
particular country.

Following a transition period our NPU program will be transferred to Ipsen.

XL888

XL888 is an Exelixis-discovered highly potent small molecule oral inhibitor of Heat Shock Protein 90

(HSP90), a molecular chaperone protein that affects the activity and stability of a range of key regulatory
proteins, including kinases such as BRAF, MET and VEGFR2, which are implicated in cancer cell proliferation
and survival. After completing phase 1 testing of the compound, we deprioritized XL888 and our other pipeline
assets to focus our limited resources on our lead compound, cabozantinib. Investigators at the H. Lee Moffitt
Cancer Center went on to conduct additional preclinical work showing activity of XL888 in vemurafenib-
resistant melanoma models, the results of which provided the rationale for the initiation of an investigator-
sponsored phase 1 trial conducted by investigators at the Moffitt Cancer Center.

In November 2014, we announced positive preliminary results from this phase 1 trial, which evaluated the
safety and activity of XL888 in combination with vemurafenib in patients with unresectable stage III/IV BRAF
V600 mutation-positive melanoma. The primary endpoint of the trial was to determine the safety and tolerability
of the combination, including determination of a maximum tolerated dose, or MTD, for XL888. Secondary
endpoints included objective response rate (RECIST-1 criteria), estimates of PFS and OS, and analysis of
pharmacodynamic biomarkers. The trial had enrolled fifteen subjects, and at the time of data cut-off, objective
tumor regression was observed in 11 of 12 response-evaluable patients (two complete responses and nine partial
responses), for an objective response rate of 92%. Safety data for the combination identified tolerable dose levels
of XL888 with full dose vemurafenib.

Based on these results, as well as findings from coBRIM, the phase 3 pivotal trial of cobimetinib, an
Exelixis-discovered MEK inhibitor, and vemurafenib in previously untreated metastatic melanoma patients with
a BRAF V600E or V600K mutation, investigators at the Moffitt Cancer Center plan to initiate a phase 1b IST of
the triple combination of vemurafenib, cobimetinib, and XL888 in a similar patient population.

Collaborations

Cabozantinib Collaboration

On February 29, 2016, we entered into a collaboration and license agreement with Ipsen for the

commercialization and further development of cabozantinib. Pursuant to the terms of this agreement, Ipsen will
have exclusive commercialization rights for current and potential future cabozantinib indications outside of the
United States, Canada and Japan. The companies have agreed to collaborate on the development of cabozantinib
for current and potential future indications.

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The parties’ efforts will be 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
will retain final decision-making authority with respect to cabozantinib’s ongoing development. The agreement
anticipates the transfer to Ipsen of sponsorship of our MAA for cabozantinib in RCC, currently on file with the
EMA. It also anticipates transfer of Marketing Authorization Holder status for COMETRIQ for the MTC
indication approved in the European Union to Ipsen and the transition of rights regarding COMETRIQ outside
the United States from Sobi, our current international partner for COMETRIQ, to Ipsen, in accordance with the
terms of our agreement with Sobi.

In consideration for the exclusive license and other rights contained in the agreement, Ipsen will pay us an

upfront payment of $200.0 million. We will be eligible to receive regulatory milestones, including a $60.0
million milestone payment upon approval of cabozantinib by the EMA in second-line RCC and milestone
payments of $10.0 million upon the filing and $40.0 million upon the approval of cabozantinib in second-line
HCC, as well as additional regulatory milestones payments for potential further indications. The agreement also
provides that we will be eligible to receive payments of up to $545.0 million associated with potential
commercial milestone payments, including two $10.0 million milestone payments upon the launch of the product
in the first two of the following countries: Germany, France, Italy, Spain and the United Kingdom. Exelixis will
also receive royalties on net sales of cabozantinib outside of the United States, Canada and Japan. We will
receive a 2% royalty on the initial $50 million of net sales, and 12% royalty on the next $100 million of net sales.
After this initial period, Exelixis will receive a tiered royalty of 22% to 26% on annual net sales. These tiers will
reset each calendar year. Exelixis is responsible for funding cabozantinib related development costs for existing
trials; development costs for potential future trials will be shared between the parties, with Ipsen to reimburse us
for 35% of such costs. Pursuant to the terms of the agreement, we will remain responsible for the manufacture
and supply of cabozantinib for all development and commercialization activities under the collaboration. As part
of the collaboration, we entered into a supply agreement which provides that through the end of the second
quarter of 2018, we will supply finished, labeled product to Ipsen for distribution in the territories outside of the
United States, Canada and Japan, and from the end of the second quarter of 2018 forward, we will supply
primary packaged bulk tablets to Ipsen.

Unless terminated earlier, the agreement has a term that continues, on a product-by-product and country-by-

country basis, until the latter of (i) the expiration of patent claims related to cabozantinib, (ii) the expiration of
regulatory exclusivity covering cabozantinib or (iii) ten years after the first commercial sale of cabozantinib,
other than COMETRIQ. The agreement may be terminated for cause by either party based on uncured material
breach by the other party, bankruptcy of the other party or for safety reasons. We may terminate the agreement if
Ipsen challenges or opposes any patent covered by the agreement. Ipsen may terminate the agreement if the FDA
or EMA orders or requires substantially all cabozantinib clinical trials to be terminated or if the EMA refuses to
approve our MAA for cabozantinib in advanced RCC in such region. Ipsen also has the right to terminate the
agreement on a region-by-region basis after the first commercial sale of cabozantinib in advanced RCC in the
given region. Upon termination by either party, all licenses granted by us to Ipsen will automatically terminate,
and, except in the event of a termination by Ipsen for our material breach, the licenses granted by Ipsen to us
shall survive such termination and shall automatically become worldwide, or, if Ipsen terminated only for a
particular region, then for the terminated region. Following termination by us for Ipsen’s material breach, or
termination by Ipsen without cause or because we undergo a change of control by a party engaged in a competing
program, Ipsen is prohibited from competing with us for a period of time.

Cobimetinib Collaboration

Our second most advanced asset is cobimetinib (GDC-0973/XL518) which we discovered. Cobimetinib is a

potent, highly selective inhibitor of MEK, a kinase that is a component of the RAS/RAF/MEK/ERK pathway.
This pathway mediates signaling downstream of growth factor receptors, and is prominently activated in a wide
variety of human tumors. In December 2006, we out-licensed the development and commercialization of

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cobimetinib to Genentech pursuant to a worldwide collaboration agreement. The FDA approved cobimetinib in
the United States under the brand name COTELLIC on November 10, 2015. It is indicated in combination with
vemurafenib as a treatment for patients with BRAF V600E or V600K mutation-positive advanced melanoma.
COTELLIC in combination with vemurafenib has also been approved in Switzerland, the European Union and
Canada for use in the same indication.

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

In July 2014, we announced positive top-line results from coBRIM, the phase 3 pivotal trial conducted by

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

coBRIM served as the basis for the regulatory approval of COTELLIC in combination with vemurafenib as

a treatment for patients with BRAF V600E or V600K mutation-positive advanced melanoma in the United
States, Switzerland, the European Union and Canada.

In addition to the coBRIM trial, additional Phase 1 and Phase 2 clinical trials are ongoing studying the

combination of cobimetinib with a variety of agents in multiple tumor types. These include:

• The combination of cobimetinib and vemuarfenib in additional melanoma patient populations and

settings;

• A phase 2 trial of cobimetinib in combination with paclitaxel in triple negative breast cancer; and

•

Phase 1 studies of cobimetinib in combination with atezolizumab in melanoma, NSCLC and colorectal
cancer, in combination with MEHD7945A in KRAS mutant solid tumors including NSCLC and
colorectal cancer and in combination with GDC-0994 in advanced metastatic solid tumors.

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

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Under the terms of our collaboration agreement with Genentech for cobimetinib, we are entitled to a share

of U.S. profits and losses for cobimetinib. The profit share has multiple tiers: we are entitled to 50% of profits
and losses from the first $200 million of U.S. actual sales, decreasing to 30% of profits and losses from U.S.
actual sales in excess of $400 million. We are entitled to low double-digit royalties on ex-U.S. net sales. In
November 2013, we exercised an option under the collaboration agreement to co-promote in the United States, if
commercialized. Following the approval of COTELLIC in the United States in November 2015, we began
fielding 25% of the sales force promoting COTELLIC in combination with vemurafenib as a treatment for
patients with BRAF V600E or V600K mutation-positive advanced melanoma.

We believe that cobimetinib has the potential to provide us with a second meaningful source of revenue.

Our objective, therefore, is to continue to work with Genentech on the execution of the U.S. COTELLIC
commercial plan and maximize the revenue potential of cobimetinib under our collaboration with Genentech. We
have accrued for our COTELLIC expense obligations under the collaboration agreement, but are in discussions
with Genentech over the level and type of expenses that have been allocated to COTELLIC under the
collaboration.

Other Collaborations

We have established collaborations with other leading pharmaceutical and biotechnology companies,
including, Bristol-Myers Squibb Company, or Bristol-Myers Squibb, Sanofi, Merck (known as MSD outside of
the United States and Canada) and Daiichi Sankyo Company Limited, or Daiichi Sankyo, for various compounds
and programs in our portfolio. Pursuant to these collaborations, we have fully out-licensed compounds or
programs to a partner for further development and commercialization. We have no further development cost
obligations under our collaborations and may be entitled to receive milestones and royalties, or in the case of
cobimetinib, a share of profits (or losses) from commercialization.

With respect to our partnered compounds, other than cabozantinib and cobimetinib, we are eligible to
receive potential contingent payments totaling approximately $2.3 billion in the aggregate on a non-risk adjusted
basis, of which 10% are related to clinical development milestones, 42% are related to regulatory milestones and
48% are related to commercial milestones, all to be achieved by the various licensees, which may not be paid, if
at all, until certain conditions are met.

Bristol-Myers Squibb—ROR Collaboration Agreement

In October 2010, we entered into a worldwide collaboration with Bristol-Myers Squibb pursuant to which
each party granted to the other certain intellectual property licenses to enable the parties to discover, optimize
and characterize ROR antagonists that may subsequently be developed and commercialized by Bristol-Myers
Squibb. In November 2010, we received a nonrefundable upfront cash payment of $5.0 million from Bristol-
Myers Squibb. Additionally, for each product developed by Bristol-Myers Squibb under the collaboration, we
will be eligible to receive payments upon the achievement by Bristol-Myers Squibb of development and
regulatory milestones of up to $252.5 million in the aggregate and commercialization milestones of up to $150.0
million in the aggregate, as well as royalties on commercial sales of any such products. The collaboration
agreement was amended and restated in April 2011 in connection with an assignment of patents to a wholly-
owned subsidiary.

Under the terms of the collaboration agreement, we were responsible for activities related to the discovery,
optimization and characterization of the ROR antagonists during the collaborative research period. In July 2011,
we earned a $2.5 million milestone payment for achieving certain lead optimization criteria. The collaborative
research period began on October 8, 2010 and ended on July 8, 2013. Since the end of the collaborative research
period, Bristol-Myers Squibb has and will continue to have sole responsibility for any further research,
development, manufacture and commercialization of products developed under the collaboration and will bear all
costs and expenses associated with those activities.

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Bristol-Myers Squibb may, at any time, terminate the collaboration agreement upon certain prior notice to
us on a product-by-product and country-by-country basis. In addition, either party may terminate the agreement
for the other party’s uncured material breach. In the event of termination by Bristol-Myers Squibb at will or by us
for Bristol-Myers Squibb’s uncured material breach, the license granted to Bristol-Myers Squibb would
terminate, the right to such product would revert to us and we would receive a royalty-bearing license for late-
stage reverted compounds and a royalty-free license for early-stage reverted compounds from Bristol-Myers
Squibb to develop and commercialize such product in the related country. In the event of termination by Bristol-
Myers Squibb for our uncured material breach, Bristol-Myers Squibb would retain the right to such product,
subject to continued payment of milestones and royalties.

Bristol-Myers Squibb—LXR Collaboration

In December 2005, we entered into a collaboration agreement with Bristol-Myers Squibb for the discovery,

development and commercialization of novel therapies targeted against LXR, a nuclear hormone receptor
implicated in a variety of cardiovascular and metabolic disorders. This agreement became effective in January
2006, at which time we granted Bristol-Myers Squibb an exclusive worldwide license with respect to certain
intellectual property primarily relating to compounds that modulate LXR, including BMS-852927 (XL041).
During the research term, we jointly identified drug candidates with Bristol-Myers Squibb that were ready for
IND-enabling studies. After the selection of a drug candidate for further clinical development by Bristol-Myers
Squibb, Bristol-Myers Squibb agreed to be solely responsible for further preclinical development as well as
clinical development, regulatory, manufacturing and sales/marketing activities for the selected drug candidate.
We do not have rights to reacquire the drug candidates selected by Bristol-Myers Squibb. The research term
expired in January 2010 and we transferred the technology to Bristol-Myers Squibb in 2011 to enable it to
continue the LXR program. BMS has terminated development of XL041 and we have been advised that BMS is
continuing additional preclinical research on the program. The collaboration agreement was amended and
restated in April 2011 in connection with an assignment of patents to a wholly-owned subsidiary.

Under the collaboration agreement, Bristol-Myers Squibb paid us a nonrefundable upfront cash payment in
the amount of $17.5 million and was obligated to provide research and development funding of $10.0 million per
year for an initial research period of two years. In September 2007, the collaboration was extended at Bristol-
Myers Squibb’s request through January 12, 2009, and in November 2008, the collaboration was further
extended at Bristol-Myers Squibb’s request through January 12, 2010. Under the collaboration agreement,
Bristol-Myers Squibb is required to pay us contingent amounts associated with development and regulatory
milestones of up to $138.0 million per product for up to two products from the collaboration. In addition, we are
also entitled to receive payments associated with sales milestones of up to $225.0 million and royalties on sales
of any products commercialized under the collaboration. In connection with the extension of the collaboration
through January 2009 and subsequently through January 2010, Bristol-Myers Squibb paid us additional research
funding of approximately $7.7 million and approximately $5.8 million, respectively. In December 2007, we
received $5.0 million in connection with the achievement by Bristol-Myers Squibb of a development milestone
with respect to BMS-852927 (XL041).

Sanofi

In May 2009, we entered into a global license agreement with Sanofi for SAR245408 (XL147) and

SAR245409 (XL765), leading inhibitors of phosphoinositide-3 kinase, or PI3K, and a broad collaboration for the
discovery of inhibitors of PI3K for the treatment of cancer. The license agreement and collaboration agreement
became effective on July 7, 2009. In connection with the effectiveness of the license and collaboration, on
July 20, 2009, we received upfront payments of $140.0 million ($120.0 million for the license and $20.0 million
for the collaboration), less applicable withholding taxes of $7.0 million, for a net receipt of $133.0 million. We
received a refund payment in December 2011 with respect to the withholding taxes previously withheld.

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Under the license agreement, Sanofi received a worldwide exclusive license to SAR245408 (XL147) and

SAR245409 (XL765), which are in phase 1, phase 1b/2 or phase 2 clinical trials, and has sole responsibility,
including funding, for all subsequent clinical, regulatory, commercial and manufacturing activities. We will be
eligible to receive contingent payments associated with development, regulatory and commercial milestones
under the license agreement of $745.0 million in the aggregate, as well as royalties on sales of any products
commercialized under the license. Sanofi may, upon certain prior notice to us, terminate the license as to
products containing SAR245408 (XL147) and SAR245409 (XL765). In the event of such termination election,
Sanofi’s license relating to such product would terminate and revert to us, and we would receive, subject to
certain terms, conditions and potential payment obligations, licenses from Sanofi to research, develop and
commercialize such products.

In December 2011, we entered into an agreement with Sanofi pursuant to which the parties terminated the

discovery collaboration agreement and released each other from any potential liabilities arising under the
collaboration agreement prior to effectiveness of the termination in December 2011. Each party retains
ownership of the intellectual property that it generated under the collaboration agreement, and we granted Sanofi
covenants not-to-enforce with respect to certain of our intellectual property rights. The termination agreement
also provided that Sanofi would make a payment to us of $15.3 million, which we received in January 2012. If
either party or its affiliate or licensee develops and commercializes a therapeutic product containing an isoform-
selective PI3K inhibitor that arose from such party’s work (or was derived from such work) under the
collaboration agreement, then such party will be obligated to pay royalties to the other party based upon the net
sales of such products. The termination agreement provides that Sanofi will make a one-time payment to us upon
the first receipt by Sanofi or its affiliate or licensee of marketing approval for the first therapeutic product
containing an isoform-selective PI3K inhibitor that arose from Sanofi’s work (or was derived from such work)
under the collaboration agreement.

Merck

In December 2011, we entered into an agreement with Merck pursuant to which we granted Merck an

exclusive worldwide license to our PI3K-delta, or PI3K-d, program, including XL499 and other related
compounds. Pursuant to the terms of the agreement, Merck has sole responsibility to research, develop, and
commercialize compounds from our PI3K-d program. The agreement became effective in December 2011.

Merck paid us an upfront cash payment of $12.0 million in January 2012 in connection with the agreement.
We will be eligible to receive payments associated with the successful achievement of potential development and
regulatory milestones for multiple indications of up to $239.0 million. We will also be eligible to receive
payments for combined sales performance milestones of up to $375.0 million and royalties on net-sales of
products emerging from the agreement. Contingent payments associated with milestones achieved by Merck and
royalties are payable on compounds emerging from our PI3K-d program or from certain compounds that arise
from Merck’s internal discovery efforts targeting PI3K-d during a certain period. In July 2015 we received a $3.0
million milestone payment from Merck in connection with Merck’s selection of a compound from our PI3K-d
program to advance into clinical trials.

Merck may at any time, upon specified prior notice to us, terminate the license. In addition, either party may

terminate the agreement for the other party’s uncured material breach. In the event of termination by Merck at
will or by us for Merck’s uncured material breach, the license granted to Merck would terminate. In the event of
a termination by us for Merck’s uncured material breach, we would receive a royalty-free license from Merck to
develop and commercialize certain joint products. In the event of termination by Merck for our uncured material
breach, Merck would retain the licenses from us, and we would receive reduced royalties from Merck on
commercial sales of products.

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Daiichi Sankyo

In March 2006, we entered into a collaboration agreement with Daiichi Sankyo for the discovery,

development and commercialization of novel therapies targeted against the mineralocorticoid receptor, or MR, a
nuclear hormone receptor implicated in a variety of cardiovascular and metabolic diseases. Under the terms of
the agreement, we granted to Daiichi Sankyo an exclusive, worldwide license to certain intellectual property
primarily relating to compounds that modulate MR, including CS-3150 (an isomer of XL550). Daiichi Sankyo is
responsible for all further preclinical and clinical development, regulatory, manufacturing and commercialization
activities for the compounds and we do not have rights to reacquire such compounds, except as described below.

Daiichi Sankyo paid us a nonrefundable upfront payment in the amount of $20.0 million and was obligated
to provide research and development funding of $3.8 million over a 15-month research term. In June 2007, our
collaboration agreement with Daiichi Sankyo was amended to extend the research term by six months over which
Daiichi Sankyo was required to provide $1.5 million in research and development funding. In November 2007,
the parties decided not to further extend the research term. For each product from the collaboration, we are also
entitled to receive payments upon attainment of pre-specified development, regulatory and commercialization
milestones. In December 2010, we received a milestone payment of $5.0 million in connection with an IND
filing made by Daiichi Sankyo for CS-3150 and, in August 2012, we received a milestone payment of $5.5
million in connection with the initiation of a phase 2 clinical trial for CS-3150. CS-3150 is currently the subject
of Phase 2 trials for patients in Japan with hypertension, hypertension with renal impairment, and hypertension
with diabetic nephropathy. We are eligible to receive additional development, regulatory and commercialization
milestone payments of up to $145.0 million. In addition, we are also entitled to receive royalties on any sales of
certain products commercialized under the collaboration. Daiichi Sankyo may terminate the agreement upon 90
days’ written notice in which case Daiichi Sankyo’s payment obligations would cease, its license relating to
compounds that modulate MR would terminate and revert to us and we would receive, subject to certain terms
and conditions, licenses from Daiichi Sankyo to research, develop and commercialize compounds, that were
discovered under the collaboration.

Manufacturing and Distribution

We do not own or operate manufacturing or distribution facilities or resources for clinical or commercial
production and distribution of COMETRIQ. Instead, we deploy internal resources to manage and oversee third
parties working on our behalf under contract. These third parties manufacture raw materials, the active
pharmaceutical ingredient, or API, and finished drug product for use in clinical studies and for commercial
distribution. All manufacturing occurs at facilities that comply with FDA requirements and the requirements of
regulatory agencies from the other jurisdictions where we have obtained approval or are seeking approval.

The suppliers of our clinical and commercial supplies are located in multiple countries. Raw materials are
sourced from multiple third-party suppliers in Asia and North America. Contract manufacturers in Europe and
North America then convert these raw materials into API for clinical and commercial purposes. We use different
contract manufacturers to supply finished drug product for clinical purposes and for commercial purposes. We
use a single third party logistics provider to handle shipping and warehousing of our commercial supply of
COMETRIQ in the United States and a single specialty pharmacy to dispense COMETRIQ to patients in
fulfillment of prescriptions. Should cabozantinib be approved by the FDA for advanced RCC, our warehousing
and distribution model will expand appropriately for commercial supply of that larger market. Outside the U.S.,
we currently rely on Sobi, to distribute and commercialize COMETRIQ; however, following a transition period,
the responsibility for distribution and commercialization of COMETRIQ, and for the COMETRIQ NPU
program, will transfer to Ipsen under the terms of our collaboration.

We are confident in the reliability of this supply chain and intend to continue to rely upon it for the

foreseeable future.

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Government Regulation

The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries
impose substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical
products. These agencies and other federal, state and local entities regulate, among other things, research and
development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage,
distribution, export, import, record keeping, approval, advertising and promotion of our products.

The process required by the FDA before product candidates may be marketed in the United States generally

involves the following:

•

•

•

•

•

preclinical laboratory and animal tests that must be conducted in accordance with Good Laboratory
Practices;

submission of an IND, which must become effective before clinical trials may begin;

adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed
drug candidate for its intended use;

pre-approval inspection of manufacturing facilities and selected clinical investigators for their
compliance with Good Manufacturing Practices, or GMP, and Good Clinical Practices, or GCP; and

FDA approval of a NDA for commercial marketing, or of an NDA supplement, for approval of a new
indication if the product is already approved for another indication.

The testing and approval process requires substantial time, effort and financial resources. Prior to
commencing the first clinical trial with a product candidate, we must submit an IND to the FDA. The IND
automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time
period, raises concerns or questions about the conduct of the clinical trial. In such a case, the IND sponsor and
the FDA must resolve any outstanding concerns before the clinical trial can begin. Submission of an IND may
not result in FDA authorization to commence a clinical trial. A separate submission to the existing IND must be
made for each successive clinical trial conducted during product development. Further, an independent
institutional review board for each medical center proposing to conduct the clinical trial must review and approve
the plan for any clinical trial and provide its informed consent form before the trial commences at that center.
Regulatory authorities or an institutional review board or the sponsor may suspend a clinical trial at any time on
various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health
risk.

For purposes of NDA approval, human clinical trials are typically conducted in three sequential phases that

may overlap.

•

•

•

Phase 1 – Studies are initially conducted in a limited patient population to test the product candidate for
safety, dosage tolerance, absorption, metabolism, distribution and excretion in healthy humans or
patients.

Phase 2 – Studies are conducted with groups of patients afflicted with a specified disease in order to
provide enough data to evaluate the preliminary efficacy, optimal dosages and expanded evidence of
safety. Multiple phase 2 clinical trials may be conducted by the sponsor to obtain information prior to
beginning larger and more expensive phase 3 clinical trials. In some cases, a sponsor may decide to run
what is referred to as a “phase 2b” evaluation, which is a second, confirmatory phase 2 trial that could,
if positive, serve as a pivotal trial in the approval of a product candidate.

Phase 3 – When phase 2 evaluations demonstrate that a dosage range of the product is effective and has
an acceptable safety profile, phase 3 trials are undertaken in large patient populations to further
evaluate dosage, to provide replicate statistically significant evidence of clinical efficacy and to further
test for safety in an expanded patient population at multiple clinical trial sites.

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The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These
so-called phase 4 studies may be made a condition to be satisfied after a drug receives approval. Failure to satisfy
such post-marketing commitments can result in FDA enforcement action, up and to including withdrawal of
NDA approval. The results of phase 4 studies can confirm the effectiveness of a product candidate and can
provide important safety information to augment the FDA’s adverse drug reaction reporting system. The results
of product development, preclinical studies and clinical trials are submitted to the FDA as part of an NDA, or as
part of an NDA supplement. The submission of an NDA or NDA supplement requires payment of a substantial
user fee to FDA. The FDA may convene an advisory committee to provide clinical insight on NDA review
questions. The FDA may deny approval of an NDA or NDA supplement by way of a Complete Response letter if
the applicable regulatory criteria are not satisfied, or it may require additional clinical data and/or an additional
pivotal phase 3 clinical trial. Even if such data are submitted, the FDA may ultimately decide that the NDA or
NDA supplement does not satisfy the criteria for approval. An NDA may be approved with significant
restrictions on its labeling, marketing and distribution under a Risk Evaluation and Mitigation Strategy. Once
issued, the FDA may withdraw product approval if ongoing regulatory standards are not met or if safety
problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance
programs to monitor the effect of approved products that have been commercialized, and the FDA has the power
to prevent or limit further marketing of a product based on the results of these post-marketing programs.

Satisfaction of FDA requirements or similar requirements of state, local and foreign regulatory agencies
typically takes several years and the actual time required may vary substantially based upon the type, complexity
and novelty of the product or disease. Government regulation may delay or prevent marketing of product
candidates or new diseases for a considerable period of time and impose costly procedures upon our activities.
The FDA or any other regulatory agency may not grant approvals for new indications for our product candidates
on a timely basis, if at all. Success in early stage clinical trials does not ensure success in later stage clinical
trials. Targets and pathways identified in vitro may be determined to be less relevant in clinical studies and
results in animal model studies may not be predictive of human clinical results. Data obtained from clinical
activities is not always conclusive and may be susceptible to varying interpretations, which could delay, limit or
prevent regulatory approval. Even if a product candidate receives regulatory approval, the approval may be
significantly limited to specific disease states, patient populations and dosages. Further, even after regulatory
approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on
the product or even complete withdrawal of the product from the market.

Any products manufactured or distributed by us pursuant to FDA approvals are subject to continuing
regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the
drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and
certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies
for compliance with GMP, which impose certain procedural and documentation requirements upon us and our
third-party manufacturers.

The FDA closely regulates the marketing and promotion of drugs. A company can make only those claims

relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can
result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.
Physicians may, in their independent medical judgment, prescribe legally available drugs for uses that are not
described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-
label uses are common across medical specialties. Physicians may believe that such off-label uses are the best
treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in
their choice of treatments. The FDA does, however, restrict manufacturers’ communications on the subject of
off-label use. Additionally, a significant number of pharmaceutical companies have been the target of inquiries
and investigations by various U.S. federal and state regulatory, investigative, prosecutorial and administrative
entities in connection with the promotion of products for off-label uses and other sales practices. These
investigations have alleged violations of various U.S. federal and state laws and regulations, including claims
asserting antitrust violations, violations of the Food, Drug and Cosmetic Act, false claims laws, the Prescription

18

Drug Marketing Act, anti-kickback laws, and other alleged violations in connection with the promotion of
products for unapproved uses, pricing and Medicare and/or Medicaid reimbursement.

The United States Orphan Drug Act promotes the development of products that demonstrate promise for the

diagnosis and treatment of diseases or conditions that affect fewer than 200,000 people in the United States.
Upon FDA receipt of Orphan Drug Designation, the sponsor is eligible for tax credits of up to 50% for qualified
clinical trial expenses, the ability to apply for annual grant funding, waiver of PDUFA application fee, and upon
approval, the potential for seven years of market exclusivity for the orphan-designated product for the orphan-
designated indication.

The FDA has various programs, including Fast Track, priority review and accelerated approval, which are
intended to expedite or simplify the process for developing and reviewing promising drugs, or to provide for the
approval of a drug on the basis of a surrogate endpoint. Generally, drugs that are eligible for these programs are
those for serious or life-threatening conditions, those with the potential to address unmet medical needs and those
that offer meaningful benefits over existing treatments. For example, Fast Track is a process designed to facilitate
the development and expedite the review of drugs to treat serious or life-threatening diseases or conditions and
fill unmet medical needs. Priority review is designed to give drugs that offer major advances in treatment or
provide a treatment where no adequate therapy exists an initial review within six months of NDA filing as
compared to a standard review time of 10 months from NDA filing. Although Fast Track and priority review do
not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a
sponsor of a Fast Track designated drug and expedite review of the application for a drug designated for priority
review. Accelerated approval provides for an earlier approval for a new drug that is intended to treat a serious or
life-threatening disease or condition and that fills an unmet medical need based on a surrogate endpoint. As a
condition of approval, the FDA may require that a sponsor of a product candidate receiving accelerated approval
perform post-marketing clinical trials to confirm the clinically meaningful outcome as predicted by the surrogate
marker trial. In addition to the Fast Track, accelerated approval and priority review programs, the FDA also
designates Breakthrough Therapy status to drugs that are intended, alone or in combination with one or more
other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates
that the drug may demonstrate substantial improvement over existing therapies on one or more clinically
significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs
designated as breakthrough therapies are also eligible for accelerated approval. The FDA will seek to ensure the
sponsor of a breakthrough therapy product candidate receives: intensive guidance on an efficient drug
development program; intensive involvement of senior managers and experienced staff on a proactive,
collaborative and cross-disciplinary review; and rolling review.

Regulation Outside of the United States

In addition to regulations in the United States, we are subject to regulations of other countries governing
clinical trials and commercial sales and distribution of our products outside of the United States. Whether or not
we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of
countries outside of the United States before we can commence clinical trials in such countries and approval of
the regulators of such countries or economic areas, such as the European Union, before we may market products
in those countries or areas. The approval process and requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or
shorter than that required for FDA approval.

Under European Union regulatory systems, a company may submit marketing authorization applications
either under a centralized or decentralized procedure. The centralized procedure provides for the grant of a single
marketing authorization that is valid for all European Union member states. The decentralized procedure
provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national
marketing authorization may submit an application to the remaining member states. Within 90 days of receiving

19

the applications and assessments report, each member state must decide whether to recognize approval. If a
member state does not recognize the marketing authorization, the disputed points are eventually referred to the
European Commission, whose decision is binding on all member states.

As in the United States, we may apply for designation of a product as an Orphan drug for the treatment of a

specific indication in the European Union before the application for marketing authorization is made. Orphan
drugs in Europe enjoy economic and marketing benefits, including up to ten years of market exclusivity for the
approved indication unless another applicant can show that its product is safer, more effective or otherwise
clinically superior to the orphan-designated product.

Healthcare Regulation

Federal and state healthcare laws, including fraud and abuse and health information privacy and security
laws, also apply to our business. If we fail to comply with those laws, we could face substantial penalties and our
business, results of operations, financial condition and prospects could be adversely affected. The laws that may
affect our ability to operate include, but are not limited to: the federal Anti-Kickback Statute, which prohibits.
among other things, soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in
return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare
program, such as the Medicare and Medicaid programs; and federal civil and criminal false claims laws and civil
monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or
causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false
or fraudulent. Additionally, we are subject to state law equivalents of each of the above federal laws, which may
be broader in scope and apply regardless of payer, and many of which differ from each other in significant ways
and may not have the same effect, further complicate compliance efforts.

Numerous federal and state laws, including state security breach notification laws, state health information

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

In addition, the Patient Protection and Affordable Care Act, as amended by the Health Care Education
Reconciliation Act, or the PPACA, created a federal requirement under the federal Open Payments program, that
requires certain manufacturers to track and report to the Centers for Medicare and Medicaid Services, or CMS,
annually certain payments and other transfers of value provided to physicians and teaching hospitals made in the
previous calendar year. In addition, there are also an increasing number of state laws that require manufacturers
to make reports to states on pricing and marketing information. These laws may affect our sales, marketing, and
other promotional activities by imposing administrative and compliance burdens on us. In addition, given the
lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the
penalty provisions of the pertinent state and federal authorities.

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For those marketed products which are covered in the United States by the Medicaid programs, we have

various obligations, including government price reporting and rebate requirements, which generally require
products be offered at substantial rebates/discounts to Medicaid and certain purchasers (including “covered
entities” purchasing under the 340B Drug Discount Program). We are also required to discount such products to
authorized users of the Federal Supply Schedule of the General Services Administration, under which additional
laws and requirements apply. These programs require submission of pricing data and calculation of discounts and
rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts
governed by the Federal Acquisition Regulations, and the guidance governing such calculations is not always
clear. Compliance with such requirements can require significant investment in personnel, systems and resources,
but failure to properly calculate our prices, or offer required discounts or rebates could subject us to substantial
penalties. One component of the rebate and discount calculations under the Medicaid and 340B programs,
respectively, is the “additional rebate”, a complex calculation which is based, in part, on the rate at which a
branded drug price increases over time more than the rate of inflation (based on the CPI-U). This comparison is
based on the baseline pricing data for the first full quarter of sales associated with a branded drug’s NDA, and
baseline data cannot generally be reset, even on transfer of the NDA to another manufacturer. This “additional
rebate” calculation can, in some cases where price increase have been relatively high versus the first quarter of
sales of the NDA, result in Medicaid rebates up to 100% of a drug’s “average manufacturer price” and 340B
prices of one penny. Subject to the control of Directive 89/105/EEC, pricing and reimbursement in the EU/EEA
is governed by national rules and policy and may vary from Member State to Member State.

Reimbursement

Sales of COMETRIQ, COTELLIC and any future products of ours will depend, in part, on the extent to

which their costs will be covered by third-party payers, such as government health programs, commercial
insurance and managed healthcare organizations. Patients are unlikely to use our products unless coverage is
provided and reimbursement is adequate to cover a significant portion of the cost of our products. Third-party
payers may limit coverage to specific drug products on an approved list, also known as a formulary, which might
not include all of the FDA-approved drugs for a particular indication. Moreover, a third-party payer’s decision to
provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved.
Additionally, one third-party payer’s decision to cover a particular drug product does not ensure that other payers
will also provide coverage for the drug product, or will provide coverage at an adequate reimbursement rate.

In the United States and other potentially significant markets for our products, government authorities and

third-party payors are increasingly attempting to limit or regulate the price of medical products and services,
particularly for new and innovative products and therapies, which has resulted in lower average selling prices.
Further, the increased emphasis on managed healthcare in the United States and on country-specific and regional
pricing and reimbursement controls in the European Union will put additional pressure on product pricing,
reimbursement and usage, which may adversely affect our future product sales and results of operations. These
pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws
and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and
pricing in general.

The United States and some foreign jurisdictions are considering or have enacted a number of additional

legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell
our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant
interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs,
improving quality and/or expanding access. There has been particular and increasing legislative and enforcement
interest in the United States with respect to specialty drug pricing practices over the course of 2015, particularly
with respect to drugs that have been subject to relatively large price increases over relatively short time periods.
There have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things,
bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient

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programs, and reform government program reimbursement methodologies for drugs. In the United States, the
pharmaceutical industry has already been significantly affected by major legislative initiatives, including, for
example, the PPACA. The PPACA, among other things, imposes a significant annual fee on companies that
manufacture or import branded prescription drug products. It also contains substantial provisions intended to
broaden access to health insurance, reduce or constrain the growth of healthcare spending, and impose additional
health policy reforms, any or all of which may affect our business. The PPACA, compounded by the intense
public scrutiny of drug pricing in the United States, is likely to continue the downward pressure on
pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens
and operating costs. Other legislative changes have also been proposed and adopted since the PPACA was
enacted. For example, the Budget Control Act of 2011 resulted in aggregate reductions in Medicare payments to
providers of up to 2% per fiscal year, starting in 2013, and the American Taxpayer Relief Act of 2012, among
other things, reduced Medicare payments to several types of providers and increased the statute of limitations
period for the government to recover overpayments to providers from three to five years. Such laws, and others
that may affect our business that have been recently enacted or may in the future be enacted, may result in
additional reductions in Medicare and other healthcare funding. In the future, there will likely continue to be
additional proposals relating to the reform of the United States healthcare system, some of which could further
limit coverage and reimbursement of drug products, including our product candidates. Any reduction in
reimbursement from Medicare or other government programs may result in a similar reduction in payments from
private payors. The implementation of cost containment measures or other healthcare reforms may prevent us
from being able to generate revenue, attain profitability or commercialize our products.

In addition, in some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may

be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For
example, the European Union provides options for its member states to restrict the range of medicinal products
for which their national health insurance systems provide reimbursement and to control the prices of medicinal
products for human use. A member state may approve a specific price for the medicinal product or it may instead
adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on
the market. There can be no assurance that any country that has price controls or reimbursement limitations for
pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products.
Historically, products launched in the European Union do not follow the price structures of the United States and
generally tend to be priced significantly lower.

Competition

There are many companies focused on the development of small molecules and antibodies for cancer. Our

competitors and potential competitors include major pharmaceutical and biotechnology companies, as well as
academic research institutions, clinical reference laboratories and government agencies that are pursuing research
activities similar to ours. Many of our competitors and potential competitors have significantly more financial,
technical and other resources than we do, which may allow them to have a competitive advantage.

Competition for Cabozantinib

We believe that our ability to successfully compete will depend on, among other things:

•

•

•

•

efficacy, safety and reliability of cabozantinib;

timing and scope of regulatory approval;

the speed at which we develop cabozantinib for the treatment of additional tumor types beyond
progressive, metastatic MTC;

our ability to complete preclinical testing and clinical development and obtain regulatory approvals for
cabozantinib;

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•

•

•

•

•

•

our ability to manufacture and sell commercial quantities of cabozantinib to the market;

our ability to successfully commercialize cabozantinib and secure coverage and adequate
reimbursement in approved indications;

product acceptance by physicians and other health care providers;

skills of our employees and our ability to recruit and retain skilled employees;

protection of our intellectual property; and

the availability of substantial capital resources to fund development and commercialization activities.

We believe that the quality and breadth of activity observed with cabozantinib, the skill of our employees
and our ability to recruit and retain skilled employees, our patent portfolio and our capabilities for research and
drug development are competitive strengths. However, many large pharmaceutical and biotechnology companies
have significantly larger intellectual property estates than we do, more substantial capital resources than we have,
and greater capabilities and experience than we do in preclinical and clinical development, sales, marketing,
manufacturing and regulatory affairs.

The markets for which we intend to pursue regulatory approval of cabozantinib are highly competitive. We

are aware of products in research or development by our competitors that are intended to treat all of the tumor
types we are targeting, and should they demonstrate suitable clinical evidence, any of these products may
compete with cabozantinib.

Should cabozantinib be approved for the treatment of advanced RCC as a result of positive results from the

METEOR trial, its principal competition may include: Pfizer’s axitinib, sunitinib and temsirolimus; Novartis’
everolimus and pazopanib; Bristol-Myers Squibb’s nivolumab; Bayer’s and Onyx Pharmaceuticals’ sorafenib;
Genentech’s bevacizumab; and Eisai’s lenvatinib. The potential for immediate competition from Bristol-Myers
Squibb’s nivolumab is particularly significant. Nivolumab was approved for the treatment of advanced RCC on
November 23, 2015, following a rapid review by the FDA. That approval was based in large part on the results of
Bristol-Myers Squibb’s phase 3 trial comparing nivolumab to everolimus in patients who had received previous
antiangiogenic therapy for advanced RCC (Checkmate 025), in which nivolumab met its primary endpoint of
showing a statistically-significant improvement in OS over everolimus, a current standard of care for the
treatment of second line RCC patients. Nivolumab failed to demonstrate a statistically-significant PFS benefit
over everolimus. Nivolumab also demonstrated an acceptable safety profile and may be rapidly adopted by
physicians for the treatment of advanced RCC.

Should cabozantinib be approved for the treatment of HCC, the other indication for which we have an

ongoing phase 3 pivotal trial, its principal competition may include: Bayer’s and Onyx Pharmaceuticals’
sorafenib; Bayer’s regorafenib; ArQule’s tivantinib; Eisai’s lenvatinib; Bristol-Myers Squibb’s nivolumab; and
Eli Lilly and Company’s ramucirumab.

The principal competing anti-cancer therapy to COMETRIQ in progressive, metastatic MTC is
AstraZeneca’s RET, VEGFR and EGFR inhibitor vandetanib, approved by the FDA and the EMA for the
treatment of symptomatic or progressive MTC in patients with unresectable, locally advanced, or metastatic
disease. On October 21, 2015, AstraZeneca announced the global completion of the sale of vandetanib to
Genzyme, a Sanofi company. We anticipate the potential for increased competition for COMETRIQ in
progressive, metastatic MTC as a result of the consolidation of vandetanib into Genzyme’s endocrinology
portfolio and the company’s rare disease expertise. In addition, COMETRIQ also faces competition as a
treatment for progressive, metastatic MTC from off-label use of Bayer’s and Onyx Pharmaceuticals’ (a wholly-
owned subsidiary of Amgen) multikinase inhibitor sorafenib, Pfizer’s multikinase inhibitor sunitinib, Ariad
Pharmaceutical’s multikinase inhibitor ponatinib, Novartis’ multikinase inhibitor pazopanib, and Eisai’s
multikinase inhibitor lenvatinib.

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Examples of potential competition for cabozantinib in other cancer indications include: other VEGF
pathway inhibitors, including Genentech’s bevacizumab; other RET inhibitors including Eisai’s lenvatinib and
Ariad’s ponatinib; and other MET inhibitors, including Amgen’s AMG 208, Pfizer’s crizotinib, ArQule’s
tivantinib, and Mirati’s MGCD265; and immunotherapies such as Bristol-Myers Squibb’s ipilimumab and
nivolimab, Merck’s pembrolizumab and Genentech’s atezolizumab.

Competition for Cobimetinib

Cobimetinib’s principal competition amongst targeted agents may include: Novartis’ trametinib and
dabrafenib, and Array’s encorafenib and binimetinib; and within the class of immunotherapies, Bristol-Myers
Squibb’s ipilimumab and nivolumab and Merck’s pembrolizumab. The second category, immunotherapies, are of
particular competitive importance vis-a-vis cobimetinib in advanced melanoma as they are already FDA
approved in melanoma patient populations that overlap with those that may be eligible for cobimetinib, they have
been rapidly incorporated into the National Comprehensive Cancer Network treatment guidelines, and they are
viewed with a high degree of enthusiasm by physicians and key opinion leaders. Ongoing and future trials
incorporating immune-oncology agents, including combination trials, may further impact usage of cobimetinib in
melanoma and potentially in additional tumor types in which cobimetinib may ultimately gain approval.

Financial Information and Significant Customers

We operate as a single business segment and have operations primarily in the United States. In 2015, we

derived 83% of our revenues from Diplomat Specialty Pharmacy, which is located in the United States.
Information regarding total revenues, including geographic regions in which they are earned, net loss and total
assets is set forth in our consolidated financial statements included in Item 8 of this Annual Report on
Form 10-K.

Research and development expenses were $96.4 million or the year ended December 31, 2015, compared to
$189.1 million for the year ended December 31, 2014 and $178.8 million for the year ended December 31, 2013.
Additional information about our research and development expenses in each of the last three fiscal years is set
forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Patents and Proprietary Rights

We actively seek patent protection in the United States, the European Union, and selected other foreign
countries to cover our drug candidates and related technologies. Patents extend for varying periods according to
the date of patent filing or grant and the legal term of patents in the various countries where patent protection is
obtained. The actual protection afforded by a patent, which can vary from country to country, depends on the
type of patent, the scope of its coverage and the availability of legal remedies in the country. We have numerous
patents and pending patent applications that relate to methods of screening drug targets, compounds that
modulate drug targets, as well as methods of making and using such compounds. While many patent applications
have been filed relating to the drug candidates that we have developed, the majority of these are not yet issued or
allowed.

Cabozantinib is covered by an issued patent in the United States (U.S. Pat. No. 7,579,473) for the

composition-of-matter of cabozantinib and pharmaceutical compositions thereof. Cabozantinib is also covered by
an additional issued patent in the United States (covering certain methods of use) and also by an issued patent in
Europe (covering cabozantinib’s composition-of-matter and certain methods of use) and an issued patent in Japan
(covering cabozantinib composition-of-matter). These issued patents would normally expire in September 2024,
but we have applied for patent term extension in the United States to extend the term to 2026, a Supplementary
Protection Certificate in the Europe to extend the term to 2029 and a patent term extension in Japan to extend the

24

term to 2029. Foreign counterparts of the issued United States and European patents are pending in Australia and
Canada, which, if issued, are anticipated to expire in 2024. We have patent applications pending in the United
States, the European Union, Australia, Japan and Canada covering certain synthetic methods related to making
cabozantinib, which, if issued, are anticipated to expire in 2024. We have filed patent applications in the United
States and other selected countries covering certain salts, polymorphs and formulations of cabozantinib that, if
issued, are anticipated to expire in approximately 2030. We have filed several patent applications in the United
States and other selected countries relating to combinations of cabozantinib with certain other anti-cancer agents
that, if issued, are anticipated to expire in approximately 2030.

Cobimetinib is covered by an issued patent in the United States (U. S. Pat. No 7,803,839) for the

composition of matter of cobimetinib and pharmaceutical compositions thereof. Cobimetinib is also covered by
an additional issued patent in the United States (covering certain methods of use) and also by an issued patent in
Europe (covering cobimetinib’s composition-of-matter and certain methods of use). These issued patents will
expire October 5, 2026, subject to any available extensions. Foreign counterparts of the issued United States and
European patents are issued or pending in Australia, Brazil, Canada, China, Colombia, the Eurasian Patent
Organization, Georgia, Hong Kong, India, Indonesia, Israel, Japan, Mexico, Malaysia, New Zealand, Philippines,
Singapore, South Africa, South Korea, and Ukraine. We have filed patent applications in the United States and
other selected countries covering certain synthetic methods related to making cobimetinib, which if, issued, are
anticipated to expire in approximately 2033. Cobimetinib is licensed to Genentech in the United States and to
Roche outside of the United States.

We have pending patent applications in the United States and European Union covering the composition-of-
matter of our other drug candidates in clinical or preclinical development that, if issued, are anticipated to expire
between 2023 and 2030.

We have obtained licenses from various parties that give us rights to technologies that we deem to be
necessary or desirable for our research and development. These licenses (both exclusive and non-exclusive) may
require us to pay royalties as well as upfront and milestone payments.

Employees

As of December 31, 2015, we had 115 full-time employees worldwide, 19 of whom held Ph.D. and/or M.D.

degrees, most of whom were engaged in full-time research and development activities. None of our employees
are represented by a labor union, and we consider our employee relations to be good.

Corporate Information

We were incorporated in Delaware in November 1994 as Exelixis Pharmaceuticals, Inc. and changed our

name to Exelixis, Inc. in February 2000. Our principal executive offices are located at 210 East Grand Ave.,
South San Francisco, California 94080. Our telephone number is (650) 837-7000. We maintain a site on the
worldwide web at www.exelixis.com; however, information found on our website is not incorporated by
reference into this report.

We make available free of charge on or through our website our Securities and Exchange Commission, or
SEC, filings, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. Further, copies of our filings with the SEC are available at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public
Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a site on the
worldwide web that contains reports, proxy and information statements and other information regarding our
filings at www.sec.gov.

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ITEM 1A. RISK FACTORS

The following are important factors that could cause actual results or events to differ materially from those
contained in any forward-looking statements made by us or on our behalf. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we deem
immaterial also may impair our business operations. If any of the following risks or such other risks actually
occurs, our business could be harmed.

Risks Related to Our Need for Additional Financing and Our Financial Results

If additional capital is not available to us, we may be forced to delay, reduce or eliminate our product
development programs or commercialization efforts and we may breach our financial covenants.

We may need to access additional capital to:

•

•

•

•

•

fund our operations and clinical trials;

continue our research and development efforts;

expand our sales, marketing and distribution capabilities;

commercialize cabozantinib or any other future product candidates, if any such candidates receive
regulatory approval for commercial sale; and

fund the portion of U.S. sales and marketing costs for cobimetinib that we are obligated to fund under
our collaboration with Genentech, or any similar costs we are obligated to fund under collaborations
we may enter into in the future.

As of December 31, 2015, we had $253.3 million in cash and investments, which included $169.0 million
available for operations, $81.6 million of compensating balance investments that we are required to maintain on
deposit with Silicon Valley Bank, and $2.7 million of long-term restricted investments. We anticipate that our
current cash and cash equivalents, and short-term investments available for operations, and product revenues,
will enable us to maintain our operations for a period of at least 12 months following the filing date of this report.
However, our future capital requirements will be substantial, and we may need to raise additional capital in the
future. Our capital requirements will depend on many factors, and we may need to use available capital resources
and raise additional capital significantly earlier than we currently anticipate. Our capital requirements will
depend on many factors including but not limited to:

•

•

•

•

•

•

the commercial success of COMETRIQ and the revenues we generate from that approved product;

the pace and progress of our current increase in sales, marketing, medical affairs and distribution
capabilities in anticipation of obtaining FDA approval for cabozantinib for the potential treatment of
advanced RCC patients;

the successful establishment of the distribution and commercialization network for COMETRIQ in the
approved MTC indication and cabozantinib for the potential treatment of advanced RCC patients, as
well as the achievement of stated regulatory and commercial milestones, under our collaboration with
Ipsen;

the commercial success of COTELLIC and the calculation of our share of related profits and losses for
the commercialization of COTELLIC in the U.S. and royalties from COTELLIC sales outside the U.S.
under our collaboration with Genentech;

the speed of a potential regulatory approval for cabozantinib for the treatment of advanced RCC and
other indications;

future clinical trial results, notably the results from CELESTIAL, our phase 3 pivotal trial in patients
with advanced HCC;

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•

•

•

•

•

•

•

•

•

•

repayment of the Deerfield Notes (see “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Certain Factors Important to Understanding Our Financial
Condition and Results of Operations—Deerfield Facility” for a description of these notes) which
mature on July 1, 2018, subject to a requirement to make a mandatory prepayment in each of 2017 and
2018 equal to 15% of certain revenues from collaborative arrangements (other than intercompany
arrangements) received during the prior fiscal year, subject to a maximum annual prepayment amount
of $27.5 million;

our ability to repay the Deerfield Notes with our common stock, which we are only able to do under
specified conditions;

repayment of our $287.5 million aggregate principal amount of the 4.25% Convertible Senior
Subordinated Notes due 2019, or the 2019 Notes, (see “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Certain Factors Important to Understanding Our
Financial Condition and Results of Operations—Convertible Senior Subordinated Notes” for a
description of these notes), which mature on August 15, 2019, unless earlier converted, redeemed or
repurchased;

repayment of our term loan from Silicon Valley Bank, which had an outstanding balance at
December 31, 2015, of $80.0 million;

our ability to control costs;

our ability to remain in compliance with, or amend or cause to be waived, financial covenants
contained in agreements with third parties;

the cost of clinical drug supply for our clinical trials;

trends and developments in the pricing of oncologic therapeutics in the United States and abroad,
especially in the EU;

scientific developments in the market for oncologic therapeutics and the timing of regulatory approvals
for competing oncologic therapies; and

the filing, maintenance, prosecution, defense and enforcement of patent claims and other intellectual
property rights.

We have a history of net losses. We expect to continue to incur net losses, and we may not achieve or maintain
profitability.

We have incurred net losses since inception through December 31, 2015, with the exception of the 2011
fiscal year. We anticipate net losses and negative operating cash flow for the foreseeable future. For the year
ended December 31, 2015, we incurred a net loss of $169.7 million and as of December 31, 2015, we had an
accumulated deficit of $1.9 billion. These losses have had, and will continue to have, an adverse effect on our
stockholders’ deficit and working capital. Because of the numerous risks and uncertainties associated with
developing drugs, we are unable to predict the extent of any future losses or whether or when we will become
profitable, if at all. Excluding fiscal 2011, our research and development expenditures and selling, general and
administrative expenses have exceeded our revenues for each fiscal year, and we expect to spend significant
additional amounts to fund the continued development and commercialization of cabozantinib. As a result, we
expect to continue to incur substantial operating expenses and, consequently, we will need to generate significant
additional revenues to achieve future profitability.

We commercially launched COMETRIQ for the treatment of progressive, metastatic MTC in the United
States in late January 2013, and from the commercial launch through December 31, 2015, we have generated
$74.3 million in net revenues from the sale of COMETRIQ. Other than revenues from COMETRIQ, we have
derived substantially all of our revenues since inception from collaborative research and development
agreements, which depend on research funding, the achievement of milestones, and royalties we earn from any
future products developed from the collaborative research.

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The amount of our net losses will depend, in part, on: the rate of growth, if any, in our sales of COMETRIQ;

the level of sales of cabozantinib in the United States for the treatment of advanced RCC, if approved by the
FDA for such indication; receipt of the upfront payment, achievement of clinical, regulatory and commercial
milestones and the amount of royalties from sales of cabozantinib for the treatment of advanced RCC in the
European Union and elsewhere, if approved for such indication under our collaboration with Ipsen; our share of
the net profits and losses for the commercialization of COTELLIC in the U.S.; the amount of royalties from
COTELLIC sales outside the U.S.; other license and contract revenues; and, the level of expenses primarily with
respect to expanded commercialization activities for cabozantinib.

Our significant level of indebtedness could limit cash flow available for our operations and expose us to risks
that could adversely affect our business, financial condition and results of operations.

We have significant indebtedness and substantial debt service requirements as a result of the Deerfield
Notes, our loan and security agreement with Silicon Valley Bank and the 2019 Notes. As of December 31, 2015,
our total consolidated indebtedness through maturity was $492.5 million (excluding trade payables). We may
also incur additional indebtedness to meet future financing needs. If we incur additional indebtedness, it would
increase our interest expense, leverage and operating and financial costs.

Our indebtedness could have significant negative consequences for our business, results of operations and

financial condition, including:

• making it more difficult for us to meet our payment and other obligations under the 2019 Notes, the

Deerfield Notes, our loan and security agreement with Silicon Valley Bank or our other indebtedness;

•

•

•

•

•

•

•

•

•

resulting in an event of default if we fail to comply with the covenants contained in our debt
agreements, which event of default could result in all of our debt becoming immediately due and
payable;

increasing our vulnerability to adverse economic and industry conditions;

subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with
variable interest rates, including borrowings under our loan and security agreement with Silicon Valley
Bank;

limiting our ability to obtain additional financing;

requiring the dedication of a substantial portion of our cash flow from operations to service our
indebtedness, thereby reducing the amount of our cash flow available for other purposes, including
clinical trials, research and development, capital expenditures, working capital and other general
corporate purposes;

limiting our flexibility in planning for, or reacting to, changes in our business;

preventing us from raising funds necessary to purchase the 2019 Notes in the event we are required to
do so following a “Fundamental Change” as specified in the indenture governing the 2019 Notes, or to
settle conversions of the 2019 Notes in cash;

dilution experienced by our existing stockholders as a result of the conversion of the 2019 Notes or the
Deerfield Notes into shares of common stock; and

placing us at a possible competitive disadvantage with less leveraged competitors and competitors that
may have better access to capital resources.

We cannot assure you that we will continue to maintain sufficient cash reserves or that our business will
generate cash flow from operations at levels sufficient to permit us to pay principal, premium, if any, and interest
on our indebtedness, or that our cash needs will not increase. If we are unable to generate sufficient cash flow or
otherwise obtain funds necessary to make required payments, or if we fail to comply with the various

28

requirements of the 2019 Notes, the Deerfield Notes, our loan and security agreement with Silicon Valley Bank,
or any indebtedness which we have incurred or may incur in the future, we would be in default, which would
permit the holders or the Trustee of the 2019 Notes or other indebtedness to accelerate the maturity of such notes
or other indebtedness and could cause defaults under the 2019 Notes, the Deerfield Notes, our loan and security
agreement with Silicon Valley Bank or our other indebtedness. Any default under the 2019 Notes, the Deerfield
Notes, our loan and security agreement with Silicon Valley Bank, or any indebtedness that we have incurred or
may incur in the future could have a material adverse effect on our business, results of operations and financial
condition.

If a Fundamental Change, as defined in the indenture governing the 2019 Notes, occurs, holders of the 2019

Notes may require us to purchase for cash all or any portion of their 2019 Notes at a purchase price equal to
100% of the principal amount of the Notes to be purchased plus accrued and unpaid interest, if any, to, but
excluding, the Fundamental Change purchase date. We may not have sufficient funds to purchase the notes upon
a Fundamental Change. In addition, the terms of any borrowing agreements that we may enter into from time to
time may require early repayment of borrowings under circumstances similar to those constituting a Fundamental
Change. Furthermore, any repurchase of 2019 Notes by us may be considered an event of default under such
borrowing agreements.

We are exposed to risks related to foreign currency exchange rates.

Most of our foreign expenses incurred are associated with establishing and conducting clinical trials for
cabozantinib. The amount of these expenses will be impacted by fluctuations in the currencies of those countries
in which we conduct clinical trials. Our agreements with the foreign sites that conduct such clinical trials
generally provide that payments for the services provided will be calculated in the currency of that country, and
converted into U.S. dollars using various exchange rates based upon when services are rendered or the timing of
invoices. When the U.S. dollar weakens against foreign currencies, the U.S. dollar value of the foreign-currency
denominated expense increases, and when the U.S. dollar strengthens against these currencies, the U.S. dollar
value of the foreign-currency denominated expense decreases. Consequently, changes in exchange rates may
affect our financial position and results of operations.

Global credit and financial market conditions could negatively impact the value of our current portfolio of
cash equivalents, short-term investments or long-term investments and our ability to meet our financing
objectives.

Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90

days or less at the time of purchase. Our short-term and long-term investments consist primarily of readily
marketable debt securities with remaining maturities of more than 90 days at the time of purchase. While as of
the date of this report we are not aware of any downgrades, material losses, or other significant deterioration in
the fair value of our cash equivalents, short-term investments or long-term investments since December 31, 2015,
no assurance can be given that a deterioration in conditions of the global credit and financial markets would not
negatively impact our current portfolio of cash equivalents or investments or our ability to meet our financing
objectives.

Risks Related to Cabozantinib and Cobimetinib

In the short-term, our prospects are critically dependent upon our ability to obtain regulatory approvals for
cabozantinib in advanced RCC and then undertake a successful commercial launch of the product in the
United States and European Union.

The success of our business is dependent upon the successful development and commercialization of
cabozantinib. Of greatest short-term importance is the commercialization of cabozantinib for advanced RCC. On

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July 20, 2015, we announced that METEOR, a phase 3 pivotal trial comparing cabozantinib to everolimus in
patients with advanced RCC who have experienced disease progression following treatment with at least one
prior VEGFR TKI, met its primary endpoint of demonstrating a statistically significant increase in PFS for
cabozantinib versus everolimus in the first 375 randomized patients as determined by an IRC. The trial also
showed a positive trend for the secondary endpoint of OS, although at the time of the July 2015 interim analysis
the p-value to achieve statistical significance was not reached. On February 1, 2016, we announced that in a
second interim analysis of the entire study population of 658 patients, the results showed a highly statistically
significant and clinically meaningful increase in OS for patients randomized to cabozantinib as compared to
everolimus. In August 2015 the FDA granted Breakthrough Therapy Designation to cabozantinib as a potential
treatment for RCC. Although we completed our regulatory filings in the United States for treatment of advanced
RCC and the FDA has granted priority review for our filing and set a PDUFA action date of June 22, 2016, we
cannot be certain that the FDA will ultimately approve cabozantinib for the treatment of previously treated
patients with advanced RCC. If we are ultimately unsuccessful in obtaining FDA approval for cabozantinib for
advanced RCC, we will not have the resources necessary to continue our business in its current form.

In addition, even if such approval is obtained, the commercial potential of cabozantinib for the treatment of
advanced RCC remains subject to a variety of factors, including the perceived benefit/risk profile associated with
cabozantinib as compared to everolimus, and the availability and benefit/risk profiles of competitive treatments.
If cabozantinib is approved for the treatment of 2nd or later-line advanced RCC, its potential principal
competition in this indication includes nivolumab, axitinib and everolimus, which are already approved in this
indication, as well as other agents currently approved for 1st-line RCC including sunitinib, sorafenib, pazopanib,
temsirolimus, and bevacizumab. Other agents being investigated in 2nd line advanced RCC, including Eisai’s
lenvatinib, may also become competitive treatments if they are approved.

With respect to regulatory and commercialization activities for cabozantinib in the European Union and
elsewhere internationally, in January 2016, our MAA for cabozantinib as a treatment for patients with advanced
RCC who have received one prior therapy was accepted for review and granted accelerated assessment by the
EMA. In February 2016, we entered into a collaboration with Ipsen to enable us to capitalize on the potential
opportunity of cabozantinib in advanced RCC and potentially other indications, if approved by the EMA and
elsewhere internationally outside of the U.S., Canada, and Japan. As a result, we now rely heavily upon Ipsen’s
regulatory, commercial, medical affairs, and other expertise and resources. If Ipsen is unable to, or does not
invest the resources necessary to, obtain regulatory approvals for cabozantinib in the European Union and
elsewhere; and then, if Ipsen is not able to, or does not invest the resources necessary to, successfully
commercialize cabozantinib in those international territories where it is approved, this will minimize our
potential revenue under the collaboration agreement, thus resulting in harm to our business and operations.

Our longer-term prospects remain dependent on cabozantinib’s further clinical development and commercial
success in additional indications beyond advanced RCC.

We are dedicating substantially all of our proprietary resources to developing cabozantinib into a broad and
significant oncology franchise. Even assuming cabozantinib’s approval in the United States and European Union
for the treatment of advanced RCC, our longer-term success remains contingent upon, among other things,
successful clinical development, regulatory approval and market acceptance of cabozantinib in additional
indications, such as advanced HCC, first-line RCC, NSCLC, and other forms of cancer. In 2014, the failure of
COMET-1 and COMET-2, our two phase 3 pivotal trials of cabozantinib in mCRPC, to meet their respective
primary endpoints negatively impacted our ability to achieve our development and commercialization goals for
cabozantinib in prostate cancer. These failures demonstrate that cabozantinib will not likely be successful in all
future clinical trials. Should we prove unsuccessful in the further development of cabozantinib beyond MTC or
advanced RCC, our longer-term prospects, revenues and financial condition would be materially adversely
affected. With top-line results from CELESTIAL, our phase 3 pivotal trial comparing cabozantinib to placebo in
patients with advanced HCC, expected in 2017, the successful development of cabozantinib in advanced HCC is
of increasing importance to our long-term success.

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We are dependent on the successful commercialization and development of cobimetinib, and rely heavily on
our partner, Genentech, for achieving that success.

Under the terms of our collaboration agreement with Genentech for the development and commercialization of
cobimetinib, we depend upon Genentech’s strategic and tactical planning, decision-making, and execution with
regard to the worldwide commercialization of cobimetinib. The collaboration agreement provides that we are
entitled to an initial equal share of U.S. profits and losses for cobimetinib, with our share decreasing as sales
increase. However, Genentech, and its parent, the Roche group, may not fund or otherwise resource and prioritize
the commercialization of cobimetinib for the indication currently approved in the U.S., Switzerland, the
European Union and Canada sufficient to achieve the product’s full commercial potential. Furthermore, expense
allocations for COTELLIC, as determined by Genentech, and its parent, the Roche group, may exceed our
estimated accruals. If we are unable to agree upon the level and type of expenses that have been allocated to
COTELLIC under the collaboration, we may be forced to initiate a dispute in accordance with the terms of the
collaboration. And, regardless of the level of Genentech’s investment in cobimetinib, the compound may not be
accepted by physicians, patients, health care payers, such as Medicare and Medicaid, and the medical
community.

We similarly rely heavily upon Genentech’s leadership and expertise to develop cobimetinib further. Any

significant changes to Genentech’s business strategy and priorities, over which we have no control, could
adversely affect Genentech’s willingness or ability to complete their obligations under our agreement and result
in harm to our business and operations. Genentech has complete financial responsibility for cobimetinib’s
development program and regulatory strategy, and we are not able to control the amount or timing of resources
that Genentech will devote to the product. Of particular significance are Genentech’s development efforts with
respect to the combination of cobimetinib with immuno-oncology agents, a promising and competitive area of
clinical research. While Genentech is currently conducting a phase 1b clinical trial combining cobimetinib with
the Genentech PD-L1 antibody (MPDL3280A), we are dependent on Genentech for all future development of
cobimetinib in combination with MPDL3280A or any other immuno-oncology agents. Regardless of
Genentech’s efforts toward the further development of cobimetinib, such additional clinical investigation may
not provide positive results supporting product label expansions or approval in additional indications.

The commercial success of cabozantinib, as COMETRIQ capsules for MTC or if approved in a tablet
formulation for additional indications in the future, will depend upon the degree of market acceptance for
cabozantinib among physicians, patients, health care payers, and the medical community.

Our ability to commercialize cabozantinib, as COMETRIQ capsules for the approved MTC indication or if
approved in a tablet formulation for advanced RCC or additional indications, will be highly dependent upon the
extent to which cabozantinib gains market acceptance among physicians, patients, health care payers such as
Medicare and Medicaid, and the medical community. If cabozantinib does not achieve an adequate level of
acceptance, we may not generate significant future product revenues, and we may not become profitable. The
degree of market acceptance of COMETRIQ and other cabozantinib products, if approved, will depend upon a
number of factors, including:

•

•

•

•

•

•

the effectiveness, or perceived effectiveness, of cabozantinib in comparison to competing products;

the existence of any significant side effects of cabozantinib, as well as their severity in comparison to
those of any competing products;

cabozantinib’s potential advantages or disadvantages in relation to alternative treatments;

the timing of market entry relative to competitive treatments;

indications for which cabozantinib is approved;

the ability to offer cabozantinib for sale at competitive prices;

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•

•

•

relative convenience and ease of administration;

the strength of sales, marketing, medical affairs and distribution support; and

sufficient third-party coverage and reimbursement.

If we are unable to maintain or scale adequate sales, marketing and distribution capabilities or enter into or
maintain agreements with third parties to do so, we may be unable to commercialize cabozantinib successfully.

We have designed our commercial organization and strategic commercial approach to maintain flexibility in

response to market opportunities. We are currently increasing our sales, marketing, medical affairs, and
distribution capabilities in anticipation of obtaining FDA approval for cabozantinib for the treatment for patients
with RCC who have received one prior therapy. We expect to be able to scale up our commercialization
capabilities quickly if additional indications for cabozantinib are approved in the future, or to scale down, if
necessary. Our ex-US distribution arrangements with Sobi are also right-sized for the European Union MTC
opportunity and retain strategic flexibility. Overall, we believe the design of our commercial organization, and
our strategic commercial approach, are efficient, taking advantage of outsourcing options where prudent to
maximize the effectiveness of our commercial expenditures.

However, we believe the commercial opportunity for cabozantinib will grow over time, but we may not

properly judge the requisite size, and experience of the commercialization team or the scale of distribution
necessary to market and sell cabozantinib successfully. Maintaining sales, marketing, medical affairs, and
distribution capabilities is expensive and time-consuming. Such expenses may be disproportionate compared to
the revenues we may be able to generate on sales of cabozantinib and could have an adverse impact on our
results of operations. If we are unable to maintain adequate sales, marketing, medical affairs, and distribution
capabilities, independently or with others, we may not be able to generate product revenues and our business may
be adversely affected.

We currently rely on a single third party logistics provider to handle shipping and warehousing of our
commercial supply of COMETRIQ and a single specialty pharmacy to dispense COMETRIQ to patients in
fulfillment of prescriptions in the United States. Should cabozantinib be approved by the FDA for advanced
RCC, we intend to expand our U.S. distribution and pharmacy channels appropriately. Outside the U.S., we
currently rely on a third party, Sobi, to distribute and commercialize COMETRIQ for the MTC indication
primarily in the European Union, but also in other countries through the NPU program.

The terms of our commercialization agreement with Sobi provide us with the ability to terminate the

agreement at will upon payment of certain pre-determined termination fees. In connection with the establishment
of our collaboration with Ipsen, we intend to provide Sobi with notice of termination and following a transition
period, Ipsen will become responsible for the continued distribution and commercialization of COMETRIQ for
the approved MTC indication in territories currently supported by Sobi and potentially other countries in the
event that COMETRIQ is approved for commercial sale in such territories, as well as access and distribution
activities for COMETRIQ under our NPU program.

Our current and anticipated future dependence upon the activities, and legal and regulatory compliance, of
these or other third parties may adversely affect our future profit margins and our ability to supply cabozantinib
to the marketplace on a timely and competitive basis. For example, if our third party logistics provider’s
warehouse suffers a fire or damage from another type of disaster, the commercial supply of COMETRIQ could
be destroyed, resulting in a disruption in our commercialization efforts. These or other third parties may not be
able to provide services in the time we require to meet our commercial timelines and objectives or to meet
regulatory requirements. We may not be able to maintain or renew our arrangements with third parties, or enter
into new arrangements, on acceptable terms, or at all. Third parties could terminate or decline to renew our
arrangements based on their own business priorities, at a time that is costly or inconvenient for us. If we are
unable to contract for logistics services or distribution of cabozantinib on acceptable terms, our
commercialization efforts may be delayed or otherwise adversely affected.

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

We are subject to certain healthcare laws and regulations and enforcement by the federal government and

the states in which we conduct our business. The laws that may affect our ability to operate include, without
limitation:

•

•

•

the federal Anti-Kickback Law, which constrains our business activities, including our marketing
practices, educational programs, pricing policies, and relationships with healthcare providers or other
entities, by prohibiting, among other things, persons and entities from knowingly and willfully
soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to
induce either the referral of an individual for, or the purchase, order or recommendation of, any good or
service for which payment may be made under federal healthcare programs such as the Medicare and
Medicaid programs;

federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among
other things, individuals or entities from knowingly presenting, or causing to be presented, claims for
payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;

federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or
making false statements relating to healthcare matters;

• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and
their implementing regulations, which impose certain requirements relating to the privacy, security and
transmission of individually identifiable health information;

•

•

•

•

•

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws
which may apply to items or services reimbursed by any third-party payer, including commercial
insurers, and state laws governing the privacy and security of health information in certain
circumstances, many of which differ from each other in significant ways and may not have the same
effect, thus complicating compliance efforts;

the Foreign Corrupt Practices Act, a U.S. law which regulates certain financial relationships with
foreign government officials (which could include, for example, certain medical professionals);

federal and state consumer protection and unfair competition laws, which broadly regulate marketplace
activities and activities that potentially harm consumers;

state and federal government price reporting laws that require us to calculate and report complex
pricing metrics to government programs, where such reported priced may be used in the calculation of
reimbursement and/or discounts on our marketed drugs (participation in these programs and
compliance with the applicable requirements may subject us to potentially significant discounts on our
products, increased infrastructure costs, and potentially limit our ability to offer certain marketplace
discounts); and

state and federal marketing expenditure tracking and reporting laws, which generally require certain
types of expenditures in the United States to be tracked and reported (compliance with such
requirements may require investment in infrastructure to ensure that tracking is performed properly,
and some of these laws result in the public disclosure of various types of payments and relationships,
which could potentially have a negative effect on our business and/or increase enforcement scrutiny of
our activities).

In addition, certain marketing practices, including off-label promotion, may also violate certain federal and

state health regulatory fraud and abuse laws as well as false claims laws. If our operations are found to be in
violation of any of the laws described above or any other governmental regulations that apply to us, we, or our
officers or employees, may be subject to penalties, including administrative civil and criminal penalties,

33

damages, fines, withdrawal of regulatory approval, the curtailment or restructuring of our operations, the
exclusion from participation in federal and state healthcare programs and imprisonment, any of which could
adversely affect our ability to sell our products or operate our business and also adversely affect our financial
results.

Numerous federal and state laws, including state security breach notification laws, state health information

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

If we are unable to obtain both adequate coverage and adequate reimbursement from third-party payers for
cabozantinib, our revenues and prospects for profitability will suffer.

Our ability to successfully commercialize cabozantinib will be highly dependent on the extent to which
coverage and reimbursement for it is, and will be, available from third-party payers, including governmental
payers, such as Medicare and Medicaid, and private health insurers. Many patients will not be capable of paying
for cabozantinib themselves and will rely on third-party payers to pay for, or subsidize, their medical needs. If
third-party payers do not provide coverage or reimbursement for cabozantinib, our revenues and prospects for
profitability will suffer. In addition, even if third-party payers provide some coverage or reimbursement for
cabozantinib, the availability of such coverage or reimbursement for prescription drugs under private health
insurance and managed care plans often varies based on the type of contract or plan purchased. There has been
recent negative publicity regarding the use of specialty pharmacies and drug pricing, which may result in
physicians being less willing to participate in our patient access programs and thereby limit our ability to increase
patient access and adoption of cabozantinib.

In addition, in some foreign countries, particularly the countries in the European Union, the pricing of
prescription pharmaceuticals is subject to governmental control. In these countries, price negotiations with
governmental authorities can take six to twelve months or longer after the receipt of regulatory marketing
approval for a product, which has the potential to substantially delay broad availability of the product in some of
those countries. To obtain reimbursement and/or pricing approval in some countries, we may be required to
conduct a clinical trial that compares the cost effectiveness of cabozantinib to other available therapies. The
conduct of such a clinical trial could be expensive and result in delays in the commercialization of cabozantinib.
Third-party payers are challenging the prices charged for medical products and services, and many third-party
payers limit reimbursement for newly-approved health care products. In particular, third-party payers may limit
the indications for which they will reimburse patients who use cabozantinib. Cost-control initiatives could
decrease the price we might establish for cabozantinib, which would result in lower product revenues to us.

34

Current healthcare laws and regulations and future legislative or regulatory reforms to the healthcare system
may affect our ability to sell cabozantinib profitably.

The United States and some foreign jurisdictions are considering or have enacted a number of legislative
and regulatory proposals to change the healthcare system in ways that could affect our ability to sell cabozantinib
profitably. Among policy makers and payers in the United States and elsewhere, there is significant interest in
promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality
and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these
efforts and has been significantly affected by major legislative initiatives.

We expect that the PPACA, as well as other healthcare reform measures that may be adopted in the future,

may result in more rigorous coverage criteria and in additional downward pressure on the price that we may
receive for any approved product. An expansion in the government’s role in the U.S. healthcare industry may
cause general downward pressure on the prices of prescription drug products, lower reimbursements for
providers using our products, reduce product utilization and adversely affect our business and results of
operations. It is unclear whether and to what extent, if at all, other potential developments resulting from the
PPACA may provide us with additional revenue to offset the annual excise tax (on certain drug product sales)
enacted under the PPACA, subject to limited exceptions. It is possible that the tax burden, if ours is not excepted,
would adversely affect our financial performance. The PPACA, among other things, also established a new
Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale
discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap
period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. Moreover,
certain politicians, including presidential candidates, have announced plans to regulate the prices of
pharmaceutical products. We cannot know what form any such legislation may take or the market’s perception of
how such legislation would affect us. Any reduction in reimbursement from government programs may result in
a similar reduction in payments from private payors. The implementation of cost containment measures or other
healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our
current products and/or those for which we may receive regulatory approval in the future.

As a result of the overall trend towards cost-effectiveness criteria and managed healthcare in the United

States, third-party payers are increasingly attempting to contain healthcare costs by limiting both coverage and
the level of reimbursement of new drugs. They may use tiered reimbursement and may adversely affect demand
for cabozantinib by placing it in an expensive tier. They may also refuse to provide any coverage of uses of
approved products for medical indications other than those for which the FDA has granted market approvals. As
a result, significant uncertainty exists as to whether and how much third-party payers will reimburse for newly
approved drugs, which in turn will put pressure on the pricing of drugs. Further, we do not have experience in
ensuring approval by applicable third-party payers outside of the United States for coverage and reimbursement
of cabozantinib. We also anticipate pricing pressures in connection with the sale of cabozantinib due to the
increasing influence of health maintenance organizations and additional legislative proposals.

Our competitors may develop products and technologies that impair the value of cabozantinib and
cobimetinib.

The pharmaceutical, biopharmaceutical and biotechnology industries are highly fragmented and are

characterized by rapid technological change. In particular, the area of kinase-targeted therapies is a rapidly
evolving and competitive field. We face, and will continue to face, intense competition from biotechnology,
biopharmaceutical and pharmaceutical companies, as well as academic research institutions, clinical reference
laboratories and government agencies that are pursuing research activities similar to ours. Some of our
competitors have entered into collaborations with leading companies within our target markets, including some
of our existing collaborators. Some of our competitors are further along in the development of their products than
we are. In addition, delays in the further development of cabozantinib or cobimetinib for the treatment of

35

additional tumor types, could allow our competitors to bring products to market before us. Our future success
will depend upon our ability to maintain a competitive position with respect to technological advances. The
markets for which we intend to pursue regulatory approval of cabozantinib and for which Roche and Genentech
intend to pursue regulatory approval for cobimetinib are highly competitive. Further, our competitors may be
more effective at using their technologies to develop commercial products. Many of the organizations competing
with us have greater capital resources, larger research and development staff and facilities, more experience in
obtaining regulatory approvals and more extensive product manufacturing and commercial capabilities than we
do. As a result, our competitors may be able to more easily develop technologies and products that would render
our technologies and products, and those of our collaborators, obsolete and noncompetitive. There may also be
drug candidates of which we are not aware at an earlier stage of development that may compete with
cabozantinib and cobimetinib. In addition, cabozantinib and cobimetinib may compete with existing therapies
that have long histories of use, such as chemotherapy and radiation treatments in cancer indications.

Competition for cabozantinib

We believe that the principal competing anti-cancer therapy to COMETRIQ in progressive, metastatic MTC

is AstraZeneca’s RET, VEGFR and EGFR inhibitor vandetanib, which has been approved by the FDA and the
EMA for the treatment of symptomatic or progressive MTC in patients with unresectable, locally advanced, or
metastatic disease. On October 21, 2015, AstraZeneca announced the global completion of the sale of vandetanib
to Genzyme, a Sanofi company. We anticipate the potential for increased competition for COMETRIQ in
progressive, metastatic MTC as a result of the consolidation of vandetanib into Genzyme’s endocrinology
portfolio and the company’s rare disease expertise. In addition, we believe that COMETRIQ also faces
competition as a treatment for progressive, metastatic MTC from off-label use of Bayer’s and Onyx
Pharmaceuticals’ (a wholly-owned subsidiary of Amgen) multikinase inhibitor sorafenib, Pfizer’s multikinase
inhibitor sunitinib, Ariad Pharmaceutical’s multikinase inhibitor ponatinib, Novartis’ multikinase inhibitor
pazopanib, and Eisai’s multikinase inhibitor lenvatinib.

Should cabozantinib be approved for the treatment of advanced RCC as a result of positive results from the

METEOR trial, we believe its principal competition may include: Pfizer’s axitinib, sunitinib and temsirolimus;
Novartis’ everolimus and pazopanib; Bristol-Myers Squibb’s nivolumab, Bayer’s and Onyx Pharmaceuticals’
sorafenib; Genentech’s bevacizumab; and, Eisai’s lenvatinib.

The potential for immediate competition from Bristol-Myers Squibb’s nivolumab is particularly significant.

Nivolumab was approved for the treatment of advanced RCC on November 23, 2015, following a rapid review
by the FDA. That approval was based in large part on the results of Bristol-Myers Squibb’s phase 3 trial
comparing nivolumab to everolimus in patients who had received previous antiangiogenic therapy for advanced
RCC (Checkmate 025), in which nivolumab met its primary endpoint of showing a statistically-significant
improvement in OS over everolimus, a current standard of care for the treatment of second line RCC patients.
Nivolumab failed to demonstrate a statistically-significant PFS benefit over everolimus. Nivolumab also
demonstrated an acceptable safety profile. We anticipate that nivolumab may be rapidly adopted by physicians
for the treatment of advanced RCC.

Should cabozantinib be approved for the treatment of HCC, the other indication for which we have an

ongoing phase 3 pivotal trial, we believe its principal competition may include Bayer’s and Onyx
Pharmaceuticals’ sorafenib; Bayer’s regorafenib; ArQule’s tivantinib; and Eisai’s lenvatinib.

Examples of potential competition for cabozantinib in other cancer indications include: other VEGF
pathway inhibitors, including Genentech’s bevacizumab; other RET inhibitors including Eisai’s lenvatinib and
Ariad’s ponatinib; and other MET inhibitors, including Amgen’s AMG 208, Pfizer’s crizotinib, ArQule’s
tivantinib, and Mirati’s MGCD265; and immunotherapies such as Bristol-Myers Squibb’s ipilimumab and
nivolimab and Merck’s pembrolizumab.

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Competition for cobimetinib

We believe that cobimetinib’s principal competition amongst targeted agents includes Novartis’ trametinib

and dabrafenib, and Array’s encorafenib and binimetinib; and within the class of immunotherapies, Bristol-
Myers Squibb’s ipilimumab and nivolumab and Merck’s pembrolizumab. The second category,
immunotherapies, are of particular competitive importance vis-a-vis cobimetinib in advanced melanoma as they
are already FDA approved in melanoma patient populations that overlap with those that may be eligible for
cobimetinib, they have been rapidly incorporated into the National Comprehensive Cancer Network treatment
guidelines, and they are viewed with a high degree of enthusiasm by physicians and key opinion leaders.
Ongoing and future trials incorporating immune-oncology agents, including combination trials, may further
impact usage of cobimetinib in melanoma and potentially in additional tumor types in which cobimetinib may
ultimately gain approval.

We lack the manufacturing capabilities and experience necessary to enable us to produce cabozantinib for
clinical development or for commercial sale and rely on third parties to do so, which subjects us to various
risks.

We do not have the manufacturing capabilities or expertise necessary to enable us to produce materials for
our clinical trials or for commercial sale of cabozantinib in either its capsule formulation or tablet formulation,
and rely on third party contractors to do so. These third parties must comply with applicable regulatory
requirements, including the FDA’s current Good Manufacturing Practices, or cGMP and the European
Commission’s Guidelines on Good Distribution Practice. Our current and anticipated future dependence upon
these third parties may adversely affect our future profit margins and our ability to develop and commercialize
cabozantinib on a timely and competitive basis. These third parties may not be able to produce material on a
timely basis or manufacture material at the quality or in the quantity required to meet our development and
commercial timelines and applicable regulatory requirements. We may not be able to maintain or renew our
existing third party manufacturing and supply arrangements, or enter into new arrangements, on acceptable
terms, or at all. Our third party manufacturers and suppliers could terminate or decline to renew our
manufacturing and supply arrangements based on their own business priorities, at a time that is costly or
inconvenient for us. If we are unable to contract for the production of materials in sufficient quantity and of
sufficient quality on acceptable terms, our clinical trials and commercialization efforts may be delayed or
otherwise adversely affected. This risk is especially acute during the current period as we ramp up production
plans in anticipation of a potential commercial launch in advanced RCC.

The manufacturing process for pharmaceutical products is highly regulated and our third party vendors are

subject to cGMP. Our third-party manufacturers may not be able to comply with the cGMP regulations, other
applicable FDA regulatory requirements or similar regulations applicable outside of the United States.
Additionally, if we are required to enter into new manufacturing or supply arrangements, we may not be able to
obtain approval from the FDA of any alternate manufacturer or supplier in a timely manner, or at all, which
could delay or prevent the clinical development and commercialization of cabozantinib. Failure of our third party
manufacturers or suppliers or us to obtain approval from the FDA or to comply with applicable regulations could
result in sanctions being imposed on us, including fines, civil penalties, delays in or failure to grant marketing
approval of cabozantinib, injunctions, suspension or withdrawal of approvals, license revocation, seizures or
recalls of products and compounds, operating restrictions and criminal prosecutions, any of which could have a
significant adverse effect on our business. Our third party manufacturers are subject to routine regulatory
inspections. Failure of our third party manufacturers to meet these appropriate standards and/or perform
manufacturing as required could result in a batch not passing quality inspection or meeting regulatory approval.
This could result in product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns
or other problems that could have also a significant adverse effect on our business.

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Clinical testing of cabozantinib is a lengthy, costly, complex and uncertain process and may fail to
demonstrate safety and efficacy.

Cabozantinib is being evaluated in a comprehensive development program for the treatment of advanced
HCC and a variety of other indications beyond the approved MTC indication and the pending advanced RCC
indication. Clinical trials are inherently risky and may reveal that cabozantinib is ineffective or has unacceptable
toxicity or other side effects that may significantly decrease the likelihood of regulatory approval in such
indications. For example, COMET-1 and COMET-2, our two phase 3 pivotal trials of cabozantinib in mCRPC,
failed to meet their respective primary endpoints of demonstrating a statistically significant increase in OS for
patients treated with cabozantinib as compared to prednisone and to demonstrate improvement in pain response
for patients treated by cabozantinib as compared to mitoxantrone/prednisone. Based on the outcome of the
COMET trials, we deprioritized the clinical development of cabozantinib in mCRPC.

The results of preliminary studies do not necessarily predict clinical or commercial success, and later-stage
clinical trials may fail to confirm the results observed in earlier-stage trials or preliminary studies. Although we
have established timelines for manufacturing and clinical development of cabozantinib based on existing
knowledge of our compounds in development and industry metrics, we may not be able to meet those timelines.

We may experience numerous unforeseen events, during or as a result of clinical testing, that could delay or
prevent commercialization of cabozantinib for the treatment of advanced HCC, and other indications, including:

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•

cabozantinib may not prove to be efficacious or may cause, or potentially cause, harmful side effects;

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

our competitors may discover or commercialize other compounds or therapies that show significantly
improved safety or efficacy compared to cabozantinib;

patient registration or enrollment in our clinical testing may be lower than we anticipate, resulting in
the delay or cancellation of clinical testing; and

regulators or institutional review boards may withhold authorization of cabozantinib, or delay, suspend
or terminate clinical research for various reasons, including noncompliance with regulatory
requirements or their determination that participating patients are being exposed to unacceptable health
risks.

If we were to have significant delays in or termination of our clinical testing of cabozantinib as a result of

any of the events described above or otherwise, our expenses could increase and our ability to generate revenues
could be impaired, either of which could adversely impact our financial results.

We have limited experience in conducting clinical trials and may not be able to rapidly or effectively

continue the further development of cabozantinib or meet current or future requirements of the FDA or
regulatory authorities in other jurisdictions, including those identified based on our discussions with the FDA or
such other regulatory authorities. Our planned clinical trials may not begin on time, or at all, may not be
completed on schedule, or at all, may not be sufficient for registration of cabozantinib or may not result in an
approvable product.

Completion of clinical trials may take several years or more, but the length of time generally varies
substantially according to the type, complexity, novelty and intended use of cabozantinib. The duration and the
cost of clinical trials may vary significantly over the life of a project as a result of factors relating to the clinical
trial, including, among others:

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the number of patients who ultimately participate in the clinical trial;

the duration of patient follow-up that is appropriate in view of the results or required by regulatory
authorities;

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the number of clinical sites included in the trials; and

the length of time required to enroll suitable patient subjects.

Any delay could limit our ability to generate revenues, cause us to incur additional expense and cause the
market price of our common stock to decline significantly. Our partners under our collaboration agreements may
experience similar risks with respect to the compounds we have out-licensed to them. If any of the events
described above were to occur with such programs or compounds, the likelihood of receipt of milestones and
royalties under such collaboration agreements could decrease.

If third parties upon which we rely do not perform as contractually required or expected, we may not be able
to obtain regulatory approval for or commercialize cabozantinib for the treatment of additional indications
beyond the approved MTC indication.

We do not have the ability to independently conduct clinical trials for cabozantinib, including our post-
marketing commitments in connection with the approvals of COMETRIQ in MTC, and we rely on third parties
we do not control such as the federal government (including NCI-CTEP, with whom we have our CRADA),
third-party contract research organizations, medical institutions, clinical investigators and contract laboratories to
conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or regulatory
obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the
data they obtain is compromised due to their failure to adhere to our clinical protocols or regulatory requirements
or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended
or terminated, and we may not be able to obtain regulatory approval for or commercialize cabozantinib for
additional indications beyond the approved MTC indication in the United States and European Union.

Cabozantinib is subject to a lengthy and uncertain regulatory process that may not result in the necessary
regulatory approvals, which could adversely affect our ability to commercialize cabozantinib.

The activities associated with cabozantinib’s research, development and commercialization, are subject to

extensive regulation by the FDA and other regulatory agencies in the United States and by comparable
authorities in other countries. Failure to obtain regulatory approval for cabozantinib would prevent us from
promoting its use. We have only limited experience in preparing and filing the applications necessary to gain
regulatory approvals. The process of obtaining regulatory approvals in the United States and other foreign
jurisdictions is expensive, and often takes many years, if approval is obtained at all, and can vary substantially
based upon the type, complexity and novelty of the product candidates involved. For example, before an NDA or
NDA supplement can be submitted to the FDA, or MAA to the EMA or any application or submission to
regulatory authorities in other jurisdictions, the product candidate must undergo extensive clinical trials, which
can take many years and require substantial expenditures.

Any clinical trial may fail to produce results satisfactory to the FDA or regulatory authorities in other
jurisdictions. For example, the FDA could determine that the design of a clinical trial is inadequate to produce
reliable results. The regulatory process also requires preclinical testing, and data obtained from preclinical and
clinical activities are susceptible to varying interpretations. The FDA has substantial discretion in the approval
process and may refuse to approve any NDA or decide that our data is insufficient for approval and require
additional preclinical, clinical or other studies. For example, varying interpretations of the data obtained from
preclinical and clinical testing could delay, limit or prevent regulatory approval of cabozantinib for any
individual, additional indications.

In addition, delays or rejections may be encountered based upon changes in regulatory policy for product

approval during the period of product development and regulatory agency review. Changes in regulatory
approval policy, regulations or statutes governing the process for regulatory review during the development or
review periods for cabozantinib may cause delays in the approval or rejection of an application.

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Even if the FDA or a comparable authority in another jurisdiction approves cabozantinib, the approval may

impose significant restrictions on the indicated uses, conditions for use, labeling, distribution, advertising,
promotion, marketing and/or production of cabozantinib and may impose ongoing requirements for post-
approval studies, including additional research and development and clinical trials. For example, in connection
with the FDA’s approval of COMETRIQ for the treatment of progressive, metastatic MTC, we are subject to the
various post-marketing requirements, including a requirement to conduct a clinical study comparing a lower dose
of cabozantinib to the approved dose of 140 mg daily cabozantinib in progressive, metastatic MTC and to
conduct other clinical pharmacology and preclinical studies. Failure to complete any post-marketing
requirements in accordance with the timelines and conditions set forth by the FDA could significantly increase
costs or delay, limit or eliminate the commercialization of cabozantinib. Further, these agencies may also impose
various civil or criminal sanctions for failure to comply with regulatory requirements, including withdrawal of
product approval.

Risks Related to Our Relationships with Third Parties

We are dependent upon our collaborations with major companies, which subjects us to a number of risks.

We have established collaborations with leading pharmaceutical and biotechnology companies, including,

Ipsen, Genentech, Bristol-Myers Squibb, Sanofi, Merck (known as MSD outside of the United States and
Canada) and Daiichi Sankyo, for the development and ultimate commercialization of certain compounds
generated from our research and development efforts. Our dependence on our relationships with existing
collaborators for the development and commercialization of compounds under the collaborations subjects us to,
and our dependence on future collaborators for development and commercialization of additional compounds
will subject us to, a number of risks, including:

• we are not able to control the amount and timing of resources that our collaborators or potential future
collaborators will devote to the development or commercialization of drug candidates or to their
marketing and distribution;

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

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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a
clinical trial or abandon a drug candidate, repeat or conduct new clinical trials or require a new
formulation of a drug candidate for clinical testing;

disputes may arise between us and our collaborators that result in the delay or termination of the
research, development or commercialization of our drug candidates, or that diminish or delay receipt of
the economic benefits we are entitled to receive under the collaboration, or that result in costly
litigation or arbitration that diverts management’s attention and resources;

collaborators may experience financial difficulties;

collaborators may not be successful in their efforts to obtain regulatory approvals in a timely manner,
or at all;

collaborators may not properly maintain or defend our intellectual property rights or may use our
proprietary information in such a way as to invite litigation that could jeopardize or invalidate our
proprietary information or expose us to potential litigation;

collaborators may not comply with applicable healthcare regulatory laws;

business combinations or significant changes in a collaborator’s business strategy may adversely affect
a collaborator’s willingness or ability to complete its obligations under any arrangement;

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a collaborator could independently move forward with a competing drug candidate developed either
independently or in collaboration with others, including our competitors;

• we may be precluded from entering into additional collaboration arrangements with other parties in an

area or field of exclusivity;

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future collaborators may require us to relinquish some important rights, such as marketing and
distribution rights; and

collaborations may be terminated or allowed to expire, which would delay, and may increase the cost
of development of our drug candidates.

If any of these risks materialize, we may not receive collaboration revenue or otherwise realize anticipated
benefits from such collaborations, our product development efforts could be delayed and our business, operating
results and financial condition could be adversely affected.

We may be unable to establish collaborations for selected preclinical and clinical compounds.

We may pursue new collaborations with leading pharmaceutical and biotechnology companies for the
development and ultimate commercialization of selected preclinical and clinical programs and compounds,
particularly those drug candidates for which we believe that the capabilities and resources of a partner can
accelerate development and help to fully realize their therapeutic and commercial potential. However, we may
not be able to close any such additional collaborations on acceptable terms, or at all. We are unable to predict
when, if ever, we will enter into any additional collaborations because of the numerous risks and uncertainties
associated with establishing additional collaborations. If we are unable to close additional collaborations on
mutually-advantageous terms with partners qualified to achieve the collaboration’s objectives, we may not be
able to realize value from a particular drug candidate.

Risks Related to Our Intellectual Property

Data breaches and cyber-attacks could compromise our intellectual property or other sensitive information
and cause significant damage to our business and reputation.

In the ordinary course of our business, we collect, maintain and transmit sensitive data on our networks and

systems, including our intellectual property and proprietary or confidential business information (such as
research data and personal information) and confidential information with respect to our customers, clinical trial
patients and our business partners. We have also outsourced significant elements of our information technology
infrastructure and, as a result, third parties may or could have access to our confidential information. The secure
maintenance of this information is critical to our business and reputation. We believe that companies have been
increasingly subject to a wide variety of security incidents, cyber-attacks and other attempts to gain unauthorized
access. These threats can come from a variety of sources, ranging in sophistication from an individual hacker to a
state-sponsored attack and motive (including corporate espionage). Cyber threats may be generic, or they may be
custom-crafted against our information systems. Over the past year, cyber-attacks have become more prevalent
and much harder to detect and defend against. Our network and storage applications and those of our vendors
may be subject to unauthorized access by hackers or breached due to operator error, malfeasance or other system
disruptions. It is often difficult to anticipate or immediately detect such incidents and the damage caused by such
incidents. These data breaches and any unauthorized access or disclosure of our information or intellectual
property could compromise our intellectual property and expose sensitive business information. A data security
breach could also lead to public exposure of personal information of our clinical trial patients, customers and
others. Cyber-attacks could cause us to incur significant remediation costs, result in product development delays,
disrupt key business operations and divert attention of management and key information technology resources.
Our network security and data recovery measures and those of our vendors may not be adequate to protect
against such security breaches and disruptions. These incidents could also subject us to liability, expose us to
significant expense and cause significant harm to our reputation and business.

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If we are unable to adequately protect our intellectual property, third parties may be able to use our
technology, which could adversely affect our ability to compete in the market.

Our success will depend in part upon our ability to obtain patents and maintain adequate protection of the

intellectual property related to our technologies and products. The patent positions of biopharmaceutical
companies, including our patent position, are generally uncertain and involve complex legal and factual
questions. We will be able to protect our intellectual property rights from unauthorized use by third parties only
to the extent that our technologies are covered by valid and enforceable patents or are effectively maintained as
trade secrets. We will continue to apply for patents covering our technologies and products as, where and when
we deem appropriate. However, these applications may be challenged or may fail to result in issued patents. Our
issued patents have been and may in the future be challenged by third parties as invalid or unenforceable under
U.S. or foreign laws, or they may be infringed by third parties. As a result, we are from time to time involved in
the defense and enforcement of our patent or other intellectual property rights in a court of law, U.S. Patent and
Trademark Office inter partes review or reexamination proceeding, foreign opposition proceeding or related legal
and administrative proceeding in the United States and elsewhere. The costs of defending our patents or
enforcing our proprietary rights in post-issuance administrative proceedings and litigation may be substantial and
the outcome can be uncertain. An adverse outcome may allow third parties to use our intellectual property
without a license and negatively impact our business.

In addition, because patent applications can take many years to issue, third parties may have pending
applications, unknown to us, which may later result in issued patents that cover the production, manufacture,
commercialization or use of our product candidates. Our existing patents and any future patents we obtain may
not be sufficiently broad to prevent others from practicing our technologies or from developing competing
products. Furthermore, others may independently develop similar or alternative technologies or design around
our patents. In addition, our patents may be challenged or invalidated or may fail to provide us with any
competitive advantages, if, for example, others were the first to invent or to file patent applications for closely
related inventions.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws

of the United States, and many companies have encountered significant problems in protecting and defending
such rights in foreign jurisdictions. Many countries, including certain countries in Europe, have compulsory
licensing laws under which a patent owner may be compelled to grant licenses to third parties (for example, the
patent owner has failed to “work” the invention in that country or the third party has patented improvements). In
addition, many countries limit the enforceability of patents against government agencies or government
contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the
value of the patent. Compulsory licensing of life-saving drugs is also becoming increasingly popular in
developing countries either through direct legislation or international initiatives. Such compulsory licenses could
be extended to include our products or product candidates, which could limit our potential revenue opportunities.
Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the
aggressive enforcement of patent and other intellectual property protection, which makes it difficult to stop
infringement. We rely on trade secret protection for some of our confidential and proprietary information. We
have taken security measures to protect our proprietary information and trade secrets, but these measures may not
provide adequate protection. While we seek to protect our proprietary information by entering into
confidentiality agreements with employees, collaborators and consultants, we cannot assure you that our
proprietary information will not be disclosed, or that we can meaningfully protect our trade secrets. In addition,
our competitors may independently develop substantially equivalent proprietary information or may otherwise
gain access to our trade secrets.

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Litigation or third-party claims of intellectual property infringement could require us to spend substantial time
and money and adversely affect our ability to develop and commercialize products.

Our commercial success depends in part upon our ability to avoid infringing patents and proprietary rights
of third parties and not to breach any licenses that we have entered into with regard to our technologies and the
technologies of third parties. Other parties have filed, and in the future are likely to file, patent applications
covering genes and gene fragments, techniques and methodologies relating to model systems and products and
technologies that we have developed or intend to develop. If patents covering technologies required by our
operations are issued to others, we may have to obtain licenses from third parties, which may not be available on
commercially reasonable terms, or at all, and may require us to pay substantial royalties, grant a cross-license to
some of our patents to another patent holder or redesign the formulation of a product candidate so that we do not
infringe third-party patents, which may be impossible to obtain or could require substantial time and expense.

Third parties may accuse us of employing their proprietary technology without authorization. In addition,
third parties may obtain patents that relate to our technologies and claim that use of such technologies infringes
on their patents. Regardless of their merit, such claims could require us to incur substantial costs, including the
diversion of management and technical personnel, in defending ourselves against any such claims or enforcing
our patents. In the event that a successful claim of infringement is brought against us, we may be required to pay
damages and obtain one or more licenses from third parties. We may not be able to obtain these licenses at a
reasonable cost, or at all. Defense of any lawsuit or failure to obtain any of these licenses could adversely affect
our ability to develop and commercialize products.

We may be subject to damages resulting from claims that we, our employees or independent contractors have
wrongfully used or disclosed alleged trade secrets of their former employers.

Many of our employees and independent contractors were previously employed at universities or other

biotechnology, biopharmaceutical or pharmaceutical companies, including our competitors or potential
competitors. We may be subject to claims that these employees, independent contractors or we have
inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former
employers, or used or sought to use patent inventions belonging to their former employers. Litigation may be
necessary to defend against these claims. Even if we are successful in defending against these claims, litigation
could result in substantial costs and divert management’s attention. If we fail in defending such claims, in
addition to paying money claims, we may lose valuable intellectual property rights or personnel. A loss of key
research personnel and/or their work product could hamper or prevent our ability to commercialize certain
product candidates, which could severely harm our business.

Risks Related to Employees and Location

The loss of key personnel or the inability to retain and, where necessary, attract additional personnel could
impair our ability to operate and expand our operations.

We are highly dependent upon the principal members of our management, as well as clinical and

commercial staff, the loss of whose services might adversely impact the achievement of our objectives. Also, we
may not have sufficient personnel to execute our business plan. Retaining and, where necessary, recruiting
qualified clinical and commercial personnel will be critical to support activities related to advancing the
development program for cabozantinib and our other compounds, and successfully executing upon our
commercialization plan for cabozantinib. Competition is intense for experienced clinical personnel, and we may
be unable to retain or recruit clinical and commercial personnel with the expertise or experience necessary to
allow us to successfully develop and commercialize our products. Further, all of our employees are employed “at
will” and, therefore, may leave our employment at any time.

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Our collaborations with outside scientists may be subject to restriction and change.

We work with scientific and clinical advisors and collaborators at academic and other institutions that assist

us in our research and development efforts. These advisors and collaborators are not our employees and may
have other commitments that limit their availability to us. Although these advisors and collaborators generally
agree not to do competing work, if a conflict of interest between their work for us and their work for another
entity arises, we may lose their services. In such a circumstance, we may lose work performed by them, and our
development efforts with respect to the matters on which they were working may be significantly delayed or
otherwise adversely affected. In addition, although our advisors and collaborators sign agreements not to disclose
our confidential information, it is possible that valuable proprietary knowledge may become publicly known
through them.

Our headquarters are located near known earthquake fault zones, and the occurrence of an earthquake or
other disaster could damage our facilities and equipment, which could harm our operations.

Our headquarters are located in South San Francisco, California, and therefore our facilities are vulnerable

to damage from earthquakes. We do not carry earthquake insurance. We are also vulnerable to damage from
other types of disasters, including fire, floods, power loss, communications failures, terrorism and similar events
since any insurance we may maintain may not be adequate to cover our losses. If any disaster were to occur, our
ability to operate our business at our facilities could be seriously, or potentially completely, impaired. In addition,
the unique nature of our research activities could cause significant delays in our programs and make it difficult
for us to recover from a disaster. Accordingly, an earthquake or other disaster could materially and adversely
harm our ability to conduct business.

Facility security breaches may disrupt our operations, subject us to liability and harm our operating results.

Any break-in or trespass at our facilities that results in the misappropriation, theft, sabotage or any other
type of security breach with respect to our proprietary and confidential information, including research or clinical
data, or that results in damage to our research and development equipment and assets, could subject us to liability
and have a material adverse impact on our business, operating results and financial condition.

Risks Related to Environmental and Product Liability

We use hazardous chemicals and radioactive and biological materials in our business. Any claims relating to
improper handling, storage or disposal of these materials could be time consuming and costly.

Our research and development processes involve the controlled use of hazardous materials, including

chemicals and radioactive and biological materials. Our operations produce hazardous waste products. We cannot
eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. Federal,
state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous
materials. We may face liability for any injury or contamination that results from our use or the use by third
parties of these materials, and such liability may exceed our insurance coverage and our total assets. Compliance
with environmental laws and regulations may be expensive, and current or future environmental regulations may
impair our research, development and production efforts.

In addition, our collaborators may use hazardous materials in connection with our collaborative efforts. In

the event of a lawsuit or investigation, we could be held responsible for any injury caused to persons or property
by exposure to, or release of, these hazardous materials used by these parties. Further, we may be required to
indemnify our collaborators against all damages and other liabilities arising out of our development activities or
products produced in connection with these collaborations.

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We face potential product liability exposure far in excess of our limited insurance coverage.

We may be held liable if any product we or our collaborators develop or commercialize causes injury or is

found otherwise unsuitable during product testing, manufacturing, marketing or sale. Regardless of merit or
eventual outcome, product liability claims could result in decreased demand for our products and product
candidates, injury to our reputation, withdrawal of patients from our clinical trials, product recall, substantial
monetary awards to third parties and the inability to commercialize any products that we may develop. These
claims might be made directly by consumers, health care providers, pharmaceutical companies or others selling
or testing our products. We have obtained limited product liability insurance coverage for our clinical trials and
commercial activities for cabozantinib in the amount of $20.0 million per occurrence and $20.0 million in the
aggregate. However, our insurance may not reimburse us or may not be sufficient to reimburse us for expenses or
losses we may suffer. Moreover, if insurance coverage becomes more expensive, we may not be able to maintain
insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. On
occasion, juries have awarded large judgments in class action lawsuits for claims based on drugs that had
unanticipated side effects. In addition, the pharmaceutical, biopharmaceutical and biotechnology industries, in
general, have been subject to significant medical malpractice litigation. A successful product liability claim or
series of claims brought against us could harm our reputation and business and would decrease our cash reserves.

Risks Related to Our Common Stock and the 2019 Notes

We expect that our quarterly results of operations will fluctuate, and this fluctuation could cause our stock
price to decline, causing investor losses.

Our quarterly operating results have fluctuated in the past and are likely to fluctuate in the future. A number

of factors, many of which we cannot control, could subject our operating results to volatility, including:

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the pace and progress of our current increase in sales, marketing, medical affairs and distribution
capabilities in anticipation of obtaining FDA approval for cabozantinib for the potential treatment of
advanced RCC patients;

the commercial success of COMETRIQ and the revenues we generate;

the successful establishment of the distribution and commercialization network for COMETRIQ in the
approved MTC indication and cabozantinib for the potential treatment of advanced RCC patients, as
well as the achievement of stated development and commercial milestones, under our collaboration
with Ipsen;

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

future clinical trial results, notably the results from CELESTIAL, our phase 3 pivotal trial in patients
with advanced HCC;

the inability to obtain adequate product supply for any approved drug product or inability to do so at
acceptable prices;

recognition of upfront licensing or other fees or revenues;

payments of non-refundable upfront or licensing fees, or payment for cost-sharing expenses, to third
parties;

the success rate of our efforts leading to milestone payments and royalties;

the introduction of new technologies or products by our competitors;

the timing and willingness of collaborators to further develop or, if approved, commercialize our
product candidates out-licensed to them;

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the termination or non-renewal of existing collaborations or third party vendor relationships;

regulatory actions with respect to our product candidates and any approved products or our
competitors’ products;

disputes or other developments relating to proprietary rights, including patents, litigation matters and
our ability to obtain patent protection for our technologies;

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

adjustments to expenses accrued in prior periods based on management’s estimates after the actual
level of activity relating to such expenses becomes more certain;

the impairment of acquired goodwill and other assets;

the impact of our restructuring activities;

additions and departures of key personnel;

general and industry-specific economic conditions that may affect our or our collaborators’ research
and development expenditures; and

other factors described in this “Risk Factors” section

Due to the possibility of fluctuations in our revenues and expenses, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future performance. As a result, in some
future quarters, our operating results may not meet the expectations of securities analysts and investors, which
could result in a decline in the price of our common stock.

Our stock price may be extremely volatile.

The trading price of our common stock has been highly volatile, and we believe the trading price of our

common stock will remain highly volatile and may fluctuate substantially due to factors such as the following,
many of which we cannot control:

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adverse results or delays in our or our collaborators’ clinical trials;

announcement of FDA approval or non-approval, or delays in the FDA review process, of cabozantinib
or our collaborators’ product candidates or those of our competitors or actions taken by regulatory
agencies with respect to our, our collaborators’ or our competitors’ clinical trials;

the commercial success of COMETRIQ and the revenues we generate;

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

actions taken by regulatory agencies with respect to cabozantinib or our clinical trials for cabozantinib;

the announcement of new products by our competitors;

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

developments in our relationships with our collaborators, including the termination or modification of
our agreements;

conflicts or litigation with our collaborators;

litigation, including intellectual property infringement and product liability lawsuits, involving us;

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failure to achieve operating results projected by securities analysts;

changes in earnings estimates or recommendations by securities analysts;

financing transactions;

developments in the biotechnology, biopharmaceutical or pharmaceutical industry;

sales of large blocks of our common stock or sales of our common stock by our executive officers,
directors and significant stockholders;

departures of key personnel or board members;

FDA or international regulatory actions;

third-party coverage and reimbursement policies;

disposition of any of our technologies or compounds; and

general market, economic and political conditions and other factors, including factors unrelated to our
operating performance or the operating performance of our competitors.

These factors, as well as general economic, political and market conditions, may materially adversely affect

the market price of our common stock. Excessive volatility may continue for an extended period of time
following the date of this report.

In the past, following periods of volatility in the market price of a company’s securities, securities class
action litigation has often been instituted. A securities class action suit against us could result in substantial costs
and divert management’s attention and resources, which could have a material and adverse effect on our
business.

Future sales of our common stock or conversion of our convertible notes, or the perception that such sales or
conversions may occur, may depress our stock price.

A substantial number of shares of our common stock is reserved for issuance upon conversion of the 2019

Notes, upon the exercise of stock options, upon vesting of restricted stock unit awards, upon sales under our
employee stock purchase program, upon exercise of certain outstanding warrants and upon conversion of the
Deerfield Notes. The issuance and sale of substantial amounts of our common stock, including upon conversion
of the 2019 Notes or the Deerfield Notes, or the perception that such issuances and sales may occur, could
adversely affect the market price of our common stock and impair our ability to raise capital through the sale of
additional equity or equity-related securities in the future at a time and price that we deem appropriate. Trading
of the 2019 Notes is likely to influence and be influenced by the market for our common stock. For example, the
price of our common stock could be affected by possible sales of common stock by investors who view the 2019
Notes as a more attractive means of equity participation in our company and by hedging or arbitrage trading
activity that we expect to occur involving our common stock.

The accounting method for convertible debt securities that may be settled in cash, such as the 2019 Notes,
could have a material effect on our reported financial results.

Under Accounting Standards Codification, or ASC, Subtopic 470-20, issuers of certain convertible debt
instruments that have a net settlement feature and may be settled in cash upon conversion, including partial cash
settlement, are required to separately account for the liability (debt) and equity (conversion option) components
of the instrument. As a result of the application of ASC 470-20, we recognized $143.2 million as the initial debt
discount with a corresponding increase to paid-in capital, the equity component, for the 2019 Notes. We will be
required to record the amortization of this debt discount over the terms of the 2019 Notes, which may adversely

47

affect our reported or future financial results and the market price of our common stock. In addition, if the 2019
Notes become convertible, we could be required under applicable accounting rules to reclassify all or a portion of
the outstanding principal of the 2019 Notes as a current rather than long-term liability, which would result in a
material reduction of our net working capital. Finally, we use the if-converted method to compute earnings per
share, which could be more dilutive than using the treasury stock method.

Certain provisions applicable to the 2019 Notes and the Deerfield Notes could delay or prevent an otherwise
beneficial takeover or takeover attempt.

Certain provisions applicable to the 2019 Notes and the indenture pursuant to which the 2019 Notes were
issued, and the Deerfield Notes and the note purchase agreement governing the Deerfield Notes, could make it
more difficult or more expensive for a third party to acquire us. For example, if an acquisition event constitutes a
Fundamental Change under the indenture for the 2019 Notes or a Major Transaction under the note purchase
agreement governing the Deerfield Notes, holders of the 2019 Notes or the Deerfield Notes, as applicable, will
have the right to require us to purchase their notes in cash. In addition, if an acquisition event constitutes a Make-
Whole Fundamental Change under the indenture for the 2019 Notes, we may be required to increase the
conversion rate for holders who convert their 2019 Notes in connection with such Make-Whole Fundamental
Change. In any of these cases, and in other cases, our obligations under the 2019 Notes and the indenture
pursuant to which such notes were issued and the Deerfield Notes and the note purchase agreement governing the
Deerfield Notes, could increase the cost of acquiring us or otherwise discourage a third party from acquiring us
or removing incumbent management.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us,
which may be beneficial to our stockholders, more difficult and may prevent or deter attempts by our
stockholders to replace or remove our current management, which could cause the market price of our
common stock to decline.

Provisions in our corporate charter and bylaws may discourage, delay or prevent an acquisition of us, a

change in control, or attempts by our stockholders to replace or remove members of our current Board of
Directors. Because our Board of Directors is responsible for appointing the members of our management team,
these provisions could in turn affect any attempt by our stockholders to replace current members of our
management team. These provisions include:

•

•

•

•

•

•

a classified Board of Directors;

a prohibition on actions by our stockholders by written consent;

the inability of our stockholders to call special meetings of stockholders;

the ability of our Board of Directors to issue preferred stock without stockholder approval, which could
be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile
acquirer, effectively preventing acquisitions that have not been approved by our Board of Directors;

limitations on the removal of directors; and

advance notice requirements for director nominations and stockholder proposals.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of

the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding
voting stock from merging or combining with us for a period of three years after the date of the transaction in
which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is
approved in a prescribed manner.

48

Our ability to use net operating losses to offset future taxable income may be subject to limitations.

Under the Internal Revenue Code, or the Code, and similar state provisions, certain substantial changes in

our ownership could result in an annual limitation on the amount of net operating loss carry-forwards that can be
utilized in future years to offset future taxable income. The annual limitation may result in the expiration of net
operating losses and credit carry-forwards before utilization. We concluded, as of December 31, 2015, that an
ownership change, as defined under Section 382, had not occurred. However, if there is an ownership change
under Section 382 of the Code in the future, we may not be able to utilize a material portion of our NOLs.
Furthermore, our ability to utilize our NOLs is conditioned upon our attaining profitability and generating United
States federal taxable income. As described above, we have incurred significant net losses since our inception
and anticipate that we will continue to incur significant losses for the foreseeable future; thus, we do not know
whether or when we will generate the United States federal taxable income necessary to utilize our NOLs. A full
valuation allowance has been provided for the entire amount of our NOLs.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We lease a total of 226,027 square feet of office and laboratory facilities in South San Francisco, California.

The leased premises comprise four buildings and are covered by three lease agreements, as follows:

• The first two leases cover two buildings for a total of 130,964 square feet and expire in 2017, with two
five-year options to extend their respective terms prior to expiration. We have subleased a total of
107,594 square feet of portions of these buildings to five different subtenants. The terms of the
subleases expire at the end of our lease terms.

• The third lease covers two buildings for a total of 116,063 square feet and expires in 2018.

We believe that our leased facilities have sufficient space to accommodate our current needs.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings. We may from time to time become a party to various

legal proceedings arising in the ordinary course of business.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

49

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock has traded on the NASDAQ Global Select Market (formerly the NASDAQ National
Market) under the symbol “EXEL” since April 11, 2000. The following table sets forth, for the periods indicated,
the high and low intraday sales prices for our common stock as reported by the NASDAQ Global Select Market:

Year ended January 1, 2016:

Quarter ended April 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended July 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended October 2, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year ended January 2, 2015:

Quarter ended March 28, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended June 27, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended September 26, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ended January 2, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Common Stock
Price

High

Low

$3.16
$4.18
$6.81
$6.42

$8.41
$3.84
$4.55
$1.88

$1.54
$2.51
$3.31
$4.70

$3.37
$3.02
$1.51
$1.26

On February 19, 2016, the last reported sale price on the NASDAQ Global Select Market for our common

stock was $4.09 per share.

Holders

On February 19, 2016, there were approximately 465 holders of record of our common stock.

Dividends

Since inception, we have not paid dividends on our common stock. We currently intend to retain all future

earnings, if any, for use in our business and currently do not plan to pay any cash dividends in the foreseeable
future. Any future determination to pay dividends will be at the discretion of our Board of Directors. Our loan
and security agreement with Silicon Valley Bank restricts our ability to pay dividends and make distributions. In
addition, our note purchase agreement with Deerfield restricts our ability to make distributions.

50

Performance Graph

This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended, or otherwise subject to the liabilities under that Section and shall not be deemed to be
incorporated by reference into any filing of ours under the Securities Act of 1933, as amended.

The following graph compares, for the five year period ended December 31, 2015, the cumulative total
stockholder return for our common stock, the NASDAQ Stock Market (U.S. companies) Index, or the NASDAQ
Market Index, and the NASDAQ Biotechnology Index. The graph assumes that $100 was invested on
December 31, 2010 in each of our common stock, the NASDAQ Market Index and the NASDAQ Biotechnology
Index and assumes reinvestment of any dividends. The stock price performance on the following graph is not
necessarily indicative of future stock price performance.

Cumulative Total Return

400

350

300

250

200

150

100

50

-

12/31/2010

12/31/2011

12/31/2012

12/31/2013

12/31/2014

12/31/2015

Exelixis, Inc.

Nasdaq Market Index

Nasdaq Biotechnology Index

Period Ending

Exelixis, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Market Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Biotechnology Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100
100
100

58
98
112

55
112
145

72
157
243

20
178
330

69
189
365

December 31,

2010

2011

2012

2013

2014

2015

51

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial information has been derived from our audited consolidated

financial statements. The financial information as of December 31, 2015 and 2014 and for each of the three years
in the period ended December 31, 2015, are derived from audited consolidated financial statements included
elsewhere in this Annual Report on Form 10-K. The financial information as of December 31, 2013, 2012 and
2011, and for each of the two years in the period ended December 31, 2012, are derived from audited
consolidated financial statements not included in this Annual Report on Form 10-K. The following Selected
Financial Data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” included
elsewhere in this Annual Report on Form 10-K. The historical results are not necessarily indicative of the results
of operations to be expected in the future.

Consolidated Statements of Operations Data:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:

Year Ended December 31,

2015

2014

2013

2012

2011

(In thousands, except per share data)

$ 37,172

$ 25,111

$ 31,338

$ 47,450

$289,636

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . .
Restructuring charge . . . . . . . . . . . . . . . . . . . .

3,895
96,351
57,305
1,042

2,043
189,101
50,829
7,596

1,118
178,763
50,958
1,231

—
128,878
31,837
9,171

—
156,836
33,129
10,136

Total operating expenses . . . . . . . . . . . .

158,593

249,569

232,070

169,886

200,101

(Loss) income from operations . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . .

(Loss) income before taxes . . . . . . . . . . . . . . . . . . .
Income tax provision (benefit) . . . . . . . . . . . . . . . .

(121,421)
(48,261)

(169,682)
55

(224,458)
(44,266)

(268,724)
(182)

(200,732)
(44,124)

(244,856)
(96)

(122,436)
(25,102)

(147,538)
107

89,535
(12,543)

76,992
1,295

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . .

$(169,737) $(268,542) $(244,760) $(147,645) $ 75,697

Net loss per share, basic . . . . . . . . . . . . . . . . . . . . .
Net loss per share, diluted . . . . . . . . . . . . . . . . . . . .
Shares used in computing basic loss per share

$
$

(0.81) $
(0.81) $

(1.38) $
(1.38) $

(1.33) $
(1.33) $

(0.92) $
(0.92) $

0.60
0.58

amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

209,227

194,299

184,062

160,138

126,018

Shares used in computing diluted loss per share

amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

209,227

194,299

184,062

160,138

130,479

December 31,

2015

2014

2013

2012

2011

(In thousands)

Consolidated Balance Sheet Data:
Cash and investments . . . . . . . . . . . . . . .
Working (deficit) capital (1) . . . . . . . . . .
Total assets (1) . . . . . . . . . . . . . . . . . . . .
Long-term obligations (1) . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . .
Total stockholders’ (deficit) equity . . . .

$
$
$
$

242,760

253,310
126,414
332,342
384,395

283,720
$
136,500
$
391,862
$
$
192,583
$(1,937,041) $(1,767,304) $(1,498,762) $(1,254,002) $(1,106,357)
90,632
$ (104,304) $ (114,829) $

$
(3,188) $
$
$

633,961
350,837
714,142
336,004

415,862
178,756
497,951
343,860

323,269
267,669

296,434

66,238

$
$
$
$

$
$
$
$

$

$

(1) Prior periods have been adjusted to reflect the early adoption of Accounting Standards Update No. 2015-03
“Simplifying the Presentation of Debt Issuance Costs,” or ASU 2015-03. See “Note 1. Organization and
Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements for a
further description of the early adoption of ASU 2015-03.

52

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Some of the statements under in this “Management’s Discussion and Analysis of Financial Condition and

Results of Operations” are forward-looking statements. These statements are based on our current expectations,
assumptions, estimates and projections about our business and our industry and involve known and unknown
risks, uncertainties and other factors that may cause our company’s or our industry’s results, levels of activity,
performance or achievements to be materially different from any future results, levels of activity, performance or
achievements expressed or implied in, or contemplated by, the forward-looking statements. Words such as
“believe,” “anticipate,” “expect,” “intend,” “plan,” “focus,” “assume,” “goal,” “objective,” “will,” “may”
“would,” “could,” “estimate,” “predict,” “target,” “potential,” “continue,” “encouraging” or the negative of
such terms or other similar expressions identify forward-looking statements. Our actual results and the timing of
events may differ significantly from the results discussed in the forward-looking statements. Factors that might
cause such a difference include those discussed in “Item 1A. Risk Factors” as well as those discussed elsewhere
in this Annual Report on Form 10-K. These and many other factors could affect our future financial and
operating results. We undertake no obligation to update any forward-looking statement to reflect events after the
date of this report.

Overview

Exelixis, Inc. (“Exelixis,” “we,” “our” or “us”) is a biopharmaceutical company that discovers, develops and
commercializes small molecule therapies for the treatment of cancer. Our business focuses predominantly on the
development and commercialization of cabozantinib, an internally-discovered inhibitor of multiple receptor
tyrosine kinases, in various tumor indications. Cabozantinib is currently approved in the United States and
European Union for the treatment of progressive, metastatic medullary thyroid cancer, or MTC, and is marketed
under the brand name COMETRIQ®.

In the past year, we obtained positive clinical results from our phase 3 pivotal trial METEOR (Metastatic
RCC Phase 3 Study Evaluating Cabozantinib vs. Everolimus), suggesting that cabozantinib also has the potential
to make a meaningful difference in the lives of patients suffering from advanced renal cell carcinoma, or RCC, a
serious form of cancer with a significantly larger patient population than MTC. Following the positive results
from METEOR, the U.S. Food and Drug Administration, or FDA, granted Breakthrough Therapy and Fast Track
designations for cabozantinib in RCC. These data from METEOR ultimately formed the basis of a New Drug
Application, or NDA, submission to the FDA, which was completed in December 2015. On January 27, 2016,
the FDA granted priority review to the NDA, with a Prescription Drug User Fee Act action date of June 22, 2016.
We are actively preparing for a potential commercial launch of cabozantinib in advanced RCC, and will soon be
launch-ready for this indication should a positive regulatory decision come in the United States.

In January 2016, our Marketing Authorization Application, or MAA, for cabozantinib as a treatment for

patients with advanced RCC who have received one prior therapy was accepted for review and granted
accelerated assessment by the European Medicines Agency, or EMA. On February 29, 2016, we entered into a
collaboration and license agreement with Ipsen Pharma SAS, or Ipsen, pursuant to which Ipsen has exclusive
commercialization rights for current and potential future cabozantinib indications outside of the United States,
Canada and Japan. The companies have agreed to collaborate on the development of cabozantinib for current and
potential future indications. With respect to remaining markets, we are evaluating opportunities to partner
cabozantinib in Japan and intend to seek regulatory approval for cabozantinib in Canada and commercialize the
drug there ourselves.

Beyond MTC and RCC, we are engaged in a broad development program to explore the clinical potential of
cabozantinib in additional tumor types. This program includes late stage trials that we conduct ourselves, such as
CELESTIAL (Cabozantinib Phase 3 Controlled Study In Hepatocellular Carcinoma), our phase 3 trial of

53

cabozantinib in advanced hepatocellular carcinoma, or HCC, and earlier stage trials conducted through our
Cooperative Research and Development Agreement with the National Cancer Institute’s Cancer Therapy
Evaluation Program or our investigator sponsored trial program. We intend to use these earlier stage trials to
prioritize our later stage development program.

During 2015, there was also significant progress with respect to the clinical development, regulatory status

and commercial potential of certain of our partnered compounds. For example, cobimetinib, a compound we out-
licensed in 2006 to Genentech, Inc. (a member of the Roche Group), or Genentech, was approved by the FDA on
November 10, 2015, under the brand name COTELLICTM, in combination with vemurafenib, as a treatment for
patients with BRAF V600E or V600K mutation-positive advanced melanoma. COTELLIC in combination with
vemurafenib has also been approved in Switzerland, the European Union and Canada for use in the same
indication. Genentech has launched COTELLIC in these markets, and in the United States, we contribute 25% of
the sales force to the commercialization effort. Pursuant to the terms of our collaboration agreement with Roche/
Genentech for cobimetinib, we are entitled to an initial equal share of U.S. profits and losses for cobimetinib,
with our share decreasing as sales increase. We are entitled to low double-digit royalties on ex-U.S. net sales.
Cobimetinib is also being evaluated in a broad development program comprising several clinical trials
investigating cobimetinib in combination with a variety of agents in multiple tumor types.

Collaborations

We have established a collaboration with Ipsen for cabozantinib, Genentech for cobimetinib, and other
collaborations with leading pharmaceutical companies including Bristol-Myers Squibb Company, or Bristol-
Myers Squibb, Sanofi, Merck (known as MSD outside of the United States and Canada) and Daiichi Sankyo
Company Limited, or Daiichi Sankyo, for compounds and programs in our portfolio. Excluding our collaboration
agreement with Ipsen for cabozantinib, we have fully out-licensed compounds or programs to a partner for
further development and commercialization under these collaborations and have no further development cost
obligations under our collaborations. Under each of our collaborations, we are entitled to receive milestones and
royalties, or in the case of cobimetinib, a share of profits (or losses) from commercialization.

Cabozantinib Collaboration

On February 29, 2016, we entered into a collaboration and license agreement with Ipsen Pharma SAS, or

Ipsen, pursuant to which Ipsen has exclusive commercialization rights for current and potential future
cabozantinib indications outside of the United States, Canada, and Japan. The companies have agreed to
collaborate on the development of cabozantinib for current and potential future indications.

In consideration for the exclusive license and other rights contained in the agreement, Ipsen will pay us an

upfront payment of $200.0 million. We will be eligible to receive regulatory milestones, including a $60.0
million milestone payment upon approval of cabozantinib by the EMA in second-line RCC and milestone
payments of $10.0 million upon the filing and $40.0 million upon the approval of cabozantinib in second-line
HCC, as well as additional regulatory milestone payments for potential further indications. The agreement also
provides that we will be eligible to receive payments of up to $545.0 million associated with potential
commercial milestone payments, including two $10.0 million milestone payments upon the launch of the product
in the first two of the following countries: Germany, France, Italy, Spain and the United Kingdom. Exelixis will
also receive royalties on net sales of cabozantinib outside of the United States, Canada and Japan. We will
receive a 2% royalty on the initial $50 million of net sales, and 12% royalty on the next $100 million of net sales.
After this initial period, Exelixis will receive a tiered royalty of 22% to 26% on annual net sales. These tiers will
reset each calendar year. Pursuant to the terms of the agreement, we will remain responsible for the manufacture
and supply of cabozantinib for all development and commercialization activities under the collaboration. As part
of the collaboration, we entered into a supply agreement which provides that through the end of the second
quarter of 2018, we will supply finished, labeled product to Ipsen for distribution in the territories outside of the
United States, Canada and Japan, and from the end of the second quarter of 2018 forward, we will supply
primary packaged bulk tablets to Ipsen.

54

Cobimetinib Collaboration

Cobimetinib in combination with vemurafenib has been approved in the United States, Switzerland, the

European Union and Canada as a treatment for patients with advanced melanoma, and is marketed as
COTELLIC. Results from coBRIM, the phase 3 pivotal trial conducted by Genentech evaluating cobimetinib in
combination with vemurafenib, in previously untreated patients with unresectable locally advanced or metastatic
melanoma harboring a BRAF V600E or V600K mutation served as the basis for such regulatory approvals.

In addition to the coBRIM trial, additional Phase 1 and Phase 2 clinical trials are ongoing studying the

combination of cobimetinib with a variety of agents in multiple tumor types. These include:

• The combination of cobimetinib and vemuarfenib in additional melanoma patient populations and

settings;

• A phase 2 trial of cobimetinib in combination with paclitaxel in triple negative breast cancer; and

•

Phase 1 studies of cobimetinib in combination with atezolizumab in melanoma, non-small cell lung
cancer, or NSCLC, and colorectal cancer, in combination with MEHD7945A in KRAS mutant solid
tumors including NSCLC and colorectal cancer and in combination with GDC-0994 in advanced
metastatic solid tumors.

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

Under the terms of our collaboration agreement with Genentech for cobimetinib, we are entitled to a share
of U.S. profits and losses for cobimetinib. The profit and loss share has multiple tiers: we are entitled to 50% of
profit and losses from the first $200 million of U.S. actual sales, decreasing to 30% of profit and losses from U.S.
actual sales in excess of $400 million. We are entitled to low double-digit royalties on ex-U.S. net sales. In
November 2013, we exercised an option under the collaboration agreement to co-promote in the United States, if
commercialized. Following the approval of COTELLIC in the United States in November 2015, we began
fielding 25% of the sales force promoting COTELLIC in combination with vemurafenib as a treatment for
patients with BRAF V600E or V600K mutation-positive advanced melanoma.

We believe that cobimetinib has the potential to provide us with a second meaningful source of revenue.

Our objective, therefore, is to continue to work with Genentech on the execution of the U.S. COTELLIC
commercial plan and maximize the revenue potential of cobimetinib under our collaboration with Genentech. We
have accrued for our COTELLIC expense obligations under the collaboration agreement, but are in discussions
with Genentech over the level and type of expenses that have been allocated to COTELLIC under the
collaboration.

Other Collaborations

With respect to our partnered compounds, other than cabozantinib and cobimetinib, we are eligible to
receive potential contingent payments totaling approximately $2.3 billion in the aggregate on a non-risk adjusted
basis, of which 10% are related to clinical development milestones, 42% are related to regulatory milestones and
48% are related to commercial milestones, all to be achieved by the various licensees, which may not be paid, if
at all, until certain conditions are met.

Certain Factors Important to Understanding Our Financial Condition and Results of Operations

Successful development of drugs is inherently difficult and uncertain. Our business requires significant

investments in research and development over many years, and products often fail during the research and
development process. Our long-term prospects depend upon our ability, and the ability of our partners, to
successfully commercialize new therapeutics in highly competitive areas such as cancer treatment. Our financial
performance is driven by many factors, including those described below, and is subject to the risks set forth in
“Item 1A—Risk Factors”.

55

Limited Sources of Revenues and the Need to Raise Additional Capital

We have incurred net losses since inception through December 31, 2015, with the exception of the 2011
fiscal year. We anticipate net losses and negative operating cash flow for the foreseeable future. For the year
ended December 31, 2015, we incurred a net loss of $169.7 million and as of December 31, 2015, we had an
accumulated deficit of $1.9 billion. These losses have had, and will continue to have, an adverse effect on our
stockholders’ deficit and working capital. Because of the numerous risks and uncertainties associated with
developing drugs, we are unable to predict the extent of any future losses or whether or when we will become
profitable, if at all. Excluding fiscal 2011, our research and development expenditures and selling, general and
administrative expenses have exceeded our revenues for each fiscal year, and we expect to spend significant
additional amounts to fund the continued development and commercialization of cabozantinib. As a result, we
expect to continue to incur substantial operating expenses and, consequently, we will need to generate significant
additional revenues to achieve future profitability.

We commercially launched COMETRIQ for the treatment of progressive, metastatic MTC in the United
States in late January 2013, and from the commercial launch through December 31, 2015, we have generated
$74.3 million in net revenues from the sale of COMETRIQ. Other than revenues from COMETRIQ, we have
derived substantially all of our revenues since inception from collaborative research and development
agreements, which depend on research funding, the achievement of milestones, and royalties we earn from any
future products developed from the collaborative research.

The amount of our net losses will depend, in part, on: the rate of growth, if any, in our sales of COMETRIQ;

the level of sales of cabozantinib in the United States for the treatment of advanced RCC, if approved by the
FDA for such indication; receipt of the upfront payment, achievement of clinical, regulatory and commercial
milestones and the amount of royalties from sales of cabozantinib for the treatment of advanced RCC in the
European Union and elsewhere, if approved for such indication under our collaboration with Ipsen; our share of
the net profits and losses for the commercialization of COTELLIC in the U.S.; the amount of royalties from
COTELLIC sales outside the U.S.; other license and contract revenues; and, the level of expenses primarily with
respect to expanded commercialization activities for cabozantinib.

As of December 31, 2015, we had $253.3 million in cash and investments, which included $169.0 million
available for operations, $81.6 million of compensating balance investments that we are required to maintain on
deposit with Silicon Valley Bank, and $2.7 million of long-term restricted investments. We anticipate that our
current cash and cash equivalents, and short-term investments available for operations, and product revenues,
will enable us to maintain our operations for a period of at least 12 months following the filing date of this report.
However, our future capital requirements will be substantial, and we may need to raise additional capital in the
future. Our capital requirements will depend on many factors, and we may need to use available capital resources
and raise additional capital significantly earlier than we currently anticipate.

For a description of the factors upon which our capital requirements depend, please see “—Liquidity and

Capital Resources—Capital Requirements.”

Clinical Development and Commercialization of Cabozantinib

Our primary development and commercialization program is focused on cabozantinib, an inhibitor of
multiple receptor tyrosine kinases, currently approved under the brand name COMETRIQ in the United States
and the European Union for the treatment of metastatic MTC. However, cabozantinib may fail to show adequate
safety or efficacy as an anti-cancer drug in clinical testing in other types of cancer. For example, our two phase 3
clinical trials (COMET-1 and COMET-2) of cabozantinib in metastatic castration-resistant prostate cancer, or
mCRPC, failed to meet their primary endpoints. Based on the outcomes of the COMET trials, we terminated the
clinical development of cabozantinib in mCRPC, and other studies in mCRPC sponsored by us, including a
randomized phase 2 study of cabozantinib in combination with abiraterone, have been halted.

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Furthermore, predicting the timing of the initiation or completion of clinical trials is difficult, and our trials

may be delayed due to many factors, including factors outside of our control. The future development path of
cabozantinib depends upon the results of each stage of clinical development. We continue to incur significant
expenses for the development of cabozantinib as it advances in clinical development.

The commercial success of cabozantinib depends upon the degree of market acceptance of COMETRIQ
among physicians, patients, health care payers, and the MTC-treating medical community. It also depends upon
how COMETRIQ fares in competition with another product for the treatment of MTC, vandetanib. Looking
ahead, as a result of the positive results obtained in the METEOR trial, we are currently increasing our sales,
marketing, and distribution capabilities in anticipation of the FDA’s potential approval for cabozantinib for the
treatment of patients with advanced RCC who have received one prior therapy. Establishing and maintaining
sales, marketing and distribution capabilities are expensive and time-consuming. Such expenses may be
disproportional compared to the revenues we may be able to generate and may have an adverse impact on our
results of operations.

For a description of the competition cabozantinib faces in the market for products treating MTC, and may
face in the future should it be approved for other indications, please see “Item 1A. Risk Factors—Risks Related
to Cabozantinib and Cobimetinib—Our competitors may develop products and technologies that impair the value
of cabozantinib and cobimetinib—Competition for cabozantinib.”

Convertible Senior Subordinated Notes

In August 2012, we issued and sold $287.5 million aggregate principal amount of the 4.25% Convertible

Senior Subordinated Notes due 2019, or the 2019 Notes, for net proceeds of $277.7 million. The 2019 Notes
mature on August 15, 2019, unless earlier converted, redeemed or repurchased, and bear interest at a rate of
4.25% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning
February 15, 2013. Subject to certain terms and conditions, at any time on or after August 15, 2016, we may
redeem for cash all or a portion of the 2019 Notes. The redemption price will equal 100% of the principal amount
of the 2019 Notes to be redeemed plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
Upon the occurrence of certain circumstances, holders may convert their 2019 Notes prior to the close of
business on the business day immediately preceding May 15, 2019. On or after May 15, 2019, until the close of
business on the second trading day immediately preceding August 15, 2019, holders may surrender their 2019
Notes for conversion at any time. Upon conversion, we will pay or deliver, as the case may be, cash, shares of
our common stock or a combination of cash and shares of our common stock, at our election. The initial
conversion rate of 188.2353 shares of common stock per $1,000 principal amount of the 2019 Notes is equivalent
to a conversion price of approximately $5.31 per share of common stock and is subject to adjustment in
connection with certain events. If a Fundamental Change, as defined in the indenture governing the 2019 Notes,
occurs, holders of the 2019 Notes may require us to purchase for cash all or any portion of their 2019 Notes at a
purchase price equal to 100% of the principal amount of the Notes to be purchased plus accrued and unpaid
interest, if any, to, but excluding, the Fundamental Change purchase date. In addition, if certain specified
bankruptcy and insolvency-related events of default occur, the principal of, and accrued and unpaid interest on,
all of the then outstanding notes will automatically become due and payable. If an event of default other than
certain specified bankruptcy and insolvency-related events of default occurs and is continuing, the Trustee by
notice to us or the holders of at least 25% in principal amount of the outstanding 2019 Notes by notice to us and
the Trustee, may declare the principal of, and accrued and unpaid interest on, all of the then outstanding 2019
Notes to be due and payable.

In connection with the offering of the 2019 Notes, $36.5 million of the proceeds were deposited into an

escrow account which contained an amount of permitted securities sufficient to fund, when due, the total
aggregate amount of the first six scheduled semi-annual interest payments on the 2019 Notes. As of
December 31, 2015, we have used all of the remaining amount held in the escrow account to pay the required
semi-annual interest payments and therefore future semi-annual interest payments will be made from unrestricted
cash and investments.

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Deerfield Facility

In June 2010, we entered into a note purchase agreement with Deerfield Private Design Fund, L.P. and
Deerfield Private Design International, L.P., or the Original Deerfield Purchasers, pursuant to which, on July 1,
2010, we sold to the Original Deerfield Purchasers an aggregate of $124.0 million principal amount of our
Secured Convertible Notes due July 1, 2015, which we refer to as the Original Deerfield Notes, for an aggregate
purchase price of $80.0 million, less closing fees and expenses of approximately $2.0 million. On January 22,
2014, the note purchase agreement was amended to provide us with an option to extend the maturity date of our
indebtedness under the note purchase agreement to July 1, 2018. On July 1, 2015, we made a $4.0 million
principal payment and then extended the maturity date of the Original Deerfield Notes from July 1, 2015 to
July 1, 2018. In connection with the extension, affiliates of the Original Deerfield Purchasers, which we refer to
as the New Deerfield Purchasers acquired the $100.0 million principal amount of the Original Deerfield Notes
and we entered into the restated notes, which we refer to as the Restated Deerfield Notes with each of the New
Deerfield Purchasers, representing the $100.0 million principal amount. We refer to the Original Deerfield
Purchasers and the New Deerfield Purchasers collectively as Deerfield, and to the Original Deerfield Notes and
Restated Deerfield Notes, collectively as the Deerfield Notes.

As of December 31, 2015 and December 31, 2014, the outstanding principal balance on the Deerfield Notes
was $103.8 million and $104.0 million, respectively, which, subject to certain limitations, is payable in cash or in
stock at our discretion. Beginning on July 2, 2015, the outstanding principal amount of the Deerfield Notes bears
interest at the rate of 7.5% per annum to be paid in cash, quarterly in arrears, and 7.5% per annum to be paid in
kind, quarterly in arrears, for a total interest rate of 15% per annum. Through July 1, 2015, the outstanding
principal amount of the Deerfield Notes bore interest in the annual amount of $6.0 million, payable quarterly in
arrears.

On August 6, 2012, the parties amended the note purchase agreement to permit the issuance of the 2019
Notes and modify certain optional prepayment rights. The amendment became effective upon the issuance of the
2019 Notes and the payment to the Original Deerfield Purchasers of a $1.5 million consent fee. On August 1,
2013, the parties further amended the note purchase agreement to clarify certain of our other rights under the note
purchase agreement. On January 22, 2014, the note purchase agreement was amended to provide us with an
option to extend the maturity date of our indebtedness under the note purchase agreement to July 1, 2018, which
extension was completed on July 1, 2015. On July 10, 2014, the parties further amended the note purchase
agreement to clarify certain provisions of the note purchase agreement.

The following is a summary of interest expense for the Deerfield Notes (in thousands):

Stated coupon interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount and debt issuance costs . . . . . . . . . . .

$ 6,792
9,278

$ 6,000
11,731

$ 6,000
10,089

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$16,070

$17,731

$16,089

Year Ended December 31,

2015

2014

2013

The balance of unamortized debt issuance costs was $0.7 million and $1.4 million as of December 31, 2015

and December 31, 2014, respectively, which, pursuant to the early adoption of ASU 2015-03, is recorded as a
reduction of the carrying amount of the 2019 Notes on the accompanying Consolidated Balance Sheets. See
“Note 1—Organization and Summary of Significant Accounting Policies” for more information regarding the
early adoption ASU 2015-03. Prior to our exercise of the option to extend the maturity date to July 1, 2018, the
unamortized discount, fees and costs were amortized into interest expense as a yield adjustment through July 1,
2015. Effective March 4, 2015, upon notification of our election to require the New Deerfield Purchasers to
acquire the Deerfield Notes and extend the maturity date to July 1, 2018, we began to amortize the remaining
unamortized discount, fees and costs through July 1, 2018 using the effective interest method and an effective
interest rate of 15.26%.

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In each of January 2014 and 2013, we made mandatory prepayments of $10.0 million on the Deerfield
Notes. We were required to make an additional mandatory prepayment on the Deerfield Notes in January 2015
equal to 15% of certain revenues from collaborative arrangements, which we refer to as Development/
Commercialization Revenue, received during the prior fiscal year, subject to a maximum prepayment amount of
$27.5 million. We received no such revenues during the fiscal year ended December 31, 2014 and therefore made
no minimum prepayment in January 2015. As a result of the extension of the maturity date of the Deerfield Notes
to July 1, 2018, our obligation to make annual mandatory prepayments equal to 15% of Development/
Commercialization Revenue received by us during the prior fiscal year will continue to apply in each of 2016,
2017 and 2018. However, we will only be obligated to make any such annual mandatory prepayment if the New
Deerfield Purchasers provide notice to us of their election to receive the prepayment. Pursuant to this
requirement, we notified Deerfield that they were entitled to a mandatory prepayment of $450,000 as a result of
to the $3.0 million milestone payment received from Merck during 2015; the New Deerfield Purchasers elected
not to receive a mandatory prepayment in January 2016. Mandatory prepayments relating to Development/
Commercialization Revenue will continue to be subject to a maximum annual prepayment amount of $27.5
million. The definition of “Development/Commercialization Revenue” expressly excludes any sale or
distribution of drug or pharmaceutical products in the ordinary course of our business, and any proceeds from
any Intellectual Property Sales (as further described below), but would include our share of the net profits from
the commercialization of cobimetinib in the U.S. and the receipt of royalties from cobimetinib sales outside the
U.S., if any.

Under the note purchase agreement, we may at our sole discretion, prepay all of the principal amount of the
Deerfield Notes at a prepayment price equal to 105% of the outstanding principal amount of the Deerfield Notes,
plus all accrued and unpaid interest through the date of such prepayment, plus, if prior to July 1, 2017, all interest
that would have accrued on the principal amount of the Deerfield Notes between the date of such prepayment and
July 1, 2017, if the outstanding principal amount of the Deerfield Notes as of such prepayment date had remained
outstanding through July 1, 2017, plus all other accrued and unpaid obligations, collectively referred to as the
Prepayment Price.

In lieu of making any portion of the Prepayment Price or mandatory prepayment in cash, subject to certain
limitations (including a cap on the number of shares issuable under the note purchase agreement), we have the
right to convert all or a portion of the principal amount of the Deerfield Notes into, or satisfy all or any portion of
the Prepayment Price amounts or mandatory prepayment amounts with shares of our common stock.
Additionally, in lieu of making any payment of accrued and unpaid interest in respect of the Deerfield Notes in
cash, subject to certain limitations, we may elect to satisfy any such payment with shares of our common stock.
The number of shares of our common stock issuable upon conversion or in settlement of principal and interest
obligations will be based upon the discounted trading price of our common stock over a specified trading period.
Upon certain changes of control of Exelixis, a sale or transfer of assets in one transaction or a series of related
transactions for a purchase price of more than (i) $400 million or (ii) 50% of our market capitalization, Deerfield
may require us to prepay the Deerfield Notes at the Prepayment Price. Upon an event of default, as defined in the
Deerfield Notes, Deerfield may declare all or a portion of the Prepayment Price to be immediately due and
payable.

We are required to notify the applicable Deerfield entities of certain sales, assignments, grants of exclusive
licenses or other transfers of our intellectual property pursuant to which we transfer all or substantially all of our
legal or economic interests, defined as an Intellectual Property Sale, and the Deerfield entities may elect to
require us to prepay the principal amount of the Deerfield Notes in an amount equal to (i) 100% of the cash
proceeds of any Intellectual Property Sale relating to cabozantinib and (ii) 50% of the cash proceeds of any other
Intellectual Property Sale.

In connection with the January 2014 amendment to the note purchase agreement, on January 22, 2014, we
issued to the New Deerfield Purchasers two-year warrants, which we refer to as the 2014 Warrants, to purchase
an aggregate of 1,000,000 shares of our common stock at an exercise price of $9.70 per share. Subsequent to our

59

election to extend the maturity date of the Deerfield Notes, the exercise price of the 2014 Warrants was reset to
$3.445 per share and the term was extended by two years to January 22, 2018. In August 2015 the New Deerfield
Purchasers assigned the 2014 Warrants to OTA LLC. The 2014 Warrants contain certain limitations that prevent
the holder from acquiring shares upon exercise that would result in the number of shares beneficially owned by
the holder to exceed 9.98% of the total number of shares of our common stock then issued and outstanding. In
addition, upon certain changes in control of Exelixis, to the extent the 2014 Warrants are not assumed by the
acquiring entity, or upon certain defaults under the 2014 Warrants, the holder has the right to net exercise the
2014 Warrants for shares of common stock, or be paid an amount in cash in certain circumstances where the
current holders of our common stock would also receive cash, equal to the Black-Scholes Merton value of the
2014 Warrants.

In connection with the issuance of the 2014 Warrants, we entered into a registration rights agreement with
Deerfield, pursuant to which we filed a registration statement with the Securities and Exchange Commission, or
SEC. covering the resale of the shares of common stock issuable upon exercise of the 2014 Warrants.

In connection with the note purchase agreement, we also entered into a security agreement in favor of
Deerfield which provides that our obligations under the Deerfield Notes will be secured by substantially all of
our assets except intellectual property. On August 1, 2013, the security agreement was amended to limit the
extent to which voting equity interests in any of our foreign subsidiaries shall be secured assets.

The note purchase agreement as amended and the security agreement include customary representations and

warranties and covenants made by us, including restrictions on the incurrence of additional indebtedness.

Loan Agreement with Silicon Valley Bank

On May 22, 2002, we entered into a loan and security agreement with Silicon Valley Bank for an equipment

line of credit. On December 21, 2004, December 21, 2006 and December 21, 2007, we amended the loan and
security agreement to provide for additional equipment lines of credit and on June 2, 2010, we further amended
the loan and security agreement to provide for a new seven-year term loan in the amount of $80.0 million. As of
both December 31, 2015 and 2014, the outstanding principal balance due under the term loan was $80.0 million.
As of December 31, 2015 and 2014, the outstanding principal balance under the lines of credit was $0 and $0.4
million, respectively. The principal amount outstanding under the term loan accrues interest at 1.0% per annum,
which interest is due and payable monthly. We are required to repay the term loan in one balloon principal
payment, representing 100% of the principal balance and accrued and unpaid interest, on May 31, 2017. We have
the option to prepay all, but not less than all, of the amounts advanced under the term loan, provided that we pay
all unpaid accrued interest thereon that is due through the date of such prepayment and the interest on the entire
principal balance of the term loan that would otherwise have been paid after such prepayment date until the
maturity date of the term loan. In accordance with the terms of the loan and security agreement, we are required
to maintain an amount equal to at least 100%, but not to exceed 107%, of the outstanding principal balance of the
term loan and all equipment lines of credit under the loan and security agreement on deposit in one or more
investment accounts with Silicon Valley Bank or one of its affiliates as support for our obligations under the loan
and security agreement (although we are entitled to retain income earned or the amounts maintained in such
accounts). Any amounts outstanding under the term loan during the continuance of an event of default under the
loan and security agreement will, at the election of Silicon Valley Bank, bear interest at a per annum rate equal to
6.0%. If one or more events of default under the loan and security agreement occurs and continues beyond any
applicable cure period, Silicon Valley Bank may declare all or part of the obligations under the loan and security
agreement to be immediately due and payable and stop advancing money or extending credit to us under the loan
and security agreement.

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2014 Restructuring

On September 2, 2014, as a consequence of the failure of COMET-1, one of our two phase 3 pivotal trials of
cabozantinib in mCRPC, we initiated the 2014 Restructuring to reduce our workforce. The aggregate reduction in
headcount from the 2014 Restructuring was 143 employees. The principal objective of the 2014 Restructuring
was to enable us to focus our financial resources on the phase 3 pivotal trials of cabozantinib in advanced RCC
and advanced HCC.

For the years ended December 31, 2015 and 2014, we recorded restructuring charges of $0.3 million and
$6.1 million, respectively, for the 2014 Restructuring. The restructuring charge for the year ended December 31,
2015 included $1.6 million in additional charges due to the partial termination of one of our building leases and
additional facility-related charges related to the decommissioning and exit of certain buildings. The restructuring
charge for the year ended December 31, 2015 was partially offset by $1.0 million in recoveries recorded in
connection with the sale of excess equipment and other assets that had previously been fully depreciated. The
restructuring charge for the year ended December 31, 2014 includes $5.8 million of employee severance and
other benefits that are recognized ratably during the period from the implementation date of the 2014
Restructuring through the employees’ termination dates. In addition, we recorded charges of $0.3 million for
property and equipment write-downs and other charges, which were partially offset by recoveries recorded in
connection with the sale of excess equipment and other assets that were previously fully impaired and the
reversal of severance charges recorded in 2014 for employees that were recalled in 2015.

Critical Accounting Estimates

The preparation of our consolidated financial statements is in conformity with accounting principles
generally accepted in the United States which requires management to make judgments. The preparation of our
consolidated financial statements is in conformity with accounting principles generally accepted in the United
States which requires management to make judgments, estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue and expenses, and related disclosures. On an ongoing basis, management
evaluates its estimates including, but not limited to, those related to revenue recognition, including for deductions
from revenues (such as rebates, chargebacks, sales returns and sales allowances), recoverability of inventory,
certain accrued liabilities including clinical trial accruals and restructuring liabilities, share-based compensation
and valuation of warrants. We base our estimates on historical experience and on various other market-specific
and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Our senior management has discussed the development, selection and disclosure of
these estimates with the Audit Committee of our Board of Directors. Actual results may differ from these
estimates under different assumptions or conditions.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on
assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates
that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur
periodically, could materially impact our consolidated financial statements. We believe our critical accounting
policies relating to revenue recognition, clinical trial accruals, inventory, stock option valuation, convertible debt
valuation and restructuring liability reflect the more significant estimates and assumptions used in the preparation
of our consolidated financial statements.

Revenue Recognition

Product Sales

We recognize revenue when it is both realized or realizable and earned, meaning persuasive evidence of an

arrangement exists, delivery has occurred, title has transferred, the price is fixed or determinable, there are no
remaining customer acceptance requirements, and collectability of the resulting receivable is reasonably assured.

61

For product sales in the United States, this generally occurs upon delivery of the product to the specialty
pharmacy. For product sales in Europe, this generally occurs when our European distribution partner has
accepted the product, at which time they are no longer able to return the product.

We sell our product, COMETRIQ, in the United States to a specialty pharmacy that benefits from customer

incentives and has a right of return. Prior to 2015, COMETRIQ had limited sales history and we could not
reliably estimate expected future returns, discounts and rebates of the product at the time the product was sold to
the specialty pharmacy, therefore we recognized revenue when the specialty pharmacy provided the product to a
patient based on the fulfillment of a prescription, frequently referred to as the “sell-through” revenue recognition
model. Recently we have established sufficient historical experience and data to reasonably estimate expected
future returns of the product and the discounts and rebates due to payors at the time of shipment to the specialty
pharmacy. Accordingly, beginning in January 2015 we began to recognize revenue upon delivery to our U.S.
specialty pharmacy. This approach is frequently referred to as the “sell-in” revenue recognition model. In
connection with the change in the timing of recognition of U.S. COMETRIQ sales, we recorded a one-time
adjustment to recognize revenue and related costs that had previously been deferred at December 31, 2014,
resulting in additional gross product revenues of $2.6 million and a nominal amount of cost of goods sold for the
year ended December 31, 2015; there were no such adjustments recorded for the three months ended
December 31, 2015.

We also utilize the “sell-in” revenue recognition model for sales to our European distribution partner. Once
the European distributer has accepted the product, the product is no longer subject to return; therefore, we record
revenue at the time our European distribution partner has accepted the product.

Product Sales Discounts and Allowances

We calculate gross product revenues based on the price that we charge our United States specialty pharmacy

and our European distribution partner. We estimate our domestic net product revenues by deducting from our
gross product revenues (a) trade allowances, such as discounts for prompt payment, (b) estimated government
rebates and chargebacks, (c) estimated costs of patient assistance programs, and (d) certain other fees paid to the
U.S specialty pharmacy. Discounts and allowances for foreign sales for the years ended December 31, 2015 and
2014 included portions of a one-time $2.4 million project management fee payable to our European distribution
partner upon its achievement of a cumulative revenue goal. During 2014, we determined that the achievement of
the revenue goal was probable and therefore we recorded $2.3 million of the $2.4 million project management
fee, of which $0.7 million would have been recorded in 2013 had the cumulative revenue goal been determined
to be probable in that period. During 2015 we recorded an additional $0.1 million of the project management fee.

We initially record estimates for these deductions at the time we recognize the gross revenue. We update our

estimates on a recurring basis as new information becomes available. See “Note 1—Organization and Summary
of Significant Accounting Policies” to our Consolidated Financial Statements for a further description of our
discounts and allowances.

Licenses and Contracts

Revenues from license fees and milestone payments primarily consist of upfront license fees and milestone

payments received under various collaboration agreements. We initially recognize upfront fees received from
third party collaborators as unearned revenues and then recognize these amounts on a ratable basis over the
expected term of the research collaboration. Therefore, any changes in the expected term of the research
collaboration will impact revenue recognition for the given period. Often, the total research term is not
contractually defined and an estimate of the term of our total obligation must be made.

Although milestone payments are generally non-refundable once the milestone is achieved, we recognize
milestone revenues on a straight-line basis over the expected research term of the arrangement. This typically

62

results in a portion of a milestone being recognized on the date the milestone is achieved, with the balance being
recognized over the remaining research term of the agreement. In certain situations, we may receive milestone
payments after the end of our period of continued involvement. In such circumstances, we would recognize
100% of the milestone revenues when the milestone is achieved. Milestones are classified as contract revenues in
our Consolidated Statements of Operations.

Collaborative agreement reimbursement revenues consist of research and development support received

from collaborators and are recorded as earned based on the performance requirements by both parties under the
respective contracts.

Some of our research and licensing arrangements have multiple deliverables in order to meet our customer’s
needs. For example, the arrangements may include a combination of intellectual property rights and research and
development services. We evaluate whether the delivered elements under these arrangements have value to our
collaboration partner on a stand-alone basis and whether objective and reliable evidence of fair value of the
undelivered item exists. If we determine that multiple deliverables exist, the consideration is allocated to one or
more units of accounting based upon the best estimate of the selling price of each deliverable. The selling price
used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if
vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-
party evidence is available. A delivered item or items that do not qualify as a separate unit of accounting within
the arrangement shall be combined with the other applicable undelivered items within the arrangement. The
allocation of arrangement consideration and the recognition of revenue then shall be determined for those
combined deliverables as a single unit of accounting. A delivered item or items that do not have stand-alone
value to our collaboration partner shall be combined with the other applicable undelivered items within the
arrangement. The allocation of arrangement consideration and the recognition of revenue then shall be
determined for those combined deliverables as a single unit of accounting. For a combined unit of accounting,
non-refundable upfront fees and milestones are recognized in a manner consistent with the final deliverable,
which has generally been ratably over the period of the research and development obligation. For certain
arrangements, the period of time over which certain deliverables will be provided is not contractually defined.
Accordingly, management is required to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes.

Inventory

We consider regulatory approval of product candidates to be uncertain and product manufactured prior to

regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for
product candidates incurred prior to regulatory approval are not capitalized as inventory, but rather are expensed
as research and development costs. When regulatory approval is obtained, capitalization of inventory may begin.
On November 29, 2012, the FDA approved our first product, COMETRIQ, for the treatment of progressive,
metastatic MTC in the United States, where it became commercially available in late January 2013.

Inventory is valued at the lower of cost or net realizable value. We determine the cost of inventory using the

standard-cost method, which approximates actual cost based on a first-in, first-out method. We analyze our
inventory levels quarterly and write down inventory subject to expiry in excess of expected requirements, or that
has a cost basis in excess of its expected net realizable value. The related costs are recognized as cost of goods
sold in the Consolidated Statements of Operations.

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

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Clinical Trial Accruals

All of our clinical trials have been executed with support from contract research organizations, or CROs,

and other vendors. We accrue costs for clinical trial activities performed by CROs based upon the estimated
amount of work completed on each trial. For clinical trial expenses, the significant factors used in estimating
accruals include the number of patients enrolled, the activities to be performed for each patient, the number of
active clinical sites, and the duration for which the patients will be enrolled in the trial. We monitor patient
enrollment levels and related activities to the extent possible through internal reviews, correspondence with
CROs and review of contractual terms. We base our estimates on the best information available at the time.
However, additional information may become available to us, which may allow us to make a more accurate
estimate in future periods. In this event, we may be required to record adjustments to research and development
expenses in future periods when the actual level of activity becomes more certain. Such increases or decreases in
cost are generally considered to be changes in estimates and will be reflected in research and development
expenses in the period first known. During the year ended December 31, 2013, we recorded a reduction related to
the accrual for prior periods of approximately $0.8 million; there were no such significant reductions during the
year ended December 31, 2015 or 2014.

Restructuring Liability

In connection with our restructuring activities, we estimate facility-related restructuring charges which
represent the present value of the estimated facility costs for which we would obtain no future economic benefit
offset by estimated future sublease income, including any credit or debit relating to existing deferred rent
balances associated with the vacated building.

We derive our estimates based primarily on discussions with our brokers and our own view of market
conditions based in part on discussions with potential subtenants. These estimates require significant assumptions
regarding the time required to contract with subtenants, the amount of idle space we would be able to sublease
and potential future sublease rates. The present value factor, which also affects the level of accreted interest
expense that we will recognize as additional restructuring charges over the term of the lease, is based on our
estimate of our credit-risk adjusted borrowing rate at the time the initial lease-related restructuring liability is
calculated.

Changes in the assumptions underlying our estimates could have a material impact on our restructuring
charge and restructuring liability. We are required to continue to update our estimate of our restructuring liability
in future periods as conditions warrant, and we expect to further revise our estimate in future periods as we
continue our discussions with potential subtenants.

In addition, in connection with our sublease efforts for our buildings in South San Francisco, if we vacate

and sublease these facilities for rates that are not significantly in excess of our costs, we would not likely recover
the carrying value of certain assets associated with these facilities. As such, we could potentially recognize
additional asset impairment charges, in future periods, if we were to sublease parts of either of these buildings.

If the actual amounts differ from our estimates, the amount of restructuring charges could be materially

impacted. See “Note 3—Restructurings” of the Notes to Consolidated Financial Statements for a further
discussion on our Restructurings.

Stock Option Valuation

Our estimate of compensation expense requires us to determine the appropriate fair value model and a
number of complex and subjective assumptions including our stock price volatility, employee exercise patterns,
future forfeitures and related tax effects. The most significant assumptions are our estimates of the expected

64

volatility and the expected term of the award. In addition, we are required to estimate the expected forfeiture rate,
including assessing the likelihood of achieving our goals for performance-based stock options, and recognize
expense only for those shares expected to vest. If our actual forfeiture rate is materially different from our
estimate, the stock-based compensation expense could be significantly different from what we have recorded in
the current period. The value of a stock option is derived from its potential for appreciation. The more volatile
the stock, the more valuable the option becomes because of the greater possibility of significant changes in stock
price. Because there is a market for options on our common stock, we have considered implied volatilities as well
as our historical realized volatilities when developing an estimate of expected volatility. The expected option
term also has a significant effect on the value of the option. The longer the term, the more time the option holder
has to allow the stock price to increase without a cash investment and thus, the more valuable the option. Further,
lengthier option terms provide more opportunity to exploit market highs. However, empirical data show that
employees, for a variety of reasons, typically do not wait until the end of the contractual term of a
nontransferable option to exercise. Accordingly, companies are required to estimate the expected term of the
option for input to an option-pricing model. As required under the accounting rules, we review our valuation
assumptions at each grant date and, as a result, from time to time we will likely change the valuation assumptions
we use to value stock based awards granted in future periods. The assumptions used in calculating the fair value
of share-based payment awards represent management’s best estimates, but these estimates involve inherent
uncertainties and the application of management judgment. As a result, if factors change and we use different
assumptions, our stock-based compensation expense could be materially different in the future. As of
December 31, 2015, $19.5 million of total unrecognized compensation expense related to stock options was
expected to be recognized over a weighted-average period of 2.56 years and $3.4 million of total unrecognized
compensation expense relating to restricted stock units was expected to be recognized over 2.50 years. See “Note
10—Employee Benefit Plans” of the Notes to Consolidated Financial Statements for a further discussion on
stock-based compensation.

Exelixis International (Bermuda) Ltd.

Effective July 2013, Exelixis engaged in intercompany transactions with its wholly-owned subsidiary
Exelixis International (Bermuda) Ltd., or Exelixis Bermuda, pursuant to which Exelixis Bermuda acquired the
existing and future intellectual property rights to exploit cabozantinib in jurisdictions outside of the United
States.

Fiscal Year Convention

Exelixis has adopted a 52- or 53-week fiscal year that generally ends on the Friday closest to

December 31st. Fiscal year 2013, a 52-week year, ended on December 27, 2013, fiscal year 2014, a 53-week
year, ended on January 2, 2015, fiscal year 2015, a 52-week year, ended on January 1, 2016, and fiscal year 2016
will end on December 30, 2016. For convenience, references in this report as of and for the fiscal years ended
December 27, 2013, January 2, 2015 and January 1, 2016, are indicated on a calendar year basis, ended
December 31, 2013, 2014 and 2015, respectively. The quarter ended January 2, 2015 is a 14-week fiscal quarter;
all other interim periods presented are 13-week fiscal quarters.

65

Results of Operations—Comparison of Years Ended December 31, 2015, 2014 and 2013

Revenues

Total revenues by category were as follows (dollars in thousands):

Year Ended December 31,

2015

2014

2013

Gross product revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discounts and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$36,650
(2,492)

$28,963
(3,852)

$15,702
(685)

Net product revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
License revenues (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract revenues (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

34,158
14
3,000

25,111
—
—

15,017
8,380
7,941

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$37,172

$25,111

$31,338

Dollar change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,061

$ (6,227)

48%

(20)%

(1)
(2)

Includes royalties and amortization of upfront payments.
Includes contingent and milestone payments.

Product revenues relate to the sale of COMETRIQ. The increase in gross product revenues for the year
ended December 31, 2015, reflects an overall increase in shipments of COMETRIQ and the impact of a change
to the “sell-in” method which resulted in the one-time recognition of $2.6 million of deferred revenue attributable
to sales to the specialty pharmacy that sells COMETRIQ in the United States in the first quarter of 2015; there
was no such adjustment recorded during the comparable periods in 2014 or 2013.

For domestic sales, we have transitioned from the “sell-through” method to the “sell-in” method of

recognizing product revenue as we have established sufficient history to reasonably estimate expected returns of
the product and the discounts and rebates due to payers. For foreign sales, we continue to utilize the “sell-in”
method to recognize product revenue for all periods presented.

We calculate gross product revenues based on the price that we charge our United States specialty pharmacy

and our European distribution partner. We estimate our domestic net product revenues by deducting from our
gross product revenues (a) trade allowances, such as discounts for prompt payment, (b) estimated government
rebates and chargebacks, (c) estimated costs of patient assistance programs, and (d) certain other fees paid to the
U.S specialty pharmacy. Discounts and allowances for foreign sales for the years ended December 31, 2015 and
2014 included portions of a one-time $2.4 million project management fee payable to our European distribution
partner upon its achievement of a cumulative revenue goal. During 2014, we determined that the achievement of
the revenue goal was probable and therefore we recorded $2.3 million of the $2.4 million project management
fee, of which $0.7 million would have been recorded in 2013 had the cumulative revenue goal been determined
to be probable in that period. During 2015 we recorded an additional $0.1 million of the project management fee.
We also deduct from gross product revenues an estimated credit for product originally delivered with expiry of
18 months or less that is potentially payable to our European distribution partner; such deductions were nominal
during the year ended December 31, 2015, and zero for 2014 and 2013.

We initially record estimates for these deductions at the time we recognize the gross revenue. We update our

estimates on a recurring basis as new information becomes available.

Contract revenues for the year ended December 31, 2015 reflect a $3.0 million milestone payment received
from Merck related to its worldwide license of our phosphoinositide-3 kinase-delta program. The $16.3 million
in license and contract revenue for the year ended December 31, 2013 reflects the completion of the recognition
of revenues resulting from certain collaboration agreements with Bristol-Myers Squibb.

66

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

Year Ended December 31,

2015

2014

2013

Diplomat Specialty Pharmacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Swedish Orphan Biovitrum (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bristol-Myers Squibb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$30,856
3,303
3,000
—
13

$24,832
279
—
—
—

$14,004
1,013
—
16,321
—

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$37,172

$25,111

$31,338

Dollar change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,061

$ (6,227)

48%

(20)%

(1) Revenues from Swedish Orphan Biovitrum for the years ended December 31, 2015 and 2014 included a

$0.1 million and $2.3 million reduction, respectively, to revenue for a project management fee payable to
our European distributor upon their achievement of a cumulative revenue goal. $0.7 million of the $2.3
million we recorded during 2014 represented amounts that would have been recorded in 2013 had the
cumulative revenue goal been determined to be probable in that period.

Cost of Goods Sold

Cost of goods sold is related to our product revenues and consists primarily of a 3% royalty on net sales of

any product incorporating cabozantinib we are required to pay GlaxoSmithKline pursuant to the terms of our
product development and commercialization agreement that terminated during 2014, indirect labor costs, the cost
of manufacturing, write-downs related to expiring and excess inventory, and other third party logistics costs for
our product. A portion of the manufacturing costs for product sales were incurred prior to regulatory approval of
COMETRIQ for the treatment of progressive, metastatic MTC and, therefore, were expensed as research and
development costs when those costs were incurred, rather than capitalized as inventory.

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

Year Ended December 31,

2015

2014

2013

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,895

$2,043

$1,118

89%

92%

93%

The increase in the cost of goods sold for the year ended December 31, 2015, as compared to 2014, was a
result of write-downs related to expiring and excess inventory of $1.2 million for the year ended December 31,
2015, as compared to $0.2 million for 2014, increased sales of COMETRIQ, as well as decreases in the amount
of product sold that had been expensed as research and development expense prior to regulatory approval.

The increase in the cost of goods sold for the year ended December 31, 2014, as compared to 2013, was a

result of increased sales of COMETRIQ as well as decreases in the amount of material expensed as research and
development expense prior to regulatory approval and an increase in indirect labor related to commercialization
in the EU.

The cost of goods sold and gross margin we have experienced in this early stage of our product launch may

not be representative of what we may experience going forward.

67

Research and Development Expenses

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

Year Ended December 31,

2015

2014

2013

Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 96,351
$189,101
$(92,750) $ 10,338

(49)%

6%

$178,763

Research and development expenses consist primarily of clinical trial expenses, personnel expenses, stock-

based compensation expenses, allocation of general corporate costs, consulting and outside services expenses,
temporary employee expenses and regulatory filing fees.

The decrease in research and development expenses for the year ended December 31, 2015, as compared to
2014, was primarily related to a decrease in clinical trial costs, which includes services performed by third-party
CROs and other vendors that support our clinical trials. The decrease in clinical trial costs was $70.3 million, or
61%, for the year ended December 31, 2015, as compared to 2014. The decrease in clinical trial costs was
predominantly due to decreases in costs related to COMET-1 and COMET-2, our phase 3 pivotal trials in
metastatic CRPC which we terminated in September 2014, METEOR, our phase 3 pivotal trial in advanced RCC,
and a reduction of general program level costs; the decrease in costs related to METEOR included the impact of a
$9.8 million decrease in comparator drug purchases.

Decreases in research and development expenses for the year ended December 31, 2015, also related to
personnel expenses, consulting and outside services and temporary personnel. Personnel expenses decreased by
$16.6 million for the year ended December 31, 2015, as compared to 2014 primarily due to workforce reductions
undertaken as a consequence of the failure of COMET-1. Consulting and outside services decreased by $3.6
million primarily as a result of decreases in clinical development consulting activities and the use of outside
medical safety liaisons. Temporary personnel decreased by $2.9 million due to a decrease in clinical trial
activities performed by those personnel. Those decreases were partially offset by increases in stock-based
compensation and regulatory filing fees. Stock-based compensation increased by $8.4 million primarily due to
expense recognized for performance-based stock-options tied to the positive top-line data received from the
METEOR trial and the anticipated acceptance of our NDA filing with the FDA. Regulatory filing fees of $2.4
million were paid to the FDA in 2015 in connection with the filing of our NDA.

The increase in 2014 as compared to 2013 was predominantly driven by an increase in clinical trial costs.

The increase in clinical trial costs was $14.6 million, or 15%, for 2014 as compared to 2013. The increase in
clinical trial costs related predominantly to clinical trial activities for METEOR and CELESTIAL. The increases
in costs for those trials was partially offset by lower clinical trial expenses for COMET-1 and the continued wind
down of various other studies for cabozantinib, most notably our randomized discontinuation trial and EXAM,
our phase 3 pivotal trial in MTC.

There were additional increases in research and development expenses for 2014 related to temporary
personnel expenses, consulting and outside services, which were partially offset by decreases in personnel
expenses and stock-based compensation. Temporary personnel expenses increased by $2.9 million primarily due
to increased clinical trial activities. Consulting and outside services increased by $1.1 million primarily as a
result of the engagement of additional medical science liaisons required to support our increased clinical trial
activities. Personnel expenses decreased by $2.8 million due primarily to the restructuring activities in the third
quarter of 2014 and the elimination of employee bonus accruals as a consequence of the failure of the COMET-1
trial; the decrease was partially offset by higher wages in 2014. Stock-based compensation decreased by $2.8
million primarily due to the reversal of compensation recognized in prior periods on stock options granted
subject to performance objectives and forfeitures triggered by terminations resulting from the negative COMET-
1 and COMET-2 results.

68

As noted under “Overview”, we are focusing our development and commercialization efforts primarily on
cabozantinib to maximize the therapeutic and commercial potential of this compound, and as a result, we expect
nearly all of our future research and development expenses to relate to the clinical development of cabozantinib.
We expect to continue to incur significant development costs for cabozantinib in future periods as we evaluate its
potential in a broad development program comprising over 45 ongoing or planned clinical trials across multiple
indications, including two ongoing phase 3 pivotal trials focusing on advanced RCC and advanced HCC. In
addition, postmarketing commitments in connection with the approvals of COMETRIQ in MTC dictate that we
conduct additional studies in that indication.

We anticipate that research and development expenses will stay flat during 2016 with a decrease in clinical

trial costs offset by an increase in costs associated with Medical Affairs to support the anticipated launch of
cabozantinib for the treatment of advanced RCC.

We do not have reliable estimates regarding the timing of our clinical trials. We estimate that typical phase
1 clinical trials last approximately one year, phase 2 clinical trials last approximately one to two years and phase
3 clinical trials last approximately two to four years. However, the length of time may vary substantially
according to factors relating to the particular clinical trial, such as the type and intended use of the drug
candidate, the clinical trial design and the ability to enroll suitable patients.

We do not have reliable estimates of total costs for a particular drug candidate, or for cabozantinib for a

particular indication, to reach the market. Our potential therapeutic products are subject to a lengthy and
uncertain regulatory process that may involve unanticipated additional clinical trials and may not result in receipt
of the necessary regulatory approvals. Failure to receive the necessary regulatory approvals would prevent us
from commercializing the product candidates affected. In addition, clinical trials of our potential product
candidates may fail to demonstrate safety and efficacy, which could prevent or significantly delay regulatory
approval.

Selling, General and Administrative Expenses

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

Year Ended December 31,

2015

2014

2013

Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$57,305
$ 6,476

$50,829
$ (129)

13% — %

$50,958

Selling, general and administrative expenses consist primarily of marketing, personnel expenses, employee

stock-based compensation, facility costs, consulting and outside services, and legal and accounting costs.

The increase in selling, general and administrative expenses for the year ended December 31, 2015, as
compared to the comparable period in 2014, was primarily related to increases in marketing costs and stock-
based compensation. Marketing expenses increased by $10.2 million, which includes $16.6 million that
represents our share of losses under our collaboration agreement with Genentech. Stock-based compensation,
increased by $3.5 million primarily due to expense recognized for performance-based stock-options tied to the
positive top-line data received from the METEOR trial and the anticipated acceptance of our NDA filing with the
FDA. Those increases were partially offset by decreases in personnel costs, consulting and outside services,
facilities costs and patent and other legal and accounting fees. Personnel expenses decreased by $5.7 million
primarily due to workforce reductions undertaken as a consequence of the failure of COMET-1. Consulting and
outside services decreased by $3.3 million as a result of decreases in marketing research activities and reductions
in outside services for buildings we are no longer occupying. Facilities costs decreased by $2.8 million primarily

69

as a result of facilities we have vacated in connection with the 2014 Restructuring. Patent and other legal and
accounting fees decreased by $2.0 million primarily due to decreases in activities related to patent filings and
defense.

The relatively flat selling, general and administrative expenses for the 2014, as compared to 2013, was the

result of decreases in consulting and outside services, patent and other legal and accounting fees, which were
offset by increases in personnel expenses, marketing expenses and stock-based compensation. Consulting and
outside services decreased by $3.2 million, in-part due to the internalizing of our outside sales function in late
2013. Patent and other legal and accounting fees decreased by $2.6 million primarily due to decreases in
activities related to patent filings and defense. Personnel expenses increased by $1.7 million, the majority of
which is connected with the expansion of our U.S. sales force; that increase was partially offset by the
elimination of employee bonus accruals as consequence of the failure of COMET-1. Marketing expenses
increased by $1.6 million, which related primarily to an increase in pre-commercial preparation expenses for
cobimetinib under our collaboration agreement with Genentech. If cobimetinib is launched commercially, we
will account for our share of the net profits(losses) on a net basis, such that our share of net losses under the
collaboration agreement will be reported as a part of selling, general and administrative expenses; in the period
that the collaboration agreement becomes profitable to us, we will record our share of profits, net of related
expenses, as revenue. Stock-based compensation increased by $0.8 million primarily due to equity award grants
to members of our Board of Directors and two separation agreements; those increases were partially offset by the
reversal of compensation recognized in prior periods on stock options granted subject to performance objectives
and forfeitures triggered by terminations resulting from the negative COMET-1 and COMET-2 results and the
2014 Restructuring.

We anticipate selling, general and administrative expenses will increase during 2016 due to investments in

our commercial infrastructure to support the anticipated launch of cabozantinib for the treatment of advanced
RCC, as well as our share of net losses under our collaboration agreement with Genentech for COTELLIC.

Restructuring Charge

On September 2, 2014, as a consequence of the failure of COMET-1, one of our two phase 3 pivotal trials of

cabozantinib in mCRPC, we initiated a restructuring, which we refer to as the 2014 Restructuring, to reduce our
workforce. The aggregate reduction in headcount from the 2014 Restructuring was 143 employees. The principal
objective of the 2014 Restructuring was to enable us to focus our financial resources on the phase 3 pivotal trials
of cabozantinib in advanced RCC and advanced HCC.

Between March 2010 and May 2013, we implemented five restructurings (referred to collectively as the
“2010 Restructurings”) to manage costs and as a consequence of our decision in 2010 to focus our proprietary
resources and development efforts on the development and commercialization of cabozantinib. The aggregate
reduction in headcount from the 2010 Restructurings was 429 employees. Charges and credits related to the 2010
Restructurings were recorded in periods other than those in which the 2010 Restructurings were implemented as
a result of sublease activities for certain of our buildings in South San Francisco, California, changes in
assumptions regarding anticipated sublease activities, the effect of the passage of time on our discounted cash
flow computations, previously planned employee terminations, and sales of excess equipment and other assets.

Total restructuring charge was as follows (dollars in thousands):

Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,042
$(6,554)

$7,596
$6,365

(86)% 517%

$1,231

Year Ended December 31,

2015

2014

2013

70

For the years ended December 31, 2015 and 2014, we recorded restructuring charges of $0.3 million and
$6.1 million, respectively, for the 2014 Restructuring. The restructuring charge for the year ended December 31,
2015 included $1.6 million in additional charges due to the partial termination of one of our building leases and
additional facility-related charges related to the decommissioning and exit of certain buildings. The restructuring
charge for the year ended December 31, 2015 was partially offset by $1.0 million in recoveries recorded in
connection with the sale of excess equipment and other assets that had previously been fully depreciated. The
restructuring charge for the year ended December 31, 2014 includes $5.8 million of employee severance and
other benefits that are recognized ratably during the period from the implementation date of the 2014
Restructuring through the employees’ termination dates. In addition, we recorded charges of $0.3 million for
property and equipment write-downs and other charges, which were partially offset by recoveries recorded in
connection with the sale of excess equipment and other assets that were previously fully impaired and the
reversal of severance charges recorded in 2014 for employees that were recalled in 2015.

For the years ended December 31, 2015, 2014 and 2013, we recorded restructuring charges of $0.8 million,

$1.5 million and $1.2 million, respectively, for the 2010 Restructurings. The charges for the periods presented
were related to the effect of the passage of time on our discounted cash flow computations for the exit, in prior
periods, of certain of our South San Francisco buildings and changes in estimates regarding future subleases.
During the year ended December 31, 2014, those charges were partially offset by $0.1 million in recoveries
recorded in connection with the sale of excess equipment and other assets.

Total Other Income (Expense), net

Total other income (expense), net, were as follows (dollars in thousands):

Year Ended December 31,

2015

2014

2013

Interest income and other, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

412
(48,673)

$ 4,341
(48,607)

$ 1,223
(45,347)

Total other income (expense), net

. . . . . . . . . . . . . . . . . . . . . . . . .

$(48,261)

$(44,266)

$(44,124)

Dollar change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (3,995)

$

9%

(142)
— %

Total other income (expense), net consists primarily of interest expense incurred on our debt, partially offset
by interest income earned on our cash and investments and gains and losses on derivatives and foreign exchange
fluctuations.

Interest expense on the 2019 Notes and the Deerfield Notes includes aggregate non-cash interest expense of

$28.9 million, $29.5 million and $26.3 million for the years ended December 31, 2015, 2014 and 2013,
respectively.

Interest income and other, net for the years ended December 31, 2015 and 2014 includes $0.5 million in
unrealized losses and $1.8 million in unrealized gains, respectively, on the revaluation of the 2014 Warrants.

Interest income and other, net for 2014 also includes an $0.8 million gain for a purchase price adjustment

resulting from the resolution of contingencies related to the September 2011 sale of our remaining interest in
another business.

71

Liquidity and Capital Resources

Sources and Uses of Cash

The following table summarizes our cash flow activities (in thousands):

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash used in operating activities . .
Changes in operating assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2015

2014

2013

$(169,737) $(268,542) $(244,760)
48,255
(2,268)

43,414
(10,277)

53,997
(25,845)

Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . .

Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . .

(141,585)
50,077
152,747

61,239
80,395

(235,405)
146,330
65,492

(23,583)
103,978

(198,773)
144,351
(11,669)

(66,091)
170,069

Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 141,634

$ 80,395

$ 103,978

We commercially launched COMETRIQ for the treatment of progressive, metastatic MTC in the United
States in late January 2013 and from the commercial launch through December 31, 2015, we have generated
$74.3 million in net revenues from the sale of COMETRIQ. Other than revenues from COMETRIQ, we have
derived substantially all of our revenues since inception from collaborative research and development agreements
which depend on research funding, the achievement of milestones and royalties we earn from any future products
developed from the collaborative research. For a discussion of potential future capital requirements, please see
“—Liquidity and Capital Resources—Capital Requirements.”

Operating Activities

Our operating activities used cash of $141.6 million for the year ended December 31, 2015, compared to

$235.4 million for 2014 and $198.8 million for 2013.

Cash used in operating activities for the year ended December 31, 2015 related primarily to our $158.6
million operating expenses for the period, less $37.2 million in revenues for the period and non-cash expenses for
accretion of debt discount and interest paid in kind totaling $28.9 million on the Deerfield Notes and the 2019
Notes and stock-based compensation totaling $22.0 million. In addition to current period operating expenses, we
made cash payments that resulted in a $23.5 million reduction in accrued clinical trial liabilities and a $8.8
million reduction in restructuring liabilities, which was partially offset by a $10.2 million increase in our accrued
collaboration liability.

Cash used in operating activities for the year ended December 31, 2014 related primarily to our $249.6
million in operating expenses for the period, less non-cash expenses for accretion of debt discount totaling $29.5
million on the Deerfield Notes and the 2019 Notes, stock-based compensation totaling $10.0 million and
depreciation and amortization totaling $2.4 million. Our operating expenses were largely attributable to the
development of cabozantinib. In addition, we made cash payments that resulted in a $13.2 million reduction in
accounts payable and other accrued expenses during the period and paid $10.2 million for restructuring activities,
which was partially offset by a $6.6 million increase in accrued clinical trial liabilities.

Cash used in operating activities for the year ended December 31, 2013 related primarily to our $232.1
million in operating expenses, less non-cash expenses for accretion of debt discount totaling $26.3 million, stock-
based compensation totaling $12.0 million, amortization of discounts and premiums on investments totaling $6.8

72

million, and depreciation and amortization totaling $3.1 million. Our operating expenses were primarily
attributable to the development of cabozantinib. In addition, we paid $6.8 million for restructuring activities
during the period. All of our license and contract revenues during 2013 were non-cash, which was reflected in the
$14.9 million reduction in deferred revenue during the period.

Operating cash flows can differ from our consolidated net loss as a result of differences in the timing of cash

receipts and earnings recognition and non-cash charges.

Investing Activities

Our investing activities provided cash of $50.1 million for the year ended December 31, 2015, as compared

to $146.3 million for 2014 and $144.4 million for 2013.

Cash provided by investing activities for the year ended December 31, 2015 was primarily due to the
maturity of unrestricted and restricted investments of $198.7 million, less investment purchases of $149.6
million.

Cash provided by investing activities for the year ended December 31, 2014 was primarily due to the
maturity of unrestricted and restricted investments of $273.2 million, less investment purchases of $127.7
million.

Cash provided by investing activities for the year ended December 31, 2013 was primarily due to the
maturity of unrestricted and restricted investments of $342.4 million, partially offset by investment purchases of
$196.1 million.

Financing Activities

Our financing activities provided cash of $152.7 million for the year ended December 31, 2015, compared

to cash provided of $65.5 million for 2014, and cash used of $11.7 million for 2013.

Cash provided by our financing activities for the year ended December 31, 2015 was primarily due to the

issuance of 28,750,000 shares of common stock in July 2015 for net proceeds of $145.6 million and $10.9
million in proceeds from the exercise of stock options, which was partially offset by principal payments on debt
of $4.4 million.

Cash provided by our financing activities for the year ended December 31, 2014 was primarily due to the
issuance of 10.0 million shares of common stock in January 2014 for net proceeds of $75.6 million. The cash
provided by the issuance of common stock was partially offset by principal payments on debt of $11.7 million.

Cash used for financing activities for the year ended December 31, 2013 was primarily due to principal

payments on debt of $13.2 million.

Proceeds from these financing activities are used for general working capital purposes, such as research and

development activities and other general corporate purposes. Over the next several years, we are required to
make certain payments on notes and bank obligations. On May 31, 2017 we will be required to pay the principal
balance of $80.0 million plus accrued and unpaid interest on our term loan with Silicon Valley Bank. On July 1,
2018 we will be required to pay the principal balance of $125.0 million including interest paid in kind, plus
accrued and unpaid coupon interest on the Deerfield Notes. On August 15, 2019 we will be required to pay the
principal balance of $287.5 million plus accrued and unpaid interest on the 2019 Notes. See “—Certain Factors
Important to Understanding Our Financial Condition and Results of Operations” above and “Note 7—Debt” of
the Notes to the Consolidated Financial Statements for additional details on these agreements.

73

Capital Requirements

We have incurred net losses since inception through December 31, 2015, with the exception of the 2011
fiscal year. We anticipate net losses and negative operating cash flow for the foreseeable future. For the year
ended December 31, 2015, we incurred a net loss of $169.7 million and as of December 31, 2015, we had an
accumulated deficit of $1.9 billion. These losses have had, and will continue to have, an adverse effect on our
stockholders’ deficit and working capital. Because of the numerous risks and uncertainties associated with
developing drugs, we are unable to predict the extent of any future losses or whether or when we will become
profitable, if at all. Excluding fiscal 2011, our research and development expenditures and selling, general and
administrative expenses have exceeded our revenues for each fiscal year, and we expect to spend significant
additional amounts to fund the continued development and commercialization of cabozantinib. As a result, we
expect to continue to incur substantial operating expenses and, consequently, we will need to generate significant
additional revenues to achieve future profitability.

We commercially launched COMETRIQ for the treatment of progressive, metastatic MTC in the United
States in late January 2013 and from the commercial launch through December 31, 2015, we have generated
$74.3 million in net revenues from the sale of COMETRIQ. Other than revenues from COMETRIQ, we have
derived substantially all of our revenues since inception from collaborative research and development agreements
which depend on research funding, the achievement of milestones, and royalties we earn from any future
products developed from the collaborative research.

The amount of our net losses will depend, in part, on: the rate of growth, if any, in our sales of COMETRIQ;

the level of sales of cabozantinib in the United States for the treatment of advanced RCC, if approved by the
FDA for such indication; receipt of the upfront payment, achievement of clinical, regulatory and commercial
milestones and the amount of royalties from sales of cabozantinib for the treatment of advanced RCC in the
European Union and elsewhere, if approved for such indication under our collaboration with Ipsen; our share of
the net profits and losses for the commercialization of COTELLIC in the U.S.; the amount of royalties from
COTELLIC sales outside the U.S.; other license and contract revenues; and, the level of expenses primarily with
respect to expanded commercialization activities for cabozantinib.

As of December 31, 2015, we had $253.3 million in cash and investments, which included $169.0 million
available for operations, $81.6 million of compensating balance investments that we are required to maintain on
deposit with Silicon Valley Bank, and $2.7 million of long-term restricted investments. We anticipate that our
current cash and cash equivalents, and short-term investments available for operations, and product revenues,
will enable us to maintain our operations for a period of at least 12 months following the filing date of this report.
However, our future capital requirements will be substantial, and we may need to raise additional capital in the
future. Our capital requirements will depend on many factors, and we may need to use available capital resources
and raise additional capital significantly earlier than we currently anticipate. Our capital requirements will
depend on many factors including but not limited to:

•

•

•

•

the commercial success of COMETRIQ and the revenues we generate from that approved product;

the pace and progress of our current increase in sales, marketing, medical affairs and distribution
capabilities in anticipation of obtaining FDA approval for cabozantinib for the potential treatment of
advanced RCC patients;

the successful establishment of the distribution and commercialization network for COMETRIQ in the
approved MTC indication and cabozantinib for the potential treatment of advanced RCC patients, as
well as the achievement of stated regulatory and commercial milestones, under our collaboration with
Ipsen;

the commercial success of COTELLIC and the calculation of our share of related profits and losses for
the commercialization of COTELLIC in the U.S. and royalties from COTELLIC sales outside the U.S.
under our collaboration with Genentech;

74

•

•

•

•

•

•

•

•

•

•

•

the speed of a potential regulatory approval for cabozantinib for the treatment of advanced RCC and
other indications;

future clinical trial results, notably the results from CELESTIAL, our phase 3 pivotal trial in patients
with advanced HCC;

repayment of the Deerfield Notes which mature on July 1, 2018, subject to a requirement to make a
mandatory prepayment in each of 2017 and 2018 equal to 15% of certain revenues from collaborative
arrangements (other than intercompany arrangements) received during the prior fiscal year, subject to a
maximum annual prepayment amount of $27.5 million;

our ability to repay the Deerfield Notes with our common stock, which we are only able to do under
specified conditions;

repayment of our $287.5 million aggregate principal amount of the 2019 Notes, which mature on
August 15, 2019, unless earlier converted, redeemed or repurchased;

repayment of our term loan from Silicon Valley Bank, which had an outstanding balance at
December 31, 2015, of $80.0 million;

our ability to control costs;

our ability to remain in compliance with, or amend or cause to be waived, financial covenants
contained in agreements with third parties;

the cost of clinical drug supply for our clinical trials;

trends and developments in the pricing of oncologic therapeutics in the United States and abroad,
especially in the EU;

scientific developments in the market for oncologic therapeutics and the timing of regulatory approvals
for competing oncologic therapies; and

•

the filing, maintenance, prosecution, defense and enforcement of patent claims and other intellectual
property rights.

Contractual Obligations

We have contractual obligations in the form of debt, loans payable, operating leases, purchase obligations
and other long-term liabilities. The following chart details our contractual obligations, including any potential
accrued or accreted interest, as of December 31, 2015 (in thousands):

Contractual Obligations

Convertible notes (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans payable (2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations (4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Payments Due by Period

Total

$412,472
80,000
25,717
907
106

Less than
1 year

1-3 Years

$ — $412,472
80,000
11,481
—
106

—
14,236
907
—

Total contractual cash obligations . . . . . . . . . . . . . . . . . . . . . . . . . . .

$519,202

$15,143

$504,059

More than
3
years

$—
—
—
—
—

$—

(1)

Includes our obligations under the Deerfield Notes and the 2019 Notes. See “—Certain Factors Important to
Understanding Our Financial Condition and Results of Operations” and “Note 7—Debt” of the Notes to
Consolidated Financial Statements regarding the terms of the Deerfield Notes and the 2019 Notes.

75

(2)

Includes our obligations under our loan from Silicon Valley Bank. See “—Certain Factors Important to
Understanding Our Financial Condition and Results of Operations” and “Note 7—Debt” of the Notes to
Consolidated Financial Statements regarding the terms of our loan from Silicon Valley Bank.

(3) The operating lease payments do not include $6.1 million to be received through 2017 in connection with

the subleases for three of our South San Francisco buildings.

(4) At December 31, 2015, we had firm purchase commitments related to manufacturing and maintenance of

inventory. These commitments include a portion of our 2015 contractual minimum purchase obligation. Our
actual purchases are expected to significantly exceed these amounts.

In connection with the sale of our plant trait business, we agreed to indemnify the purchaser and its affiliates

up to a specified amount if they incur damages due to any infringement or alleged infringement of certain
patents. We have certain collaboration licensing agreements, which contain standard indemnification clauses.
Such clauses typically indemnify the customer or vendor for an adverse judgment in a lawsuit in the event of our
misuse or negligence. We consider the likelihood of an adverse judgment related to an indemnification
agreement to be remote. Furthermore, in the event of an adverse judgment, any losses under such an adverse
judgment may be substantially offset by applicable corporate insurance.

Recently Adopted Accounting Pronouncements

In November 2015, the Financial Accounting Standards Board, or FASB, issued Accounting Standards
Update No. 2015-17 Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, or ASU 2015-
17. ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separate classification
of deferred income tax liabilities and assets into current and noncurrent amounts in the consolidated balance
sheet statement of financial position. The amendments in the update require that all deferred tax liabilities and
assets be classified as noncurrent in the consolidated balance sheet. The amendments in this update are effective
for annual periods beginning after December 15, 2016, and interim periods therein and may be applied either
prospectively or retrospectively to all periods presented. Early adoption is permitted. We have early adopted this
standard in the fourth quarter of 2015 on a prospective basis. Prior periods have not been adjusted.

In April 2015, the FASB issued Accounting Standards Update 2015-03 Simplifying the Presentation of Debt

Issuance Costs which Changes the Presentation of Debt Issuance Costs in Financial Statements, or ASU 2015-
03, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet
as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The
Company early adopted ASU 2015-03 as of December 31, 2015, as permitted. There is no impact of early
adoption of ASU 2015-03 on the consolidated statements of operations and comprehensive loss. The impact of
early adoption on the consolidated balance sheets as of the dates presented is noted in the table below (in
thousands):

December 31, 2015

December 31, 2014

Prior to
Adoption of
ASU 2015-03

ASU 2015-03
Adjustment

As
Adopted

Other long-term assets . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . .

5,579
335,612

(3,270)
(3,270)

2,309
332,342

Current portion of convertible notes . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . .

—
52,251

—
—

—
52,251

Long-term portion of convertible notes . .
Total liabilities . . . . . . . . . . . . . . . . . . . . .

304,705
439,916

(3,270)
(3,270)

301,435
436,646

Prior to
Adoption of
ASU 2015-03 (as
previously
reported)

8,340
327,960

98,880
171,860

182,395
442,789

ASU 2015-03
Adjustment

As
Adopted

(4,691)
(4,691)

(1,431)
(1,431)

(3,260)
(4,691)

3,649
323,269

97,449
170,429

179,135
438,098

76

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with

Customers, or ASU 2014-09. ASU 2014-09 supersedes the revenue recognition requirements of FASB
Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition and most industry-specific
guidance throughout the ASC, resulting in the creation of FASB ASC Topic 606, Revenue from Contracts with
Customers. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled to in exchange for those goods or services. In August 2015, the FASB deferred the effective date by one
year for public entities for annual and interim reporting periods beginning after December 15, 2017. Early
adoption is permitted for periods after December 15, 2016. We are currently evaluating the impact of adopting
ASU 2014-09, inclusive of available transitional methods on our consolidated financial statements and related
disclosures.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties

about an Entity’s Ability to Continue as a Going Concern, or ASU 2014-15. ASU 2014-15 explicitly requires
management to evaluate, at each annual or interim reporting period, whether there are conditions or events that
exist that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the
date the financial statements are issued and to provide related disclosures. ASU 2014-15 is effective for annual
periods ending after December 15, 2016 and earlier application is permitted. The adoption of this guidance will
not have any impact on the Company’s financial position and results of operations and, at this time, we do not
expect any impact on its disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases, or ASU 2016-02.
ASU 2016-02 is aimed at making leasing activities more transparent and comparable, and requires substantially
all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability,
including leases currently accounted for as operating leases. ASU 2016-02 is effective for all interim and annual
reporting periods beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating
the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and related
disclosures.

Off-Balance Sheet Arrangements

As of December 31, 2015, we did not have any material off-balance-sheet arrangements, as defined by

applicable SEC regulations.

77

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and

our long-term debt. As of December 31, 2015 and 2014, we had cash and investments of $253.3 million and
$242.8 million, respectively. Our investments are subject to interest rate risk, and our interest income may
fluctuate due to changes in U.S. interest rates. We manage market risk through diversification requirements
mandated by our investment policy, which limits the amount of our portfolio that can be invested in a single
issuer. We limit our credit risk by limiting purchases to high-quality issuers. At December 31, 2015 and 2014, we
had debt outstanding of $381.4 million and $357.0 million, respectively. Our payment commitments associated
with these debt instruments are primarily fixed and consist of interest payments, principal payments, or a
combination of both. The fair value of our investments and our debt will fluctuate with movements of interest
rates. We have estimated the effects on our interest rate sensitive assets and liabilities based on a one percentage
point hypothetical adverse change in interest rates as of December 31, 2015 and 2014. For our investments, the
estimated effects of hypothetical interest rate changes are obtained from the same third-party pricing sources we
use to value our investments. For debt instruments, we determine the estimated effects of hypothetical interest
rate changes using the same present value model we use to determine the fair of value of those instruments. As of
December 31, 2015 and 2014, a decrease in the interest rates of one percentage point would have had a net
adverse change in the fair value of interest rate sensitive assets and liabilities of $8.7 million and $7.8 million,
respectively. The decrease as of December 31, 2015 includes all of our debt outstanding. The decrease as of
December 31, 2014 excludes the Deerfield Notes as we believed it was not practicable to determine the fair value
of the Deerfield Notes as of December 31, 2014, and therefore were unable to determine the impact on fair value
of decrease in the interest rates of one percentage point for those notes.

In addition, we have exposure to fluctuations in certain foreign currencies in countries in which we conduct

clinical trials. Most of our foreign expenses incurred were associated with establishing and conducting clinical
trials for cabozantinib at sites outside of the United States. Our agreements with the foreign sites that conduct
such clinical trials generally provide that payments for the services provided will be calculated in the currency of
that country, and converted into U.S. dollars using various exchange rates based upon when services are rendered
or the timing of invoices. When the U.S. dollar weakens against foreign currencies, the U.S. dollar value of the
foreign-currency denominated expense increases, and when the U.S. dollar strengthens against these currencies,
the U.S. dollar value of the foreign-currency denominated expense decreases. As of December 31, 2015 and
2014, approximately $3.2 million and $5.5 million, respectively, of our clinical accrual balance was owed in
foreign currencies. An adverse change of one percentage point in the foreign currency exchange rates would not
have resulted in a material impact for any periods presented.

We recorded a $0.1 million and $0.5 million gain relating to foreign exchange fluctuations for the years

ended December 31, 2015 and 2014, respectively. Such gains and losses were nominal in 2013.

78

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

EXELIXIS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity (Deficit)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

80
81
82
83
84
85
86

79

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Exelixis, Inc.

We have audited the accompanying consolidated balance sheets of Exelixis, Inc. as of January 1, 2016 and
January 2, 2015, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity
(deficit) and cash flows for each of the three fiscal years in the period ended January 1, 2016. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Exelixis, Inc. at January 1, 2016 and January 2, 2015, and the consolidated
results of its operations and its cash flows for each of the three fiscal years in the period ended January 1, 2016,
in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States), Exelixis, Inc.’s internal control over financial reporting as of January 1, 2016, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) and our report dated February 29, 2016 expressed an unqualified
opinion thereon.

/s/ Ernst & Young LLP

Redwood City, California
February 29, 2016

80

EXELIXIS, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

December 31,

2015

2014

ASSETS
Current assets:

$

$

$

$

$

$

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term restricted cash and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term restricted cash and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued clinical trial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued collaboration liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term portion of convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term portion of loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term portion of restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

141,634
25,426
—
5,183
2,616
3,806

178,665
83,600
2,650
1,434
63,684
2,309
332,342

6,401
18,071
10,938
3,629
10,007
3,205
—
—
—

52,251
301,435
80,000
1,385
1,575

436,646

80,395
63,890
12,212
4,882
2,381
3,481

167,241
81,579
4,684
2,432
63,684
3,649
323,269

6,413
41,545
732
3,350
11,550
6,426
97,449
381
2,583

170,429
179,135
80,000
4,365
4,169

438,098

Commitments (Note 13)
Stockholders’ deficit:

Preferred stock, $0.001 par value, 10,000,000 shares authorized and no shares

issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

Common stock, $0.001 par value; 400,000,000 shares authorized; issued and

outstanding: 227,960,943 and 195,895,769 shares at December 31, 2015 and
2014, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

228
1,832,741
(232)
(1,937,041)

196
1,652,400
(121)
(1,767,304)

Total stockholders’ deficit

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(104,304)

(114,829)

Total liabilities and stockholders’ deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

332,342

$

323,269

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

81

EXELIXIS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

Year Ended December 31,

2015

2014

2013

Revenues:

Net product revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
License and contract revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 34,158
3,014

$ 25,111
—

$ 15,017
16,321

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37,172

25,111

31,338

Operating expenses:

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,895
96,351
57,305
1,042

2,043
189,101
50,829
7,596

1,118
178,763
50,958
1,231

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

158,593

249,569

232,070

Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net:

(121,421)

(224,458)

(200,732)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income and other, net
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

412
(48,673)

4,341
(48,607)

1,223
(45,347)

Total other income (expense), net

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(48,261)

(44,266)

(44,124)

Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(169,682)
55

(268,724)
(182)

(244,856)
(96)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(169,737) $(268,542) $(244,760)

Net loss per share, basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in computing basic and diluted net loss per share amounts . . . .

$

(0.81) $

(1.38) $

209,227

194,299

(1.33)
184,062

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

82

EXELIXIS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)

Year Ended December 31,

2015

2014

2013

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income, net of tax of $0, $0 and $106 (1) . . . . .

$(169,737) $(268,542) $(244,760)
238

(267)

(111)

Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(169,848) $(268,809) $(244,522)

(1) Other comprehensive (loss) income consisted solely of unrealized losses or gains, net on available for sale
securities arising during the periods presented. There were no reclassification adjustments to net loss
resulting from realized losses or gains on the sale of securities.

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

83

EXELIXIS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)

Common
Stock
Shares

Common
Stock
Amount

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
(Loss) Income

$183
—
—

$1,550,345
—
—

$ (92)
—
238

Balance at December 31, 2012 . . . . . . . 183,697,213
—
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . .
—
Issuance of common stock under stock

plans . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . .

836,438

—

Balance at December 31, 2013 . . . . . . . 184,533,651
—
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . .
—
10,000,000
Sale of shares of common stock, net . . .
Issuance of common stock under stock

plans . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . .

1,362,118

—

Balance at December 31, 2014 . . . . . . . 195,895,769
—
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . .
—
Sale of shares of common stock, net . . .
28,750,000
Warrants transferred from other long-

1

—

184
—
—
10

2

—

196
—
—
29

2,294
12,031

1,564,670
—
—
75,633

2,091
10,006

1,652,400
—
—
145,620

term liabilities . . . . . . . . . . . . . . . . . .

—

—

1,470

Issuance of common stock under stock

plans . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . .

3,315,174

—

3

—

11,274
21,977

Accumulated
Deficit

$(1,254,002)
(244,760)

—

—
—

(1,498,762)
(268,542)

—
—

—
—

(1,767,304)
(169,737)

—
—

—

—
—

Total
Stockholders’
Equity
(Deficit)

$ 296,434
(244,760)
238

2,295
12,031

66,238
(268,542)
(267)
75,643

2,093
10,006

(114,829)
(169,737)
(111)
145,649

1,470

11,277
21,977

—
—

146
—
(267)
—

—
—

(121)
—
(111)
—

—

—
—

Balance at December 31, 2015 . . . . . . . 227,960,943

$228

$1,832,741

$(232)

$(1,937,041)

$(104,304)

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

84

EXELIXIS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion of debt discount
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual of interest paid in kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of business and other equity investment
. . . . . . . . . . . . . . . . . . . . . . .
Changes in the fair value of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in assets and liabilities:

Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable, accrued compensation, and other accrued liabilities . . . . . . . . .
Clinical trial liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued collaboration liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2015

2014

2013

$(169,737) $(268,542) $(244,760)

1,406
21,977
25,034
3,817
(112)
548
1,327

(646)
(235)
(325)
1,340
(1,276)
(23,474)
10,206
(7,180)
(2,582)
(1,673)

2,391
10,006
29,534
—
(838)
(1,840)
4,161

(941)
509
1,526
(2,149)
(13,945)
6,587
732
(2,302)
1,133
(1,427)

3,147
12,031
26,290
—
—
—
6,787

(1,190)
(2,890)
1,034
—
8,691
14,398
—
(5,750)
(14,871)
(1,690)

Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(141,585)

(235,405)

(198,773)

Cash flows from investing activities:

Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Proceeds from sale of business and other equity investment
Proceeds from maturities of restricted cash and investments . . . . . . . . . . . . . . . . . . . .
Purchase of restricted cash and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(447)
1,346
95
19,789
(5,650)
178,936
(143,992)

(474)
392
838
20,354
(8,143)
252,891
(119,528)

(2,171)
143
—
17,268
(6,085)
325,171
(189,975)

Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

50,077

146,330

144,351

Cash flows from financing activities:

Proceeds from issuance of common stock, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options and warrants . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from employee stock purchase plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

145,649
10,911
568
(4,381)

75,643
120
1,438
(11,709)

Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . .

152,747

65,492

Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61,239
80,395

(23,583)
103,978

—
72
1,429
(13,170)

(11,669)

(66,091)
170,069

Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 141,634

$ 80,395

$ 103,978

Supplemental cash flow disclosure:

Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash financing activity: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of warrants in connection with amendment to convertible notes . . . . . . . .

$ 19,822
192
$

$ 19,109
60
$

$ 19,160
$

—

$

— $

2,762

$

—

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

85

EXELIXIS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Exelixis, Inc. (“Exelixis,” “we,” “our” or “us”) is a biopharmaceutical company that discovers, develops and
commercializes small molecule therapies for the treatment of cancer. Our business focuses predominantly on the
development and commercialization of cabozantinib, an internally-discovered inhibitor of multiple receptor
tyrosine kinases, in various tumor indications. Cabozantinib is currently approved in the United States and
European Union for the treatment of progressive, metastatic medullary thyroid cancer (“MTC”), and is marketed
under the brand name COMETRIQ®.

Basis of Consolidation

The 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.

Basis of Presentation

Exelixis has adopted a 52- or 53-week fiscal year that generally ends on the Friday closest to

December 31st. Fiscal year 2013, a 52-week year, ended on December 27, 2013, fiscal year 2014, a 53-week
year, ended on January 2, 2015, fiscal year 2015, a 52-week year, ended on January 1, 2016, and fiscal year 2016
will end on December 30, 2016. For convenience, references in this report as of and for the fiscal years ended
December 27, 2013, January 2, 2015 and January 1, 2016, are indicated on a calendar year basis, ended
December 31, 2013, 2014 and 2015, respectively. The quarter ended January 2, 2015 is a 14-week fiscal quarter;
all other interim periods presented are 13-week fiscal quarters.

Segment Information

We operate as a single reportable segment.

Use of Estimates

The preparation of our consolidated financial statements is in conformity with accounting principles
generally accepted in the United States which requires management to make judgments. The preparation of our
consolidated financial statements is in conformity with accounting principles generally accepted in the United
States which requires management to make judgments, estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue and expenses, and related disclosures. On an ongoing basis, management
evaluates its estimates including, but not limited to, those related to revenue recognition, including for deductions
from revenues (such as rebates, chargebacks, sales returns and sales allowances), recoverability of inventory,
certain accrued liabilities including clinical trial accruals and restructuring liabilities, share-based compensation
and valuation of warrants. 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.

86

Reclassifications

Certain prior period amounts in the consolidated balance sheet have been reclassified to conform to current

period presentation. We reclassified $0.7 million of Other accrued liabilities as of December 31, 2014 to Accrued
collaboration liability in the accompanying consolidated balance sheets.

Limited Sources of Revenues and the Need to Raise Additional Capital

We have incurred net losses since inception through December 31, 2015, with the exception of the 2011
fiscal year. We anticipate net losses and negative operating cash flow for the foreseeable future. For the year
ended December 31, 2015, we incurred a net loss of $169.7 million and as of December 31, 2015, we had an
accumulated deficit of $1.9 billion. We expect to continue to incur substantial operating expenses and,
consequently, we will need to generate significant additional revenues to achieve future profitability.

We commercially launched COMETRIQ for the treatment of progressive, metastatic MTC in the United
States in late January 2013, and from the commercial launch through December 31, 2015, we have generated
$74.3 million in net revenues from the sale of COMETRIQ. Other than revenues from COMETRIQ, we have
derived substantially all of our revenues since inception from collaborative research and development
agreements, which depend on research funding, the achievement of milestones, and royalties we earn from any
future products developed from the collaborative research.

The amount of our net losses will depend, in part, on: the rate of growth, if any, in our sales of COMETRIQ;

the level of sales of cabozantinib in the United States for the treatment of advanced RCC, if approved by the
FDA for such indication; receipt of the upfront payment, achievement of clinical, regulatory and commercial
milestones and the amount of royalties from sales of cabozantinib for the treatment of advanced RCC in the
European Union and elsewhere, if approved for such indication under our collaboration with Ipsen; our share of
the net profits and losses for the commercialization of COTELLIC in the U.S.; the amount of royalties from
COTELLIC sales outside the U.S.; other license and contract revenues; and, the level of expenses primarily with
respect to expanded commercialization activities for cabozantinib.

As of December 31, 2015, we had $253.3 million in cash and investments, which included $169.0 million
available for operations, $81.6 million of compensating balance investments that we are required to maintain on
deposit with Silicon Valley Bank, and $2.7 million of long-term restricted investments. We anticipate that our
current cash and cash equivalents, and short-term investments available for operations, and product revenues,
will enable us to maintain our operations for a period of at least 12 months following the filing date of this report.
Our capital requirements will depend on many factors, and we may need to use available capital resources and
raise additional capital significantly earlier than we currently anticipate.

Cash and Investments

We consider all highly liquid investments purchased with an original maturity of three months or less to be

cash equivalents. Cash equivalents include investments in high-grade, short-term money market funds,
commercial paper and municipal securities, which are subject to minimal credit and market risk.

We have designated all investments as available-for-sale and therefore, such investments are reported at fair

value, with unrealized gains and losses recorded in accumulated other comprehensive loss. For securities sold
prior to maturity, the cost of securities sold is based on the specific identification method. Realized gains and
losses on the sale of investments are recorded in interest and other income, net.

We classify those investments we do not require for use in current operations that mature in more than 12

months as Long-term investments on our Consolidated Balance Sheets. Additionally, those investments that

87

collateralize loan balances with terms that extend 12 months or longer were classified as long-term investments
even if the investment’s remaining term to maturity was one year or less; they are not restricted to withdrawal.

All of our investments are subject to a quarterly impairment review. We recognize an impairment charge

when a decline in the fair value of an investment below its cost basis is judged to be other-than-temporary.
Factors considered in determining whether a loss is temporary included the length of time and extent to which the
investments fair value has been less than the cost basis, the financial condition and near-term prospects of the
investee, extent of the loss related to credit of the issuer, the expected cash flows from the security, our intent to
sell the security and whether or not we will be required to sell the security before the recovery of its amortized
cost. During the years ended December 31, 2015, 2014, and 2013, we did not record any other-than-temporary
impairment charges on our available-for-sale securities.

Fair Value Measurements

Fair value reflects the amounts that would be received upon sale of an asset or paid to transfer a liability in

an orderly transaction between market participants at the measurement date (exit price). We disclose the fair
value of financial instruments for assets and liabilities for which the value is practicable to estimate. For those
financial instruments measured and recorded at fair value on a recurring basis, we also provide fair value
hierarchy information in these Notes to Consolidated Financial Statements. The fair value hierarchy has the
following three levels:

Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities that the reporting

entity can access at the measurement date.

Level 2 – observable inputs, other than quoted prices in active markets for identical assets and liabilities that

are observable either directly or indirectly. These inputs include using prices from independent pricing services
based on quoted prices in active markets for similar instruments or on industry models using data inputs, such as
interest rates and prices that can be directly observed or corroborated in active markets.

Level 3 – unobservable inputs.

A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the
observability of valuation inputs may result in a reclassification of levels for certain investments within the fair
value hierarchy. During the years ended December 31, 2015, 2014, and 2013, there were no such
reclassifications.

Inventory

Inventory is valued at the lower of cost or net realizable value. We determine the cost of inventory using the

standard-cost method, which approximates actual cost based on a first-in, first-out method. We analyze our
inventory levels quarterly and write down inventory subject to expiry in excess of expected requirements, or that
has a cost basis in excess of its expected net realizable value. The related costs are recognized as cost of goods
sold in the Consolidated Statements of Operations.

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

We consider regulatory approval of product candidates to be uncertain and product manufactured prior to

regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for
product candidates incurred prior to regulatory approval were not capitalized as inventory but were expensed as
research and development costs. When regulatory approval is obtained, we begin capitalization of inventory
related costs.

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Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the

following estimated useful lives:

5 years
Equipment and furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 years
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shorter of lease life or 7 years

Capitalized software includes certain internal use computer software costs.

Repairs and maintenance costs are charged to expense as incurred.

Goodwill

Goodwill amounts have been recorded as the excess purchase price over tangible assets, liabilities and

intangible assets acquired based on their estimated fair value. Goodwill is not subject to amortization. We
evaluate goodwill for impairment on an annual basis and on an interim basis if events or changes in
circumstances between annual impairment tests indicate that the asset might be impaired. We continue to operate
in one segment, which is also considered to be our sole reporting unit and therefore, goodwill was tested for
impairment at the enterprise level as of December 31, 2015 and 2014.

Long-Lived Assets

Long-lived assets include property and equipment. The carrying value of our long-lived assets is reviewed
for impairment whenever events or changes in circumstances indicate that the asset may not be recoverable. An
impairment loss would be recognized when estimated future cash flows expected to result from the use of the
asset and its eventual disposition is less than its carrying amount.

Revenue Recognition

We recognize revenue from product sales and from license fees, milestones, contingent payments and

royalties earned on research and collaboration arrangements.

Net Product Revenues

We recognize revenue when it is both realized or realizable and earned, meaning persuasive evidence of an

arrangement exists, delivery has occurred, title has transferred, the price is fixed or determinable, there are no
remaining customer acceptance requirements, and collectability of the resulting receivable is reasonably assured.
For product sales in the United States, this generally occurs upon delivery of the product to the specialty
pharmacy. For product sales in Europe, this generally occurs when our European distribution partner has
accepted the product, at which time they are no longer able to return the product.

We sell our product, COMETRIQ, in the United States to a specialty pharmacy that benefits from customer

incentives and has a right of return. Prior to 2015, COMETRIQ had limited sales history and we could not
reliably estimate expected future returns, discounts and rebates of the product at the time the product was sold to
the specialty pharmacy, therefore we recognized revenue when the specialty pharmacy provided the product to a
patient based on the fulfillment of a prescription, frequently referred to as the “sell-through” revenue recognition
model. Recently we have established sufficient historical experience and data to reasonably estimate expected
future returns of the product and the discounts and rebates due to payors at the time of shipment to the specialty

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pharmacy. Accordingly, beginning in January 2015 we began to recognize revenue upon delivery to our U.S.
specialty pharmacy. This approach is frequently referred to as the “sell-in” revenue recognition model. In
connection with the change in the timing of recognition of U.S. COMETRIQ sales, we recorded a one-time
adjustment to recognize revenue and related costs that had previously been deferred at December 31, 2014,
resulting in additional gross product revenues of $2.6 million and a nominal amount of cost of goods sold for the
year ended December 31, 2015; there were no such adjustments recorded during 2014 and 2013.

We also utilize the “sell-in” revenue recognition model for sales to our European distribution partner for all

periods presented. Once the European distributer has accepted the product, the product is no longer subject to
return; therefore, we record revenue at the time our European distribution partner has accepted the product.

Product Sales Discounts and Allowances

We calculate gross product revenues based on the price that we charge our United States specialty pharmacy

and our European distribution partner. We estimate our domestic net product revenues by deducting from our
gross product revenues (a) trade allowances, such as discounts for prompt payment, (b) estimated government
rebates and chargebacks, (c) estimated costs of patient assistance programs, and (d) certain other fees paid to the
U.S specialty pharmacy. Discounts and allowances for foreign sales for the years ended December 31, 2015 and
2014 included portions of a one-time $2.4 million project management fee payable to our European distribution
partner upon its achievement of a cumulative revenue goal. During 2014, we determined that the achievement of
the revenue goal was probable and therefore we recorded $2.3 million of the $2.4 million project management
fee, of which $0.7 million would have been recorded in 2013 had the cumulative revenue goal been determined
to be probable in that period. During 2015 we recorded an additional $0.1 million of the project management fee.

We initially record estimates for these deductions at the time we recognize the gross revenue. We update our

estimates on a recurring basis as new information becomes available.

Customer Credits: The United States specialty pharmacy receives a discount of 2% for prompt payment. We
expect this specialty pharmacy will earn 100% of its prompt payment discounts and, therefore, we deduct the full
amount of these discounts from total product sales when revenues are recognized.

Mandated Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate
Program and other government programs. Rebate amounts owed after the final dispensing of the product to a
benefit plan participant are based upon contractual agreements or legal requirements with public sector benefit
providers, such as Medicaid. The allowance for rebates is based on statutory discount rates and expected
utilization. Our estimates for the expected utilization of rebates are based on customer and payer data received
from the United States specialty pharmacy and historical utilization rates. Rebates are generally invoiced by the
payer and paid in arrears, such that the accrual balance consists of an estimate of the amount expected to be
incurred for the current quarter’s shipments to patients, plus an accrual balance for known prior quarter’s unpaid
rebates. If actual future rebates vary from estimates, we may need to adjust our accruals, which would affect net
revenue in the period of adjustment.

Chargebacks: Chargebacks are discounts that occur when contracted customers purchase directly from a

specialty pharmacy. Contracted customers, which currently consist primarily of Public Health Service
institutions, non-profit clinics, and Federal government entities purchasing via the Federal Supply Schedule,
generally purchase the product at a discounted price. The United States specialty pharmacy, in turn, charges back
to us the difference between the price initially paid by the specialty pharmacy and the discounted price paid to
the specialty pharmacy by the customer. The allowance for chargebacks is based on an estimate of sales to
contracted customers.

Medicare Part D Coverage Gap: In the United States, the Medicare Part D prescription drug benefit
mandates manufacturers to fund 50% of the Medicare Part D insurance coverage gap for prescription drugs sold

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to eligible patients. Our estimates for expected Medicare Part D coverage gap are based in part on third party
market research data and on customer and payer data received from the United States specialty pharmacy.
Funding of the coverage gap is invoiced and paid in arrears so that the accrual balance consists of an estimate of
the amount expected to be incurred for the current quarter’s shipments to patients, plus an accrual balance for
prior sales. If actual future funding varies from estimates, we may need to adjust our accruals, which would
affect net revenue in the period of adjustment.

Co-payment Assistance: Patients who have commercial insurance and meet certain eligibility requirements

may receive co-payment assistance. We accrue a liability for co-payment assistance based on actual program
participation and estimates of program redemption using customer data provided by our United States specialty
pharmacy.

Our European distribution partner is entitled to receive a project management fee based upon the

achievement of a pre-specified revenue goal which, when deemed probable, is ratably accrued as a reduction to
gross revenue.

License and Contract Revenues

Under the terms of our collaboration agreement with Genentech, Inc. (a member of the Roche Group)
(“Genentech”) for cobimetinib, we are entitled to a share of U.S. profits and losses for cobimetinib. We are
entitled to low double-digit royalties on ex-U.S. net sales. See “Note 2—Research and Collaboration
Agreements” for additional information about our collaboration agreement with Genentech. We record our share
of profits and royalties under the collaboration agreement when reported to us by our collaboration partner;
losses under the collaboration agreement are recorded in the period incurred based on our estimate of those
losses. Profits and royalties are classified as license revenues in our Consolidated Statements of Operations. As
of December 31, 2015, we have not recognized any profits from the commercialization of cobimetinib in the U.S.
Until we have recognized such a profit under the agreement, losses are recognized as Selling, General and
Administrative expenses in our Consolidated Statements of Operations. We have determined that we are an agent
under the agreement and therefore revenues are recorded net of costs incurred.

License, research commitment and other non-refundable payments received in connection with research

collaboration agreements are deferred and recognized on a straight-line basis over the period of continuing
involvement, generally the research term specified in the agreement. Contract research revenues are recognized
as services are performed pursuant to the terms of the agreements. Any amounts received in advance of
performance are recorded as deferred revenue. Payments are not refundable if research is not successful. License
fees are classified as license revenues in our Consolidated Statements of Operations.

We enter into corporate collaborations under which we may obtain upfront license fees, research funding,

contingent, milestone and royalty payments. Our deliverables under these arrangements typically consist of
intellectual property rights and research and development services. We evaluate whether the delivered elements
under these arrangements have value to our collaboration partner on a stand-alone basis and whether objective
and reliable evidence of fair value of the undelivered item exists. If we determine that multiple deliverables exist,
the consideration is allocated to one or more units of accounting based upon the best estimate of the selling price
of each deliverable. The selling price used for each deliverable will be based on vendor-specific objective
evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated
selling price if neither vendor-specific or third-party evidence is available. A delivered item or items that do not
qualify as a separate unit of accounting within the arrangement shall be combined with the other applicable
undelivered items within the arrangement. The allocation of arrangement consideration and the recognition of
revenue then shall be determined for those combined deliverables as a single unit of accounting. A delivered item
or items that do not have stand-alone value to our collaboration partner shall be combined with the other
applicable undelivered items within the arrangement. The allocation of arrangement consideration and the

91

recognition of revenue then shall be determined for those combined deliverables as a single unit of accounting.
For a combined unit of accounting, non-refundable upfront fees and milestones are recognized in a manner
consistent with the final deliverable, which has generally been ratably over the period of the research and
development obligation.

Contingency payments (received upon the achievement of certain events by our collaborators) and milestone
payments (received upon the achievement of certain events by us) are non-refundable and recognized as revenues
over the period of the research arrangement. This typically results in a portion of the payments being recognized
at the date the contingency or milestone is achieved, which portion is equal to the applicable percentage of the
research term that has elapsed at the date of achievement, and the balance being recognized over the remaining
research term of the agreement. In certain situations, we may receive contingent payments after the end of our
period of continued involvement. In such circumstances, we would recognize 100% of the contingent revenues
when the contingency is achieved. Contingency and milestones payments, when recognized as revenue, are
classified as contract revenues in our Consolidated Statements of Operations.

Patient Assistance Program

We provide COMETRIQ at no cost to eligible patients who have no insurance and meet certain financial

and clinical criteria through our Patient Assistance Program (“PAP”). We record the cost of the product as a
selling, general and administrative expense at the time the product is shipped to the specialty pharmacy for PAP
use.

Cost of Goods Sold

Cost of goods sold is related to our product revenues and consists primarily of a 3% royalty on net sales of

any product incorporating cabozantinib payable to GlaxoSmithKline, indirect labor costs, the cost of
manufacturing, write-downs related to expiring and excess inventory, and other third party logistics costs of our
product. A portion of the manufacturing costs for product sales were incurred prior to regulatory approval of
COMETRIQ for the treatment of progressive, metastatic MTC and, therefore, were expensed as research and
development costs when those costs were incurred, rather than capitalized as inventory.

In accordance with our product development and commercialization agreement with GlaxoSmithKline, we
are required to pay GlaxoSmithKline a 3% royalty on the Net Sales of any product incorporating cabozantinib,
including COMETRIQ. Net Sales is defined in the product development and commercialization agreement as the
gross invoiced sales price less customer credits, rebates, chargebacks, shipping costs, customs duties, and sales
tax and other similar tax payments we are required to make.

Research and Development Expenses

Research and development costs are expensed as incurred and include costs associated with research
performed pursuant to collaborative agreements. Research and development costs consist of direct and indirect
internal costs related to specific projects as well as fees paid to other entities that conduct certain research
activities on our behalf.

Substantial portions of our preclinical studies and all of our clinical trials have been executed with support

from third-party contract research organizations (“CROs”) and other vendors. We accrue expenses for preclinical
studies performed by our vendors based on certain estimates over the term of the service period and adjust our
estimates as required. We accrue expenses for clinical trial activities performed by CROs based upon the
estimated amount of work completed on each trial. For clinical trial expenses, the significant factors used in
estimating accruals include the number of patients enrolled, the number of active clinical sites, and the duration

92

for which the patients will be enrolled in the trial. We monitor patient enrollment levels and related activities to
the extent possible through internal reviews, correspondence with CROs and review of contractual terms. We
base our estimates on the best information available at the time. However, additional information may become
available to us which may allow us to make a more accurate estimate in future periods. In this event, we may be
required to record adjustments to research and development expenses in future periods when the actual level of
activity becomes more certain. Such increases or decreases in cost are generally considered to be changes in
estimates and will be reflected in research and development expenses in the period first known.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss for the period by the weighted average number

of shares of common stock outstanding during the period. Diluted net loss per share gives effect to potential
incremental common shares issuable upon the exercise of stock options and warrants, and shares issuable
pursuant to restricted stock units (“RSUs”) (calculated based on the treasury stock method), and upon conversion
of our convertible debt (calculated using an as-if-converted method) as long as such shares are not anti-dilutive.
The calculation of diluted loss per share requires that, to the extent the average market price of the underlying
shares for the reporting period exceeds the exercise price of the warrants and the presumed exercise of such
securities are dilutive to loss per share for the period, adjustments to net loss used in the calculation are required
to remove the change in fair value of the warrants for the period. Likewise, adjustments to the denominator are
required to reflect the related dilutive shares.

Foreign Currency Translation and Remeasurement

Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured
using exchange rates in effect at the end of the period and related gains or losses are recorded in interest income
and other, net. Gains and losses on the remeasurement of monetary assets and liabilities were not material for any
of the years presented. We do not have any nonmonetary assets or liabilities denominated in currencies other than
the U.S. dollar.

Stock-Based Compensation

Stock-based compensation expense for all stock-based compensation awards is based on the grant date fair
value estimated using the Black-Scholes Merton option pricing model. Because there is a market for options on
our common stock, we have considered implied volatilities as well as our historical realized volatilities when
developing an estimate of expected volatility. We estimate the term using historical data. We recognize
compensation expense on a straight-line basis over the requisite service period. Compensation expense relating to
awards subject to performance conditions is recognized if it is probable that the performance goals will be
achieved. The probability of achievement is assessed on a quarterly basis. The total number of awards expected
to vest is adjusted for estimated forfeitures. We have elected to use the simplified method to calculate the
beginning pool of excess tax benefits.

Recently Adopted Accounting Pronouncements

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards

Update No. 2015-17 Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, or ASU
2015-17. ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separate
classification of deferred income tax liabilities and assets into current and noncurrent amounts in the consolidated
balance sheet statement of financial position. The amendments in the update require that all deferred tax
liabilities and assets be classified as noncurrent in the consolidated balance sheet. The amendments in this update
are effective for annual periods beginning after December 15, 2016, and interim periods therein and may be
applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. We have
early adopted this standard in the fourth quarter of 2015 on a prospective basis. Prior periods have not been
adjusted.

93

In April 2015, the FASB issued Accounting Standards Update 2015-03 Simplifying the Presentation of Debt

Issuance Costs which Changes the Presentation of Debt Issuance Costs in Financial Statements (“ASU
2015-03”), which requires that debt issuance costs related to a recognized debt liability be presented in the
balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.
The Company early adopted ASU 2015-03 as of December 31, 2015, as permitted. There is no impact of early
adoption of ASU 2015-03 on the consolidated statements of operations and comprehensive loss. The impact of
early adoption on the consolidated balance sheets as of the dates presented is noted in the table below (in
thousands):

December 31, 2015

December 31, 2014

Prior to
Adoption of
ASU 2015-03

ASU 2015-03
Adjustment

As
Adopted

Prior to
Adoption of
ASU 2015-03
(as previously
reported)

ASU 2015-03
Adjustment As Adopted

Other long-term assets . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of convertible notes . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . .
Long-term portion of convertible notes . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . .

5,579
335,612
—
52,251
304,705
439,916

(3,270)
(3,270)
—
—
(3,270)
(3,270)

2,309
332,342

—
52,251
301,435
436,646

8,340
327,960
98,880
171,860
182,395
442,789

(4,691)
(4,691)
(1,431)
(1,431)
(3,260)
(4,691)

3,649
323,269
97,449
170,429
179,135
438,098

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with

Customers, (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements of FASB Accounting
Standards Codification (“ASC”) Topic 605, Revenue Recognition and most industry-specific guidance throughout
the ASC, resulting in the creation of FASB ASC Topic 606, Revenue from Contracts with Customers. ASU 2014-09
requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods
or services. In August 2015, the FASB deferred the effective date by one year for public entities for annual and
interim reporting periods beginning after December 15, 2017. Early adoption is permitted for periods after
December 15, 2016. We are currently evaluating the impact of adopting ASU 2014-09, inclusive of available
transitional methods on our consolidated financial statements and related disclosures.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern, (“ASU 2014-15”). ASU 2014-15 explicitly requires
management to evaluate, at each annual or interim reporting period, whether there are conditions or events that
exist that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the
date the financial statements are issued and to provide related disclosures. ASU 2014-15 is effective for annual
periods ending after December 15, 2016 and earlier application is permitted. The adoption of this guidance will
not have any impact on the Company’s financial position and results of operations and, at this time, we do not
expect any impact on its disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases, (“ASU 2016-02”).
ASU 2016-02 is aimed at making leasing activities more transparent and comparable, and requires substantially
all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability,
including leases currently accounted for as operating leases. ASU 2016-02 is effective for all interim and annual
reporting periods beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating
the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and related
disclosures.

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NOTE 2. RESEARCH AND COLLABORATION AGREEMENTS

Ipsen Collaboration

On February 29, 2016, we entered into a collaboration and license agreement with Ipsen Pharma SAS,

(“Ipsen”) pursuant to which Ipsen has exclusive commercialization rights for current and potential future
cabozantinib indications outside of the United States, Canada and Japan. The companies have agreed to
collaborate on the development of cabozantinib for current and potential future indications. See “Note 15—
Subsequent Events” for more information regarding our Ipsen collaboration.

Genentech Collaboration

In December 2006, we out-licensed the development and commercialization of cobimetinib to Genentech
pursuant to a worldwide collaboration agreement. Exelixis discovered cobimetinib internally and advanced the
compound to investigational new drug (“IND”), status.

Genentech paid upfront and milestone payments of $25.0 million in December 2006 and $15.0 million in
January 2007 upon signing of the collaboration agreement and with the submission of the IND application for
cobimetinib. Under the terms of the agreement, we were responsible for developing cobimetinib through the
determination of the maximum-tolerated dose in a phase 1 clinical trial, and Genentech had the option to co-
develop cobimetinib, which Genentech could exercise after receipt of certain phase 1 data from us. In March
2008, Genentech exercised its option to co-develop cobimetinib. In March 2009, we granted to Genentech an
exclusive worldwide revenue-bearing license to cobimetinib, at which point Genentech became responsible for
completing the phase 1 clinical trial and subsequent clinical development.

The U.S. Food and Drug Administration approved cobimetinib in the United States under the brand name
COTELLICTM on November 10, 2015. It is indicated in combination with vemurafenib as a treatment for patients
with BRAF V600E or V600K mutation-positive advanced melanoma. COTELLIC in combination with
vemurafenib has also been approved in Switzerland, the European Union and Canada for use in the same
indication.

Under the terms of our collaboration agreement with Genentech for cobimetinib, we are entitled to a share
of U.S. profits and losses for cobimetinib. The profit and loss share has multiple tiers: we are entitled to 50% of
profits and losses from the first $200 million of U.S. actual sales, decreasing to 30% of profits and losses from
U.S. actual sales in excess of $400 million. We are entitled to low double-digit royalties on ex-U.S. net sales. In
November 2013, we exercised an option under the collaboration agreement to co-promote in the United States, if
commercialized. Following the approval of COTELLIC in the United States in November 2015, we began
fielding 25% of the sales force promoting COTELLIC in combination with vemurafenib as a treatment for
patients with BRAF V600E or V600K mutation-positive advanced melanoma.

We recorded net losses of $16.6 million, $2.9 million and $0.7 million under the collaboration agreement

during the years ended December 31, 2015, 2014 and 2013, respectively; those costs are included in Selling,
General and Administrative expenses on the accompanying Consolidated Statement of Operations. A portion of
the liability for those costs, identified as Accrued collaboration liability on the accompanying Consolidated
Balance Sheets, includes commercialization expenses that Genentech has allocated to the collaboration but
remain under discussion between us and Genentech. We also recognized license revenues of $14 thousand for
royalties on ex-U.S. net sales of COTELLIC during the year ended December 31, 2015. We recognized no such
royalties during the years ended December 31, 2014 and 2013.

Other Collaborations

We have established collaborations with other leading pharmaceutical and biotechnology companies,

including GlaxoSmithKline, Bristol-Myers Squibb Company (“Bristol-Myers Squibb”), Sanofi, Merck (known as
MSD outside of the United States and Canada) and Daiichi Sankyo Company Limited (“Daiichi Sankyo”), for

95

various compounds and programs in our portfolio. With the exception of collaboration with Ipsen, we have fully
out-licensed compounds or programs to a partner for further development and commercialization under these
collaborations and have no further development cost obligations under our collaborations. Under each of our
collaborations, we are entitled to receive milestones and royalties, or in the case of cobimetinib, a share of profits
(or losses) from commercialization.

With respect to our partnered compounds, other than cabozantinib and cobimetinib, we are eligible to
receive potential contingent payments totaling approximately $2.3 billion in the aggregate on a non-risk adjusted
basis, of which 10% are related to clinical development milestones, 42% are related to regulatory milestones and
48% are related to commercial milestones, all to be achieved by the various licensees, which may not be paid, if
at all, until certain conditions are met.

Bristol-Myers Squibb

ROR Collaboration Agreement

In October 2010, we entered into a worldwide collaboration with Bristol-Myers Squibb pursuant to which
each party granted to the other certain intellectual property licenses to enable the parties to discover, optimize
and characterize ROR antagonists that may subsequently be developed and commercialized by Bristol-Myers
Squibb. Since the collaborative research period ended in July 2013, Bristol-Myers Squibb has and will continue
to have sole responsibility for any further research, development, manufacture and commercialization of products
developed under the collaboration and will bear all costs and expenses associated with those activities.

For each product developed by Bristol-Myers Squibb under the collaboration, we will be eligible to receive

payments upon the achievement by Bristol-Myers Squibb of development and regulatory milestones of up to
$252.5 million in the aggregate and commercialization milestones of up to $150.0 million in the aggregate, as
well as royalties on commercial sales of any such products.

We recognized contract revenues of $1.5 million during the year ended December 31, 2013 under our ROR

collaboration agreement with Bristol-Myers Squibb. We recognized no such revenue during the years ended
December 31, 2015 and 2014.

LXR Collaboration Agreement

In December 2005, we entered into a collaboration agreement with Bristol-Myers Squibb for the discovery,

development and commercialization of novel therapies targeted against LXR, a nuclear hormone receptor
implicated in a variety of cardiovascular and metabolic disorders. This agreement became effective in January
2006, at which time we granted Bristol-Myers Squibb an exclusive worldwide license with respect to certain
intellectual property primarily relating to compounds that modulate LXR. The research term expired in January
2010 and we transferred the technology to Bristol-Myers Squibb in 2011 to enable it to continue the LXR
program. We have been advised that BMS is continuing additional preclinical research on the program.

Under the collaboration agreement, Bristol-Myers Squibb is required to pay us contingent amounts
associated with development and regulatory milestones of up to $138.0 million per product for up to two
products from the collaboration. In addition, we are also entitled to receive payments associated with sales
milestones of up to $225.0 million and royalties on sales of any products commercialized under the collaboration.

We did not any recognize any revenue under our LXR collaboration agreement with Bristol-Myers Squibb

during the three years ended December 31, 2015.

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Terminated Agreements

During 2013, additional license and collaboration agreements with Bristol-Myers Squibb were terminated or

concluded. We recognized license and contract revenues of $14.8 million during the year ended December 31,
2013 under these terminated agreements with Bristol-Myers Squibb.

Sanofi

In May 2009, we entered into a global license agreement with Sanofi for SAR245408 (XL147) and

SAR245409 (XL765), leading inhibitors of phosphoinositide-3 kinase (“PI3K”), and a broad collaboration for the
discovery of inhibitors of PI3K for the treatment of cancer. The license agreement and collaboration agreement
became effective on July 7, 2009.

We will be eligible to receive contingent payments associated with development, regulatory and commercial

milestones under the license agreement of $745.0 million in the aggregate, as well as royalties on sales of any
products commercialized under the license.

We did not recognize any revenue under our collaboration agreement with Sanofi during the three years

ended December 31, 2015.

Merck

In December 2011, we entered into an agreement with Merck pursuant to which we granted Merck an

exclusive worldwide license to our PI3K-delta (“PI3K-d”) program, including XL499 and other related
compounds. Pursuant to the terms of the agreement, Merck has sole responsibility to research, develop, and
commercialize compounds from our PI3K-d program. The agreement became effective in December 2011.

We will be eligible to receive payments associated with the successful achievement of potential

development and regulatory milestones for multiple indications of up to $236.0 million. We will also be eligible
to receive payments for combined sales performance milestones of up to $375.0 million and royalties on net-
sales of products emerging from the agreement. Contingent payments associated with milestones achieved by
Merck and royalties are payable on compounds emerging from our PI3K-d program or from certain compounds
that arise from Merck’s internal discovery efforts targeting PI3K-d during a certain period.

We recognized contract revenues of $3.0 million from a milestone payment during the year ended

December 31, 2015 under our collaboration agreement with Merck. We did not any recognize any such revenue
during the years ended December 31, 2014 and 2013.

Daiichi Sankyo

In March 2006, we entered into a collaboration agreement with Daiichi Sankyo for the discovery,

development and commercialization of novel therapies targeted against the mineralocorticoid receptor (“MR”), a
nuclear hormone receptor implicated in a variety of cardiovascular and metabolic diseases. Under the terms of
the agreement, we granted to Daiichi Sankyo an exclusive, worldwide license to certain intellectual property
primarily relating to compounds that modulate MR, including CS-3150 (an isomer of XL550). Daiichi Sankyo is
responsible for all further preclinical and clinical development, regulatory, manufacturing and commercialization
activities for the compounds and we do not have rights to reacquire such compounds, except as described below.

We are eligible to receive additional development, regulatory and commercialization milestone payments of

up to $145.0 million. In addition, we are also entitled to receive royalties on any sales of certain products
commercialized under the collaboration.

97

We did not recognize any revenue under our collaboration agreement with Daiichi Sankyo during the three

years ended December 31, 2015.

GlaxoSmithKline

In October 2002, we established a collaboration with GlaxoSmithKline to discover and develop novel
therapeutics in the areas of vascular biology, inflammatory disease and oncology. Under the terms of the product
development and commercialization agreement, GlaxoSmithKline had the right to choose cabozantinib for
further development and commercialization, but notified us in October 2008 that it had waived its right to select
the compound for such activities. As a result, we retained the rights to develop, commercialize, and/or license
cabozantinib, subject to payment to GlaxoSmithKline of a 3% royalty on net sales of any product incorporating
cabozantinib. The product development and commercialization agreement has terminated during 2014, although
GlaxoSmithKline will continue to be entitled to a 3% royalty on net sales of any product incorporating
cabozantinib, including COMETRIQ.

In connection with the sales of COMETRIQ, during the years ended December 31, 2015, 2014 and 2013 we

recorded $1.0 million, $0.7 million and $0.4 million, respectively in royalty expense to GlaxoSmithKline; the
royalty expense is included in Cost of goods sold in the accompanying Consolidated Statements of Operations.

NOTE 3. RESTRUCTURINGS

2014 Restructuring

On September 2, 2014, as a consequence of the failure of COMET-1, one of our two phase 3 pivotal trials of

cabozantinib in metastatic castration-resistant prostate cancer, we initiated a restructuring, which we refer to as
the 2014 Restructuring, to reduce our workforce. The aggregate reduction in headcount from the 2014
Restructuring was 143 employees. The principal objective of the 2014 Restructuring was to enable us to focus
our financial resources on the phase 3 pivotal trials of cabozantinib in advanced renal cell carcinoma and
advanced hepatocellular carcinoma.

For the years ended December 31, 2015 and 2014, we recorded restructuring charges of $0.3 million and
$6.1 million, respectively, for the 2014 Restructuring. The restructuring charge for the year ended December 31,
2015 included $1.6 million in additional charges due to the partial termination of one of our building leases and
additional facility-related charges related to the decommissioning and exit of certain buildings. The restructuring
charge for the year ended December 31, 2015 was partially offset by $1.0 million in recoveries recorded in
connection with the sale of excess equipment and other assets that had previously been fully depreciated. The
restructuring charge for the year ended December 31, 2014 includes $5.8 million of employee severance and
other benefits that are recognized ratably during the period from the implementation date of the 2014
Restructuring through the employees’ termination dates. In addition, we recorded charges of $0.3 million for
property and equipment write-downs and other charges, which were partially offset by recoveries recorded in
connection with the sale of excess equipment and other assets that were previously fully impaired and the
reversal of severance charges recorded in 2014 for employees that were recalled in 2015.

98

The restructuring liability related to the 2014 Restructuring is included in the current and long-term portion
of restructuring liability on the accompanying Consolidated Balance Sheets. The components of and changes to
these liabilities during the year ended December 31, 2015 are summarized in the following table (in thousands):

Employee
Severance and
Other Benefits

Facility
Charges

Asset
Impairment
and Sales

Legal and
Other Fees

Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . .
Cash payments, net
. . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restructuring liability as of December 31, 2014 . . . .
Restructuring charge (recovery) . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . .
Cash payments, net
. . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,775
—
(4,507)
22

1,290
(269)
—
(1,021)
—

$

65
—
(65)
—

—
1,582
—
(1,357)
278

$ 188
100
—
(288)

—
(981)
1,325
—
(344)

$ 59
—
(12)
—

47
(47)
—
—
—

Total

$ 6,087
100
(4,584)
(266)

1,337
285
1,325
(2,378)
(66)

Restructuring liability as of December 31, 2015 . . . .

$ —

$

503

$ —

$—

$

503

2010 Restructurings

Between March 2010 and May 2013, we implemented five restructurings (referred to collectively as the
“2010 Restructurings”) to manage costs and as a consequence of our decision in 2010 to focus our proprietary
resources and development efforts on the development and commercialization of cabozantinib. The aggregate
reduction in headcount from the 2010 Restructurings was 429 employees. Charges and credits related to the 2010
Restructurings were recorded in periods other than those in which the 2010 Restructurings were implemented as
a result of sublease activities for certain of our buildings in South San Francisco, California, changes in
assumptions regarding anticipated sublease activities, the effect of the passage of time on our discounted cash
flow computations, previously planned employee terminations, and sales of excess equipment and other assets.

For the years ended December 31, 2015, 2014 and 2013, we recorded restructuring charges of $0.8 million,

$1.5 million and $1.2 million, respectively, for the 2010 Restructurings. The charges for the periods presented
were related to the effect of the passage of time on our discounted cash flow computations for the exit, in prior
periods, of certain of our South San Francisco buildings and changes in estimates regarding future subleases.
During the year ended December 31, 2014, those charges were partially offset by $0.1 million in recoveries
recorded in connection with the sale of excess equipment and other assets.

99

The total outstanding restructuring liability related to the 2010 Restructurings is included in the current and

long-term portion of restructuring liability on the accompanying Consolidated Balance Sheets. The changes of
these liabilities, all of which related to facility charges during the year ended December 31, 2015, are
summarized in the following table (in thousands):

Restructuring liability as of December 31, 2012 . . . . . . . . . . . . . . . . . .
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restructuring liability as of December 31, 2013 . . . . . . . . . . . . . . . . . .
Restructuring charge (recovery)
. . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restructuring liability as of December 31, 2014 . . . . . . . . . . . . . . . . . .
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Facility
Charges

$19,202
662
—
(6,331)
(73)

13,460
1,626
—
(5,644)
12

9,454
757
(6,449)
325

Other

Total

$ 20
569
95
(434)
(238)

12
(117)
199
(8)
(86)

—
—
—
—

$19,222
1,231
95
(6,765)
(311)

13,472
1,509
199
(5,652)
(74)

9,454
757
(6,449)
325

Restructuring liability as of December 31, 2015 . . . . . . . . . . . . . . . . . .

$ 4,087

$ —

$ 4,087

We expect to pay the combined accrued facility charges for both the 2014 Restructuring and the 2010

Restructurings of $4.6 million, net of $6.1 million to be received from our subtenants, through the end of our
lease terms of the buildings, the last of which ends in 2017. We expect to incur additional restructuring charges
for both restructuring plans of approximately $0.3 million relating to the effect of the passage of time on our
discounted cash flow computations used to determine the accrued facilities charges through the end of the
building lease terms.

NOTE 4. CASH AND INVESTMENTS

The following table summarizes cash and cash equivalents, investments, and restricted cash and investments

by balance sheet line item as of December 31, 2015 and 2014 (in thousands):

December 31, 2015

Gross
Unrealized
Gains

Gross
Unrealized
Losses

$—
5
2

—

$

7

$ —

(63)
(67)
—

Fair Value

$141,634
25,426
83,600
2,650

$(130)

$253,310

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . .
Long-term restricted cash and investments . . . . . . .

Amortized
Cost

$141,634
25,484
83,665
2,650

Total cash and investments . . . . . . . . . . . . . . .

$253,433

100

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . .
Short-term restricted cash and investments . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . .
Long-term restricted cash and investments . . . . . . .

Amortized
Cost

$ 80,395
63,988
12,105
81,600
4,684

Total cash and investments . . . . . . . . . . . . . . .

$242,772

December 31, 2014

Gross
Unrealized
Gains

Gross
Unrealized
Losses

$—
37
107
1

—

$145

$ —
(135)
—
(22)
—

$(157)

Fair Value

$ 80,395
63,890
12,212
81,579
4,684

$242,760

Under our loan and security agreement with Silicon Valley Bank, we are required to maintain compensating

balances on deposit in one or more investment accounts with Silicon Valley Bank or one of its affiliates. The
total collateral balances as of December 31, 2015 and 2014 were $81.6 million and $82.0 million, respectively
and are reflected in our Consolidated Balance Sheets in Long-term investments. See “Note 7—Debt” for more
information regarding the collateral balance requirements under our Silicon Valley Bank loan and security
agreement.

All of our cash equivalents and investments are classified as available-for-sale. The following table
summarizes our cash equivalents and investments by security type as of December 31, 2015 and 2014. The
amounts presented exclude cash, but include investments classified as cash equivalents (in thousands):

December 31, 2015

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,000
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury and government sponsored enterprises . . . . . .
Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . . . .

$—
78,155 —
72,205
28,434
16

Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250,810

$

$ — $ 72,000
78,155
72,091
28,423
18

—
(118)
(12)
—

$(130) $250,687

4
1
2

7

December 31, 2014

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,376
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury and government sponsored enterprises . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$—
56,714 —
35
143,444
107
12,105
3
2,659

$ — $ 23,376
56,714
143,322
12,212
2,662

—
(157)
—
—

Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $238,298

$145

$(157) $238,286

There were no gains or losses on the sales of investments during the years ended December 31, 2015, 2014

and 2013.

All of our investments are subject to a quarterly impairment review. During the years ended December 31,
2015, 2014, and 2013 we did not record any other-than-temporary impairment charges on our available-for-sale
securities. As of December 31, 2015, there were 62 investments in an unrealized loss position with gross
unrealized losses of $130 thousand and an aggregate fair value $109.5 million. We had a single investment with a

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gross unrealized loss of $3 thousand and an aggregate fair value of $1.4 million that has been in an unrealized
loss position for more than one year. Investments in an unrealized loss position are primarily comprised of
corporate bonds. The unrealized losses were not attributed to credit risk, but rather associated with the changes in
interest rates. Based on the scheduled maturities of our investments, we concluded that the unrealized losses in
our investment securities are not other-than-temporary, as it is more likely than not that we will hold these
investments for a period of time sufficient for a recovery of our cost basis.

The following summarizes the fair value of securities classified as available-for-sale by contractual maturity

as of December 31, 2015 (in thousands):

Mature within
One Year

After One Year
through Two
Years

Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury and government sponsored enterprises . . .

$ 72,000
78,155
49,483
22,427

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$222,065

$ —
—
22,608
5,996

$28,604

Fair Value

$ 72,000
78,155
72,091
28,423

$250,669

Cash and marketable equity securities are excluded from the table above. The classification of certain
compensating balances and restricted investments are dependent upon the term of the underlying restriction on
the asset and not the maturity date of the investment. Therefore, certain long-term investments and long-term
restricted cash and investments have contractual maturities within one year.

NOTE 5. INVENTORY

Inventory consists of the following (in thousands):

Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,037
2,251
583

$ 1,118
2,845
559

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: non-current portion included in Other long-term assets . . . . . . . . . . . . . . . .

3,871
(1,255)

4,522
(2,141)

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,616

$ 2,381

December 31,

2015

2014

We generally relieve inventory on a first-expiry, first-out basis. Write-downs related to expiring and excess

inventory are charged to cost of goods sold. Such write-downs were $1.2 million and $0.2 million for the years
ended December 31, 2015 and 2014, respectively. The non-current portion of inventory is recorded within Other
long-term assets on the accompanying Consolidated Balance Sheets and is comprised of a portion of the active
pharmaceutical ingredient that is included in raw materials and work in process inventories. There were no other
write-downs for obsolete inventory.

102

NOTE 6. PROPERTY AND EQUIPMENT

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

Laboratory equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2015

2014

$ 4,749
11,890
2,253
6,395
456

$ 13,677
14,840
3,701
16,364
120

25,743
(24,309)

48,702
(46,270)

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,434

$ 2,432

For the years ended December 31, 2015, 2014 and 2013, we recorded depreciation expense of $1.4 million,

$2.4 million and $3.1 million, respectively.

In 2014 and 2013, we recorded gross asset impairment charges in the amounts of $0.7 million and $0.1

million, respectively, in connection with the Restructurings. There were no such charges in 2015. The amount
recorded as a restructuring charge for asset impairment, as presented in “Note 3—Restructurings,” was net of the
gain on the sale of such assets. In 2015 and 2014, the gain on the sale of excess equipment was $1.0 million and
$0.6 million, respectively. There were no such gains in 2013. Cash proceeds on those sales were $1.3 million,
$0.3 million and $0.1 million during 2015, 2014 and 2013, respectively.

NOTE 7. DEBT

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

Convertible Senior Subordinated Notes due 2019 . . . . . . . . . . . . . . . . . . . . . .
Secured Convertible Notes due 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Silicon Valley Bank term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Silicon Valley Bank line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2015

2014

$198,708
102,727
80,000
—

381,435
—

$179,135
97,449
80,000
381

356,965
(97,830)

Long-term debt

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$381,435

$259,135

Convertible Senior Subordinated Notes due 2019

In August 2012, we issued and sold $287.5 million aggregate principal amount of the 4.25% Convertible
Senior Subordinated Notes due 2019, (the “2019 Notes”), for net proceeds of $277.7 million. The 2019 Notes
mature on August 15, 2019, unless earlier converted, redeemed or repurchased, and bear interest at a rate of
4.25% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning
February 15, 2013. Subject to certain terms and conditions, at any time on or after August 15, 2016, we may
redeem for cash all or a portion of the 2019 Notes. The redemption price will equal 100% of the principal amount
of the 2019 Notes to be redeemed plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
Upon the occurrence of certain circumstances, holders may convert their 2019 Notes prior to the close of

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business on the business day immediately preceding May 15, 2019. On or after May 15, 2019, until the close of
business on the second trading day immediately preceding August 15, 2019, holders may surrender their 2019
Notes for conversion at any time. Upon conversion, we will pay or deliver, as the case may be, cash, shares of
our common stock or a combination of cash and shares of our common stock, at our election. The initial
conversion rate of 188.2353 shares of common stock per $1,000 principal amount of the 2019 Notes is equivalent
to a conversion price of approximately $5.31 per share of common stock and is subject to adjustment in
connection with certain events. If a Fundamental Change, as defined in the indenture governing the 2019 Notes,
occurs, holders of the 2019 Notes may require us to purchase for cash all or any portion of their 2019 Notes at a
purchase price equal to 100% of the principal amount of the Notes to be purchased plus accrued and unpaid
interest, if any, to, but excluding, the Fundamental Change purchase date. In addition, if certain specified
bankruptcy and insolvency-related events of default occur, the principal of, and accrued and unpaid interest on,
all of the then outstanding notes will automatically become due and payable. If an event of default other than
certain specified bankruptcy and insolvency-related events of default occurs and is continuing, the Trustee of the
2019 Notes by notice to us or the holders of at least 25% in principal amount of the outstanding 2019 Notes by
notice to us and the Trustee, may declare the principal of, and accrued and unpaid interest on, all of the then
outstanding 2019 Notes to be due and payable.

In connection with the offering of the 2019 Notes, $36.5 million of the proceeds were deposited into an

escrow account which contained an amount of permitted securities sufficient to fund, when due, the total
aggregate amount of the first six scheduled semi-annual interest payments on the 2019 Notes. As of
December 31, 2015, we have used all of the remaining amount held in the escrow account to pay the required
semi-annual interest payments and therefore future semi-annual interest payments will be made from unrestricted
cash and investments.

The debt discount and debt issuance costs will be amortized as interest expense through August 2019. The

following is a summary of interest expense for the 2019 Notes (in thousands):

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stated coupon interest
Amortization of debt discount and debt issuance costs . . . . . . . . . . .

$12,218
19,573

$12,253
17,804

$12,219
16,201

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$31,791

$30,057

$28,420

Year Ended December 31,

2015

2014

2013

The balance of unamortized debt costs was $2.6 million and $3.3 million as of December 31, 2015 and

December 31, 2014, respectively, which, pursuant to the early adoption of ASU 2015-03, is recorded as a
reduction of the carrying amount of the 2019 Notes on the accompanying Consolidated Balance Sheets. See
“Note 1—Organization and Summary of Significant Accounting Policies” for more information regarding the
early adoption ASU 2015-03.

Secured Convertible Notes due June 2018

In June 2010, we entered into a note purchase agreement with Deerfield Private Design Fund, L.P. and
Deerfield Private Design International, L.P., (the “Original Deerfield Purchasers”), pursuant to which, on July 1,
2010, we sold to the Original Deerfield Purchasers an aggregate of $124.0 million principal amount of our
Secured Convertible Notes due July 1, 2015, which we refer to as the Original Deerfield Notes, for an aggregate
purchase price of $80.0 million, less closing fees and expenses of approximately $2.0 million. On January 22,
2014, the note purchase agreement was amended to provide us with an option to extend the maturity date of our
indebtedness under the note purchase agreement to July 1, 2018. On July 1, 2015, we made a $4.0 million
principal payment and then extended the maturity date of the Original Deerfield Notes from July 1, 2015 to
July 1, 2018. In connection with the extension, Deerfield Partners, L.P. and Deerfield International Master Fund,
L.P. (the “New Deerfield Purchasers”) acquired the $100.0 million principal amount of the Original Deerfield

104

Notes and we entered into the Restated Deerfield Notes with each of the New Deerfield Purchasers, representing
the $100.0 million principal amount. We refer to the Original Deerfield Purchasers and the New Deerfield
Purchasers collectively as Deerfield, and to the Original Deerfield Notes and Restated Deerfield Notes,
collectively as the Deerfield Notes.

As of December 31, 2015 and 2014, the outstanding principal balance on the Deerfield Notes was $103.8
million and $104.0 million, respectively, which, subject to certain limitations, is payable in cash or in stock at our
discretion. Beginning on July 2, 2015, the outstanding principal amount of the Deerfield Notes bears interest at
the rate of 7.5% per annum to be paid in cash, quarterly in arrears, and 7.5% per annum to be paid in kind,
quarterly in arrears, for a total interest rate of 15% per annum. Through July 1, 2015, the outstanding principal
amount of the Deerfield Notes bore interest in the annual amount of $6.0 million, payable quarterly in arrears.

On August 6, 2012, the parties amended the note purchase agreement to permit the issuance of the 2019
Notes and modify certain optional prepayment rights. The amendment became effective upon the issuance of the
2019 Notes and the payment to the Original Deerfield Purchasers of a $1.5 million consent fee. On August 1,
2013, the parties further amended the note purchase agreement to clarify certain of our other rights under the note
purchase agreement. On January 22, 2014, the note purchase agreement was amended to provide us with an
option to extend the maturity date of our indebtedness under the note purchase agreement to July 1, 2018, which
extension was completed on July 1, 2015. On July 10, 2014, the parties further amended the note purchase
agreement to clarify certain provisions of the note purchase agreement.

The following is a summary of interest expense for the Deerfield Notes (in thousands):

Stated coupon interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount, debt issuance costs and interest paid
in kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2015

2014

2013

$ 6,792

$ 6,000

$ 6,000

9,278

11,731

10,089

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$16,070

$17,731

$16,089

The balance of unamortized debt issuance costs was $0.7 million and $1.4 million as of December 31, 2015

and December 31, 2014, respectively, which, pursuant to the early adoption of ASU 2015-03, is recorded as a
reduction of the carrying amount of the 2019 Notes on the accompanying Consolidated Balance Sheets. See
“Note 1—Organization and Summary of Significant Accounting Policies” for more information regarding the
early adoption ASU 2015-03. Prior to our exercise of the option to extend the maturity date to July 1, 2018, the
unamortized discount, fees and costs were amortized into interest expense as a yield adjustment through July 1,
2015. Effective March 4, 2015, upon notification of our election to require the New Deerfield Purchasers to
acquire the Deerfield Notes and extend the maturity date to July 1, 2018, we began to amortize the remaining
unamortized discount, fees and costs through July 1, 2018 using the effective interest method and an effective
interest rate of 15.26%.

In each of January 2014 and 2013, we made mandatory prepayments of $10.0 million on the Deerfield
Notes. We were required to make an additional mandatory prepayment on the Deerfield Notes in January 2015
equal to 15% of certain revenues from collaborative arrangements, which we refer to as Development/
Commercialization Revenue, received during the prior fiscal year, subject to a maximum prepayment amount of
$27.5 million. We received no such revenues during the fiscal year ended December 31, 2014 and therefore made
no minimum prepayment in January 2015. As a result of the extension of the maturity date of the Deerfield Notes
to July 1, 2018, our obligation to make annual mandatory prepayments equal to 15% of Development/
Commercialization Revenue received by us during the prior fiscal year will continue to apply in each of 2016,
2017 and 2018. However, we will only be obligated to make any such annual mandatory prepayment if the New
Deerfield Purchasers provide notice to us of their election to receive the prepayment. Pursuant to this

105

requirement, we notified Deerfield that they were entitled to a mandatory prepayment of $450,000 as a result of
to the $3.0 million milestone payment received from Merck during 2015; the New Deerfield Purchasers elected
not to receive a mandatory prepayment in January 2016. Mandatory prepayments relating to Development/
Commercialization Revenue will continue to be subject to a maximum annual prepayment amount of $27.5
million. The definition of “Development/Commercialization Revenue” expressly excludes any sale or
distribution of drug or pharmaceutical products in the ordinary course of our business, and any proceeds from
any Intellectual Property Sales (as further described below), but would include our share of the net profits from
the commercialization of cobimetinib in the U.S. and the receipt of royalties from cobimetinib sales outside the
U.S., if any.

Under the note purchase agreement, we may at our sole discretion, prepay all of the principal amount of the
Deerfield Notes at a prepayment price equal to 105% of the outstanding principal amount of the Deerfield Notes,
plus all accrued and unpaid interest through the date of such prepayment, plus, if prior to July 1, 2017, all interest
that would have accrued on the principal amount of the Deerfield Notes between the date of such prepayment and
July 1, 2017, if the outstanding principal amount of the Deerfield Notes as of such prepayment date had remained
outstanding through July 1, 2017, plus all other accrued and unpaid obligations, collectively referred to as the
Prepayment Price.

In lieu of making any portion of the Prepayment Price or mandatory prepayment in cash, subject to certain
limitations (including a cap on the number of shares issuable under the note purchase agreement), we have the
right to convert all or a portion of the principal amount of the Deerfield Notes into, or satisfy all or any portion of
the Prepayment Price amounts or mandatory prepayment amounts with shares of our common stock.
Additionally, in lieu of making any payment of accrued and unpaid interest in respect of the Deerfield Notes in
cash, subject to certain limitations, we may elect to satisfy any such payment with shares of our common stock.
The number of shares of our common stock issuable upon conversion or in settlement of principal and interest
obligations will be based upon the discounted trading price of our common stock over a specified trading period.
Upon certain changes of control of Exelixis, a sale or transfer of assets in one transaction or a series of related
transactions for a purchase price of more than (i) $400 million or (ii) 50% of our market capitalization, Deerfield
may require us to prepay the Deerfield Notes at the Prepayment Price. Upon an event of default, as defined in the
Deerfield Notes, Deerfield may declare all or a portion of the Prepayment Price to be immediately due and
payable.

We are required to notify the applicable Deerfield entities of certain sales, assignments, grants of exclusive
licenses or other transfers of our intellectual property pursuant to which we transfer all or substantially all of our
legal or economic interests, defined as an Intellectual Property Sale, and the Deerfield entities may elect to
require us to prepay the principal amount of the Deerfield Notes in an amount equal to (i) 100% of the cash
proceeds of any Intellectual Property Sale relating to cabozantinib and (ii) 50% of the cash proceeds of any other
Intellectual Property Sale.

In connection with the January 2014 amendment to the note purchase agreement, on January 22, 2014, we
issued to the New Deerfield Purchasers two-year warrants, which we refer to as the 2014 Warrants, to purchase
an aggregate of 1,000,000 shares of our common stock at an exercise price of $9.70 per share. Subsequent to our
election to extend the maturity date of the Deerfield Notes, the exercise price of the 2014 Warrants was reset to
$3.445 per share and the term was extended by two years to January 22, 2018. See “Note 8—Common Stock and
Warrants” for more information on the valuation of the 2014 Warrants.

In connection with the note purchase agreement, we also entered into a security agreement in favor of
Deerfield which provides that our obligations under the Deerfield Notes will be secured by substantially all of
our assets except intellectual property. On August 1, 2013, the security agreement was amended to limit the
extent to which voting equity interests in any of our foreign subsidiaries shall be secured assets.

The note purchase agreement as amended and the security agreement include customary representations and

warranties and covenants made by us, including restrictions on the incurrence of additional indebtedness.

106

Silicon Valley Bank Loan and Security Agreement

On May 22, 2002, we entered into a loan and security agreement with Silicon Valley Bank for an equipment

line of credit. On December 21, 2004, December 21, 2006 and December 21, 2007, we amended the loan and
security agreement to provide for additional equipment lines of credit and on June 2, 2010, we further amended
the loan and security agreement to provide for a new seven-year term loan in the amount of $80.0 million. As of
both December 31, 2015 and 2014, the outstanding principal balance due under the term loan was $80.0 million.
As of December 31, 2015 and 2014, the outstanding principal balance under the lines of credit was $0 and $0.4
million, respectively. The principal amount outstanding under the term loan accrues interest at 1.0% per annum,
which interest is due and payable monthly. We are required to repay the term loan in one balloon principal
payment, representing 100% of the principal balance and accrued and unpaid interest, on May 31, 2017. We have
the option to prepay all, but not less than all, of the amounts advanced under the term loan, provided that we pay
all unpaid accrued interest thereon that is due through the date of such prepayment and the interest on the entire
principal balance of the term loan that would otherwise have been paid after such prepayment date until the
maturity date of the term loan. In accordance with the terms of the loan and security agreement, we are required
to maintain an amount equal to at least 100%, but not to exceed 107%, of the outstanding principal balance of the
term loan and all equipment lines of credit under the loan and security agreement on deposit in one or more
investment accounts with Silicon Valley Bank or one of its affiliates as support for our obligations under the loan
and security agreement (although we are entitled to retain income earned or the amounts maintained in such
accounts). Any amounts outstanding under the term loan during the continuance of an event of default under the
loan and security agreement will, at the election of Silicon Valley Bank, bear interest at a per annum rate equal to
6.0%. If one or more events of default under the loan and security agreement occurs and continues beyond any
applicable cure period, Silicon Valley Bank may declare all or part of the obligations under the loan and security
agreement to be immediately due and payable and stop advancing money or extending credit to us under the loan
and security agreement.

The total collateral balance as of December 31, 2015 and 2014 was $81.6 million and $82.0 million,

respectively, and is reflected in our Consolidated Balance Sheet in Long-term Investments as the amounts are not
restricted as to withdrawal. However, withdrawal of some or all of this amount such that the collateral balance
falls below the required level could result in Silicon Valley Bank declaring the obligation immediately due and
payable.

Future Principal Payments

Aggregate contractual future principal payments of our debt were as follows as of December 31, 2015 (in

thousands):

Year Ending December 31, (1)

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —
80,000
124,972
287,500
—

(1) The actual timing of payments made may differ materially.

107

NOTE 8. COMMON STOCK AND WARRANTS

Sale of Shares of Common Stock

In July 2015, we completed a registered underwritten public offering of 28,750,000 shares of our common
stock, including 3,750,000 shares issued under the underwriters’ 30-day option to buy shares, at a price of $5.40
per share pursuant to a shelf registration statement previously filed with the Securities and Exchange
Commission (“SEC”), which was filed and automatically became effective on July 1, 2015. We received $145.6
million in net proceeds from the offering after deducting the underwriting discount and other estimated expenses.
The shares of common stock were listed on The NASDAQ Global Select Market. All of the shares in the offering
were sold by the Company.

The Underwriting Agreement contains customary representations, warranties and agreements by the
Company, indemnification obligations of the Company and the Underwriter, including for liabilities under the
Securities Act of 1933, as amended, other obligations of the parties and termination provisions. The
representations, warranties and covenants contained in the Underwriting Agreement were made only for purposes
of such agreement and as of specific dates, were solely for the benefit of the parties to such agreement and may
be subject to limitations agreed upon by the contracting parties.

In January 2014, we completed a registered underwritten public offering of 10,000,000 shares of our
common stock at a price of $8.00 per share pursuant to a shelf registration statement previously filed with the
SEC, which the SEC declared effective on June 8, 2012. We received $75.6 million in net proceeds from the
offering after deducting the underwriting discount and related offering expenses.

Conversion of Debt into Common Stock

The 2019 Notes and the Deerfield Notes are, under certain circumstances, convertible into shares of our
common stock. See “Note 7—Debt” for more information regarding the conversion features of these instruments.

2014 Warrants

In connection with an amendment to the note purchase agreement for the Original Deerfield Notes, in

January 2014 we issued to the New Deerfield Purchasers two-year warrants to purchase an aggregate of
1,000,000 shares of our common stock at an exercise price of $9.70 per share. Subsequent to our March 2015
notification of our election to extend the maturity date of the Deerfield Notes, the exercise price of the 2014
Warrants was reset to $3.445 per share and the term was extended by two years to January 22, 2018.

The 2014 Warrants contain certain limitations that prevent the holder from acquiring shares upon exercise
that would result in the number of shares beneficially owned by the holder to exceed 9.98% of the total number
of shares of our common stock then issued and outstanding. In addition, upon certain changes in control of
Exelixis, to the extent the 2014 Warrants are not assumed by the acquiring entity, or upon certain defaults under
the 2014 Warrants, the holder has the right to net exercise the 2014 Warrants for shares of common stock, or be
paid an amount in cash in certain circumstances where the current holders of our common stock would also
receive cash, equal to the Black-Scholes Merton value of the 2014 Warrants.

In connection with the issuance of the 2014 Warrants, we entered into a registration rights agreement with
Deerfield, pursuant to which we filed a registration statement with the SEC covering the resale of the shares of
common stock issuable upon exercise of the 2014 Warrants.

Due to the potential increase in term and decrease of the exercise price, the 2014 Warrants were included in

Other long-term liabilities at their current estimated fair value, which was $1.5 million and $0.9 million as of
March 18, 2015 and December 31, 2014, respectively. We recorded an unrealized loss of $0.5 million and an
unrealized gain of $1.8 million on the 2014 Warrants during the years ended December 31, 2015 and 2014,
respectively, which is included in Interest income and other, net. Subsequent to our March 2015 notification of

108

our election to extend the maturity date of the Deerfield Notes, the terms of the 2014 Warrants became fixed as
of March 18, 2015 and the 2014 Warrants were transferred to Additional paid-in capital as of that date at their
then estimated fair value of $1.5 million. See “Note 9—Fair Value Measurements” for more information on the
valuation of the 2014 Warrants.

The warrants are participating securities. The warrant holders do not have a contractual obligation to share

in our losses.

NOTE 9. FAIR VALUE MEASUREMENTS

The following table sets forth the fair value of our financial assets and liabilities that were measured and
recorded on a recurring basis as of December 31, 2015 and 2014. We did not have any financial liabilities that
were measured and recorded on a recurring basis or Level 3 investments as of December 31, 2015. The amounts
presented exclude cash, but include investments classified as cash equivalents (in thousands):

December 31, 2015

Level 1

Level 2

Total

Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury and government sponsored enterprises . . . . . . . . . .
Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$72,000
—
—
—
18

$ —
78,155
72,091
28,423
—

$ 72,000
78,155
72,091
28,423
18

Total financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$72,018

$178,669

$250,687

December 31, 2014

Level 1

Level 2

Level 3

Total

Financial assets:

Money market funds . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper
. . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury and government sponsored

enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,376
—
—

$ —
56,714
143,322

—
—

12,212
2,662

$—
—
—

—
—

$ 23,376
56,714
143,322

12,212
2,662

Total financial assets . . . . . . . . . . . . . . . . . . .

$23,376

$214,910

$—

$238,286

Financial liabilities:

Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —

$ —

$921

$

921

The following is a reconciliation of changes in the fair value of warrants which are classified as Level 3 in

the fair value hierarchy (in thousands):

Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss at final re-measurement of warrants on March 18, 2015, included in Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

income and other, net

$

921

549

Transfer of warrants from Other long-term liabilities to Additional paid-in capital at their

estimated fair value upon warrant repricing on March 18, 2015 . . . . . . . . . . . . . . . . . . . . .

(1,470)

Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —

109

The estimated fair value of our financial instruments that are carried at amortized cost for which it is

practicable to determine a fair value was as follows (in thousands):

2019 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Silicon Valley Bank Term Loan . . . . . . . . . . . . . . .
Silicon Valley Bank Line of Credit . . . . . . . . . . . . .

December 31, 2015

December 31, 2014

Carrying
Amount

$198,708
$ 80,000
$ —

Fair Value

$336,260
$ 79,815
$ —

Carrying
Amount

$179,135
$ 80,000
381
$

Fair Value

$156,889
$ 79,943
381
$

As of December 31, 2015, the carrying value and estimated fair value of our Deerfield Notes was $102.7
million and $101.1 million, respectively. As of December 31, 2014, we had determined that it was not practicable
to determine the fair value of the Deerfield Notes due to the unique structure of the instrument, including the
Extension Option, which was exercised in March 2015, and was financed by entities affiliated with Deerfield.

The carrying amounts of cash, trade and other receivables, accounts payable, accrued clinical trial liabilities,

accrued compensation and benefits, and other accrued liabilities approximate their fair values and are excluded
from the tables above.

The following methods and assumptions were used to estimate the fair value of each class of financial

instrument for which it is practicable to estimate a value:

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

• The 2019 Notes are valued using a third-party pricing model that is based in part on average trading
prices, which is a Level 2 input. The 2019 Notes are not marked-to-market and are shown at their
initial fair value less the unamortized discount; the portion of the value allocated to the conversion
option is included in Stockholders’ deficit on the accompanying Consolidated Balance Sheets.

• We estimate the fair value of our other debt instruments, where possible, using the net present value of
the payments. For the Silicon Valley Bank term loan and line of credit, we use an interest rate that is
consistent with money-market rates that would have been earned on our non-interest-bearing
compensating balances as our discount rate, which is a Level 2 input. For the Deerfield Notes, we used
a discount rate of 17%, which we estimate as our current borrowing rate for similar debt as of
December 31, 2015, which is a Level 3 input.

• The 2014 Warrants were valued using a Monte Carlo simulation model until December 31, 2014 and

the Black-Scholes Merton option pricing model on March 18, 2015. The expected life was based on the
contractual terms of the 2014 Warrants, and in certain simulations, assumed the two year extension that
would result from our exercise of the Extension Option; as of and subsequent to September 30, 2014,
we estimated that it was probable that we would exercise this two-year extension. We considered
implied volatility as well as our historical volatility in developing our estimate of expected volatility.
The fair value of the 2014 Warrants was estimated using the following assumptions, which, except for
risk-free interest rate, are Level 3 inputs (dollars in thousands):

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.87%
— %
95%

1.07%
— %
96%

2.8 years

3.1 years

March 18,
2015

December 31,
2014

110

NOTE 10. EMPLOYEE BENEFIT PLANS

Equity Incentive Plans

We have several equity incentive plans under which we have granted incentive stock options, non-qualified

stock options and RSUs to employees, directors and consultants. The Board of Directors or a designated
Committee of the Board is responsible for administration of our employee equity incentive plans and determines
the term, exercise price and vesting terms of each option. Prior to May 2011, options issued to our employees had
a four-year vesting term, an exercise price equal to the fair market value on the date of grant, and a ten year life
from the date of grant (6.2 years for options issued in exchange for options cancelled under our 2009 option
exchange program). Stock options issued after May 2011 have a four-year vesting term, an exercise price equal
to the fair market value on the date of grant, and a seven year life from the date of grant. RSUs granted to our
employees vest over a four year term; RSUs issued after September 29, 2011 vest annually; the remaining
unvested portion of RSUs issued prior to September 29, 2011 vested quarterly.

In December 2005, our Board of Directors adopted a Change in Control and Severance Benefit Plan for

executives and certain non-executives. Eligible Change in Control and Severance Benefit Plan participants
include our employees with the title of vice president and above. If a participant’s employment is terminated
without cause during a period commencing one month before and ending thirteen months following a change in
control, as defined in the plan document, then the Change in Control and Severance Benefit Plan participant is
entitled to have the vesting of all of such participant’s stock options accelerated with the exercise period being
extended to no more than one year.

Employee Stock Purchase Plan

In January 2000, we adopted the 2000 Employee Stock Purchase Plan (the “ESPP”). The ESPP allows for

qualified employees (as defined in the ESPP) to purchase shares of our common stock at a price equal to the
lower of 85% of the closing price at the beginning of the offering period or 85% of the closing price at the end of
each six month purchase period. Compensation expense related to our ESPP was $0.4 million, $0.8 million, and
$0.6 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, we
had 1,046,959 shares available for issuance under our ESPP. We issued 324,315 shares, 669,565 shares, and
345,828 shares of common stock during the years ended December 31, 2015, 2014 and 2013, respectively,
pursuant to the ESPP at an average price per share of $1.75, $2.14 and $4.13, respectively.

Stock-Based Compensation

We recorded and allocated employee stock-based compensation expense for our equity incentive plans and

our ESPP as follows (in thousands):

Research and development expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring-related stock compensation expense (recovery) . . . . .

$11,691
10,286
—

$ 3,245
6,783
(22)

$ 6,021
5,948
49

Total employee stock-based compensation expense . . . . . . . . .

$21,977

$10,006

$12,018

Year Ended December 31,

2015

2014

2013

We use the Black-Scholes Merton option pricing model to value our stock options. The weighted average

grant-date fair value of our stock options and ESPP purchases was as follows:

Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ESPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2.55
$1.20

$1.46
$1.28

$2.97
$1.64

2015

2014

2013

111

The fair value of employee stock option awards and ESPP purchases was estimated using the following

assumptions:

Stock Options

2015

2014

2013

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.22%
— %
93%

1.80%
— %
85%

1.51%
— %
61%

4.5 years

5.5 years

5.6 years

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2015

0.15%
— %
98%

ESPP

2014

0.06%
— %
69%

2013

0.11%
— %
66%

6 months

6 months

6 months

The expected life computation is based on historical exercise patterns and post-vesting termination behavior.

We considered implied volatility as well as our historical volatility in developing our estimate of expected
volatility.

A summary of all option activity was as follows for the periods presented (dollars in thousands, except per

share amounts):

Options outstanding at December 31, 2014 . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares

27,811,992
8,894,800
(2,340,963)
(924,890)
(6,015,085)

Options outstanding at December 31, 2015 . .

27,425,854

Exercisable at December 31, 2015 . . . . . . . . .

15,666,177

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

$5.00
$3.78
$4.66
$3.67
$7.12

$4.22

$4.68

5.09 years

$51,501

4.38 years

$25,532

At December 31, 2015, a total of 8,041,842 shares were available for grant under our stock option plans.

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between

our closing stock price on the last trading day of fiscal 2015 and the exercise prices, multiplied by the number of
in-the-money options) that would have been received by the option holders had all option holders exercised their
options on December 31, 2015. The total intrinsic value of options exercised was $2.9 million during the year
ended December 31, 2015 and nominal in 2014 and 2013. The total estimated fair value of employee options
vested and recorded as expense in 2015, 2014 and 2013 was $18.9 million, $8.6 million and $7.4 million,
respectively.

On July 20, 2015, as a result of positive top-line results from the primary analysis of METEOR, the

Compensation Committee of the Board of Directors of Exelixis convened to determine we had met certain
performance objectives for performance-based stock options granted to employees in 2013, 2014 and 2015. As a
result of this determination, 6,982,613 performance-based stock options vested on July 20, 2015. Previously, we
had not considered achievement of those performance objectives to be probable and therefore, we recorded $9.9
million in employee stock-based compensation expense during 2015 related to those options.

112

We have an additional 5,934,052 outstanding unvested stock options as of December 31, 2015 which were

granted to employees in 2014 and 2015 and are subject to performance objectives tied to the achievement of
regulatory goals set by the Compensation Committee of our Board of Directors and will vest in part based on
achievement of such goals. As of December 31, 2015, we expect that achievement of the performance objectives
tied to 2,967,026 performance-based stock options with a fair value of $3.7 million is probable and have,
therefore, recorded $3.3 million of stock-based compensation expense in connection with such awards; the
remainder of the expense for these awards will be recognized on a straight-line basis through the anticipated
achievement date of the performance objectives. We have not included any stock-based compensation expense
for the remaining 2,967,026 stock options with performance objectives for which the achievement of the
performance goals is not considered probable; the grant date fair value of such awards outstanding was $3.7
million.

The following table summarizes information about stock options outstanding and exercisable at

December 31, 2015:

Options Outstanding

Options Outstanding and
Exercisable

Exercise Price Range

$1.46 - $1.87 . . . . . . . . . . . . . . . . . . . . . . . . . .
$1.90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2.57 - $4.88 . . . . . . . . . . . . . . . . . . . . . . . . . .
$5.01 - $5.51 . . . . . . . . . . . . . . . . . . . . . . . . . .
$5.55 - $6.02 . . . . . . . . . . . . . . . . . . . . . . . . . .
$6.21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6.25 - $11.66 . . . . . . . . . . . . . . . . . . . . . . . . .

Number

7,997,474
3,738,000
2,772,796
4,043,479
2,600,943
2,822,900
3,450,262

5.78 years
6.07 years
5.27 years
4.02 years
4.70 years
6.69 years
2.53 years

27,425,854

5.09 years

Weighted Average
Remaining
Contractual Life

Weighted
Average
Exercise
Price

Number
Exercisable

3,857,469
1,826,502
1,681,199
3,186,063
1,890,661
—
3,224,283

15,666,177

Weighted
Average
Exercise
Price

$1.70
$1.90
$3.98
$5.44
$5.70

$8.82

$4.68

$1.70
$1.90
$3.80
$5.44
$5.73
$6.21
$8.71

$4.22

As of December 31, 2015, $19.5 million of total unrecognized compensation expense related to stock

options is expected to be recognized over a weighted-average period of 2.56 years.

Cash received from option exercises and purchases under the ESPP in 2015, 2014 and 2013 was $11.5

million, $1.6 million and $1.5 million, respectively.

A summary of all RSU activity was as follows for all periods presented (dollars in thousands, except per

share amounts):

Awards outstanding at December 31, 2014 . . .
Awarded . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and released . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares

961,469
838,535
(672,951)
(124,865)

Awards outstanding at December 31, 2015 . . . 1,002,188

Weighted Average
Grant Date
Fair Value

Weighted Average
Remaining
Contractual Term

Aggregate
Intrinsic
Value

$3.82
$5.01
$5.62
$5.32

$5.16

2.50 years

$5,652

As of December 31, 2015, $3.4 million of total unrecognized compensation expense related to employee

RSUs was expected to be recognized over a weighted-average period of 2.50 years.

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401(k) Retirement Plan

We sponsor a 401(k) Retirement Plan (the “401(k) Plan”) whereby eligible employees may elect to
contribute up to the lesser of 50% of their annual compensation or the statutorily prescribed annual limit
allowable under Internal Revenue Service regulations. The 401(k) Plan permits us to make matching
contributions on behalf of all participants. We matched 100% of the first 3% of participant contributions into the
401(k) Plan in the form of our common stock. We recorded expense of $0.4 million, $1.1 million, and $0.8
million related to the stock match for the years ended December 31, 2015, 2014 and 2013, respectively. As of
December 31, 2015, we had 450,042 shares available for issuance under our 401(k) Plan.

NOTE 11. INCOME TAXES

The income tax (benefit) provision is based on the following loss before income taxes (in thousands):

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(158,839)
(10,843)

$(237,780)
(30,944)

$(236,076)
(8,780)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(169,682)

$(268,724)

$(244,856)

Year Ended December 31,

2015

2014

2013

Income tax expense (benefit) consists of the following for the periods shown below (in thousands):

Year Ended December 31,

2015

2014

2013

Current:

Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$—
55

$ —
(182)

$ —
12

Total current tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

55

(182)

12

Deferred:

Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
—

—

—
—

—

(106)
(2)

(108)

Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . .

$ 55

$(182)

$ (96)

The 2015 income tax provision of $0.1 million relates to state minimum and franchise tax expenses as well
as true ups related to prior year tax entries. The 2014 income tax benefit of $0.2 million resulted from the lapse
of the applicable statute of limitations in California for the 2009 tax year, offset by current year state income tax
expense. The 2013 income tax benefit of $0.1 million resulted from the exception to the general intra-period
allocation rules required by ASC 740-20-45-7, and is related to the income tax effect of unrealized gains on
available-for-sale investments included in other comprehensive income.

During 2013, Exelixis International (Bermuda) Ltd. (“Exelixis Bermuda”) acquired the existing and future

intellectual property rights to exploit cabozantinib in jurisdictions outside of the United States. The transfer of the
existing rights created a taxable gain in the U.S. and state jurisdictions. For tax purposes, that gain is primarily
offset by current fiscal year losses and the remainder through the utilization of an insignificant amount of net
operating loss carry-forwards for which there is a corresponding reduction to our valuation allowance. Because
this was an intercompany transaction, ASC 740-10-25-3(e) applies, however, there was no impact to tax expense
due to the full valuation allowance and therefore no deferred prepaid charge was recorded to the balance sheet.

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A reconciliation of income taxes at the statutory federal income tax rate to our income tax (benefit)

provision included in the Consolidated Statements of Operations is as follows (in thousands):

U.S. federal income tax benefit at statutory rate . . . . . . . . . . . . . .
Unutilized net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of intellectual property rights transfer . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2015

2014

2013

$(57,692)
54,139
3,308
195
55
—
—
50

$(91,366)
87,448
3,598
255
(182)
—
—

65

$(83,251)
(3,438)
3,380
393
10
(106)
82,858
58

Income tax (benefit) provision . . . . . . . . . . . . . . . . . . . . . . . .

$

55

$

(182)

$

(96)

Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carry-
forwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes.

Our deferred tax assets and liabilities consist of the following (in thousands):

December 31,

2015

2014

Deferred tax assets:

Net operating loss carry-forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit and charitable contribution carry-forwards . . . . . . . . . . . . . .
Amortization of deferred stock compensation – non-qualified . . . . . . .
Accruals and reserves not currently deductible . . . . . . . . . . . . . . . . . . .
Book over tax depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 464,504
64,350
14,615
7,775
1,752
—

$ 446,343
64,368
27,500
6,521
5,118
988

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

552,996
(523,574)

550,838
(511,171)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29,422

39,667

Deferred tax liabilities:

Unrealized gain on derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(497)
(28,925)

(29,422)

(704)
(38,963)

(39,667)

Net deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

—

$

—

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which

are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The
valuation allowance increased by $12.4 million, increased by $89.7 million and decreased by $16.8 million
during 2015, 2014 and 2013, respectively.

At December 31, 2015, we had federal net operating loss carry-forwards of approximately $1,323 million

which expire in the years 2019 through 2035, and federal business tax credits of approximately $75 million
which expire in the years 2020 through 2029. We also had state net operating loss carry-forwards of
approximately $692 million, which expire in the years 2016 through 2035, California research and development
tax credits of approximately $25 million which have no expiration. Included in the federal and state carry-

115

forwards is $18 million related to deductions from the exercise of stock options and the related tax benefit that
will result in an increase in additional paid-in capital if and when realized through a reduction of taxes paid in
cash.

Under the Internal Revenue Code and similar state provisions, certain substantial changes in our ownership

could result in an annual limitation on the amount of net operating loss and credit carry-forwards that can be
utilized in future years to offset future taxable income. The annual limitation may result in the expiration of net
operating losses and credit carry-forwards before utilization. We completed a Section 382 study through
December 31, 2015, and concluded that an ownership change, as defined under Section 382, had not occurred.

ASC Topic 740-10 clarifies the accounting for uncertainty in income taxes by prescribing the recognition
threshold a tax position is required to meet before being recognized in the financial statements. It also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and
transition. The following table summarizes the activity related to our unrecognized tax benefits (in thousands):

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) relating to prior year provision . . . . . . . . . . . . . .
Increase relating to current year provision . . . . . . . . . . . . . . . . . . . . .
Reductions based on the lapse of the applicable statutes of

Year Ended December 31,

2015

2014

2013

$58,215
21,696
8,727

$55,077
719
2,706

$47,298
(112)
7,891

limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

(287)

—

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$88,638

$58,215

$55,077

Included in the balance of unrecognized tax benefits as of December 31, 2013 was $0.1 million of tax
benefits that if recognized would affect the effective tax rate. There were no such unrecognized benefits as of
December 31, 2015 or 2014. All of our deferred tax assets are subject to a valuation allowance. As of
December 31, 2013 we had an accrued interest balance of $20 thousand related to tax contingencies. Interest
expense related to those tax contingencies was $4 thousand during the year ended December 31, 2013. There
were no such interest accruals or expenses during the years ended December 31, 2015 and 2014. There were no
penalties recognized or accrued during any of the periods presented. Any tax-related interest and penalties are
included in income tax (benefit) provision in the Consolidated Statements of Operations. We do not anticipate
that the amount of unrecognized tax benefits existing as of December 31, 2015, will significantly decrease over
the next 12 months.

We file U.S. and state income tax returns in jurisdictions with varying statues of limitations during which

such tax returns may be audited and adjusted by the relevant tax authorities. The 1998 through 2014 years
generally remain subject to examination by federal and most state tax authorities to the extent of net operating
losses and credits generated during these periods and are being utilized in the open tax periods.

It is our intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. As of
December 31, 2015, there were no undistributed foreign earnings of our only non-U.S. subsidiary, Exelixis
Bermuda.

116

NOTE 12. NET LOSS PER SHARE

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

per share amounts):

Numerator:

Year Ended December 31,

2015

2014

2013

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(169,737) $(268,542) $(244,760)

Denominator:

Shares used in computing basic and diluted net loss per share . . . . . . .
Net loss per share, basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

209,227

194,299

$

(0.81) $

(1.38) $

184,062
(1.33)

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

Convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding stock options, unvested RSUs and ESPP contributions . . . . . .
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

88,008
28,470
1,000

75,734 54,123
28,930 21,401
1,441
1,000

Total potentially dilutive shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,478 105,664 76,965

December 31,

2015

2014

2013

NOTE 13. COMMITMENTS

Leases

We lease office and research space under operating leases that expire at various dates through the year 2018.

Certain operating leases contain renewal provisions and require us to pay other expenses. As a result of the
Restructurings, we exited certain facilities in South San Francisco. Aggregate future minimum lease payments
under our operating leases are as follows (in thousands):

Year Ending December 31,

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating
Leases (1)

$14,236
8,474
3,007

$25,717

(1) Minimum payments have not been reduced by minimum sublease rentals of $6.1 million due in the future

under noncancelable subleases.

117

The following is a summary of aggregate future minimum lease payments under operating leases at

December 31, 2015, by operating lease agreements (in thousands):

Original
Term
(Expiration)

Renewal Options

Building Lease #1 and 2 . . . . . . . . . . . May 2017
July 2018
Building Lease #3 . . . . . . . . . . . . . . . .

2 additional periods of 5 years
1 additional period of 5 years

Total

. . . . . . . . . . . . . . . . . . . . . .

Future
Minimum
Lease
Payments

$12,732
12,985

$25,717

Rent expense under operating leases was $8.7 million, $10.3 million, and $9.1 million for the years ended
December 31, 2015, 2014 and 2013, respectively. Rent expense was recorded net of sublease rental incomes of
$5.2 million, $4.9 million and $4.1 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Letters of Credit and Restricted Cash

We entered into a standby letter of credit with a bank in July 2004, which is related to a building lease, with
a credit limit of $0.5 million at both December 31, 2015 and 2014. We entered into two standby letters of credit
with a bank in May 2007, which is related to our workers compensation insurance policy, for a combined credit
limit of $0.6 million and $0.7 million at December 31, 2015 and 2014, respectively. All three letters of credit are
fully collateralized by long-term restricted cash and investments. As of December 31, 2015, the full amount of
our three letters of credit was still available.

As part of a purchasing card program with a bank we initiated during 2007, we were required to provide
collateral in the form of a non-interest bearing certificate of deposit. The collateral at December 31, 2015 and
2014 was $1.5 million and $3.5 million, respectively. We recorded these amounts in the Consolidated Balance
Sheet as Long-term restricted cash and investments as the certificates of deposit were restricted as to withdrawal.

Indemnification Agreements

In connection with the sale of our plant trait business, we agreed to indemnify the purchaser and its affiliates

up to a specified amount if they incur damages due to any infringement or alleged infringement of certain
patents. We have certain collaboration licensing agreements that contain standard indemnification clauses. Such
clauses typically indemnify the customer or vendor for an adverse judgment in a lawsuit in the event of our
misuse or negligence. We consider the likelihood of an adverse judgment related to any of our indemnification
agreements to be remote. Furthermore, in the event of an adverse judgment, any losses under such an adverse
judgment may be substantially offset by applicable corporate insurance.

NOTE 14. CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject us to concentrations of credit risk are primarily trade and other

receivables and investments. Investments consist of money market funds, taxable commercial paper, corporate
bonds with high credit quality, U.S. Treasury and government sponsored enterprises, and municipal bonds. All
investments are maintained with financial institutions that management believes are creditworthy.

Trade and other receivables are unsecured and are concentrated in the pharmaceutical and biotechnology

industries. Accordingly, we may be exposed to credit risk generally associated with pharmaceutical and
biotechnology companies. We have incurred no bad debt expense since inception. As of December 31, 2015,
95% of our trade and other receivables are with the specialty pharmacy that sells COMETRIQ in the United
States and 5% are with our European distribution partner. Both of these customers pay promptly and within their
respective payment terms. All of our long-lived assets are located in the United States.

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We have operations primarily in the United States, while some of our collaboration partners have
headquarters outside of the United States and some of our clinical trials for cabozantinib are also conducted
outside of the United States. During the second quarter of 2013, we initiated a Named Patient Use program
through our distribution partner, Swedish Orphan Biovitrum (“Sobi”), to support the distribution and
commercialization of COMETRIQ for metastatic MTC primarily in the European Union and potentially other
countries. In March 2014, the European Commission approved cabozantinib for the treatment of adult patients
with progressive, unresectable locally advanced or metastatic MTC, also under the brand name COMETRIQ. In
June 2014, we began selling COMETRIQ to Sobi in preparation for commercial sales in certain countries in the
European Union. The following table shows the percentage of revenues earned in the United States and European
Union.

Year Ended December 31,

2015

2014

2013

Percentage of revenues earned in the United States . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues earned in the European Union (1) . . . . . . . . . . . . . . . .

91% 99% 97%
3%
1%
9%

(1) Net product revenues in the European Union for the year ended December 31, 2015 and 2014 included a
$0.1 million and $2.3 million reduction, respectively, to revenue for a project management fee payable to
our European distributor upon their achievement of a cumulative revenue goal.

We recorded a $0.1 million and $0.5 million gain relating to foreign exchange fluctuations for the year

ended December 31, 2015 and 2014, respectively. Such gains were nominal in 2013.

The following table sets forth the percentage of revenues recognized under our collaboration agreements

and product sales to the specialty pharmacy that represent 10% or more of total revenues:

Product sales:

Diplomat Specialty Pharmacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

83% 99% 45%

Collaboration agreement:

Bristol-Myers Squibb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — % — % 52%

Year Ended December 31,

2015

2014

2013

NOTE 15. SUBSEQUENT EVENT

On February 29, 2016, we entered into a collaboration and license agreement with Ipsen for the

commercialization and further development of cabozantinib. Pursuant to the terms of this agreement, Ipsen will
have exclusive commercialization rights for current and potential future cabozantinib indications outside of the
United States, Canada and Japan. The companies have agreed to collaborate on the development of cabozantinib
for current and potential future indications.

In consideration for the exclusive license and other rights contained in the agreement, Ipsen will pay us an

upfront payment of $200.0 million. We will be eligible to receive regulatory milestones, including a $60.0
million milestone payment upon approval of cabozantinib by the EMA in second-line RCC and milestone
payments of $10.0 million upon the filing and $40.0 million upon the approval of cabozantinib in second-line
HCC, as well as additional regulatory milestone payments for potential further indications. The agreement also
provides that we will be eligible to receive payments of up to $545.0 million associated with potential
commercial milestone payments, including two $10.0 million milestone payments upon the launch of the product
in the first two of the following countries: Germany, France, Italy, Spain and the United Kingdom. Exelixis will
also receive royalties on net sales of cabozantinib outside of the United States, Canada and Japan. We will
receive a 2% royalty on the initial $50 million of net sales, and 12% royalty on the next $100 million of net sales.
After this initial period, Exelixis will receive a tiered royalty of 22% to 26% on annual net sales. These tiers will

119

reset each calendar year. Exelixis is responsible for funding cabozantinib related development costs for existing
trials; development costs for potential future trials will be shared between the parties, with Ipsen to reimburse us
for 35% of such costs. Pursuant to the terms of the agreement, we will remain responsible for the manufacture
and supply of cabozantinib for all development and commercialization activities under the collaboration. As part
of the collaboration, we entered into a supply agreement which provides that through the end of the second
quarter of 2018, we will supply finished, labeled product to Ipsen for distribution in the territories outside of the
United States, Canada and Japan, and from the end of the second quarter of 2018 forward, we will supply
primary packaged bulk tablets to Ipsen.

In connection with the establishment of our collaboration with Ipsen, we intend to provide Sobi with notice
of termination and following a transition period, Ipsen will become responsible for the continued distribution and
commercialization of COMETRIQ for the approved MTC indication in territories currently supported by Sobi.

NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables summarize the unaudited quarterly financial data for the last two fiscal years (in

thousands, except per share data):

2015:

Revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per share, basic and diluted . . . .

2014:

Revenues . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per share, basic and diluted . . . .

December 31,

September 30,

June 30,

March 31,

Quarter Ended

$ 9,938
$ 8,915
$(31,600)
$(43,641)
(0.19)
$

$ 7,353
$ 6,669
$(46,208)
$(57,953)
(0.30)
$

$ 9,854
$ 8,434
$(35,781)
$(47,564)
(0.22)
$

$ 6,291
$ 5,718
$(51,574)
$(62,560)
(0.32)
$

$ 7,992
$ 7,306
$(31,280)
$(43,362)
(0.22)
$

$ 6,562
$ 6,085
$(61,688)
$(73,410)
(0.38)
$

$ 9,388
$ 8,622
$(22,760)
$(35,170)
(0.18)
$

$ 4,905
$ 4,596
$(64,988)
$(74,619)
(0.39)
$

On September 2, 2014, as a consequence of the failure of COMET-1, we initiated the 2014 Restructuring to

reduce our workforce. The aggregate reduction in headcount from the 2014 Restructuring was 143 employees.
The 2014 Restructuring, along with associated reductions in clinical trial costs related to COMET-1 and
COMET-2, resulted in a decrease in operating expenses and a corresponding decrease the loss from operations
and net loss. See “Note 2—Restructurings” for more information on the 2014 Restructuring.

120

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Based on the evaluation of our disclosure controls and

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

Limitations on the Effectiveness of Controls. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance
that all control issues, if any, within an organization have been detected. Accordingly, our disclosure controls and
procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure
control system are met and, as set forth above, our principal executive officer and principal financial officer have
concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure
controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure
control system were met.

Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for

establishing and maintaining adequate internal control over financial reporting. Our internal control over
financial reporting is a process designed under the supervision of our principal executive and principal financial
officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our
financial statements for external reporting purposes in accordance with U.S. generally accepted accounting
principles.

As of the end of our 2015 fiscal year, management conducted an assessment of the effectiveness of our

internal control over financial reporting based on the framework established in the original Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (COSO). Based on this assessment, management has determined that our internal control over
financial reporting as of January 1, 2016 was effective. There were no material weaknesses in internal control
over financial reporting identified by management.

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance

of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide
reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being
made only in accordance with authorizations of our management and directors; and provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could
have a material effect on our financial statements.

The independent registered public accounting firm Ernst & Young LLP has issued an audit report on our

internal control over financial reporting, which is included on the following page.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over

financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.

121

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Exelixis, Inc.

We have audited Exelixis, Inc.’s internal control over financial reporting as of January 1, 2016, based on

criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Exelixis, Inc.’s management
is responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal
control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, Exelixis, Inc. maintained, in all material respects, effective internal control over financial

reporting as of January 1, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States), the consolidated balance sheets of Exelixis, Inc. as of January 1, 2016 and January 2, 2015, and
the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash
flows for each of the three fiscal years in the period ended January 1, 2016, of Exelixis, Inc. and our report dated
February 29, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Redwood City, California
February 29, 2016

122

ITEM 9B. OTHER INFORMATION

On February 29, 2016, we entered into a collaboration and license agreement with Ipsen for the

commercialization and further development of cabozantinib. Pursuant to the terms of this agreement, Ipsen will
have exclusive commercialization rights for current and potential future cabozantinib indications outside of the
United States, Canada and Japan. The companies have agreed to collaborate on the development of cabozantinib
for current and potential future indications.

The parties’ efforts will be 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
will retain final decision-making authority with respect to cabozantinib’s ongoing development. The agreement
anticipates the transfer to Ipsen of sponsorship of our MAA for cabozantinib in RCC, currently on file with the
EMA. It also anticipates transfer of Marketing Authorization Holder status for COMETRIQ for the MTC
indication approved in the European Union to Ipsen and the transition of rights regarding COMETRIQ outside
the United States from Sobi, our current international partner for COMETRIQ, to Ipsen, in accordance with the
terms of our agreement with Sobi.

In consideration for the exclusive license and other rights contained in the agreement, Ipsen will pay us an

upfront payment of $200.0 million. We will be eligible to receive regulatory milestones, including a $60.0
million milestone payment upon approval of cabozantinib by the EMA in second-line RCC and milestone
payments of $10.0 million upon the filing and $40.0 million upon the approval of cabozantinib in second-line
HCC, as well as additional regulatory milestones payments for potential further indications. The agreement also
provides that we will be eligible to receive payments of up to $545.0 million associated with potential
commercial milestone payments, including two $10.0 million milestone payments upon the launch of the product
in the first two of the following countries: Germany, France, Italy, Spain and the United Kingdom. Exelixis will
also receive royalties on net sales of cabozantinib outside of the United States, Canada and Japan. We will
receive a 2% royalty on the initial $50 million of net sales, and 12% royalty on the next $100 million of net sales.
After this initial period, Exelixis will receive a tiered royalty of 22% to 26% on annual net sales. These tiers will
reset each calendar year. Exelixis is responsible for funding cabozantinib related development costs for existing
trials; development costs for potential future trials will be shared between the parties, with Ipsen to reimburse us
for 35% of such costs. Pursuant to the terms of the agreement, we will remain responsible for the manufacture
and supply of cabozantinib for all development and commercialization activities under the collaboration. As part
of the collaboration, we entered into a supply agreement which provides that through the end of the second
quarter of 2018, we will supply finished, labeled product to Ipsen for distribution in the territories outside of the
United States, Canada and Japan, and from the end of the second quarter of 2018 forward, we will supply
primary packaged bulk tablets to Ipsen.

Unless terminated earlier, the agreement has a term that continues, on a product-by-product and country-by-

country basis, until the latter of (i) the expiration of patent claims related to cabozantinib, (ii) the expiration of
regulatory exclusivity covering cabozantinib or (iii) ten years after the first commercial sale of cabozantinib,
other than COMETRIQ. The agreement may be terminated for cause by either party based on uncured material
breach by the other party, bankruptcy of the other party or for safety reasons. We may terminate the agreement if
Ipsen challenges or opposes any patent covered by the agreement. Ipsen may terminate the agreement if the FDA
or EMA orders or requires substantially all cabozantinib clinical trials to be terminated or if the EMA refuses to
approve our MAA for cabozantinib in advanced RCC in such region. Ipsen also has the right to terminate the
agreement on a region-by-region basis after the first commercial sale of cabozantinib in advanced RCC in the
given region. Upon termination by either party, all licenses granted by us to Ipsen will automatically terminate,
and, except in the event of a termination by Ipsen for our material breach, the licenses granted by Ipsen to us
shall survive such termination and shall automatically become worldwide, or, if Ipsen terminated only for a
particular region, then for the terminated region. Following termination by us for Ipsen’s material breach, or
termination by Ipsen without cause or because we undergo a change of control by a party engaged in a competing
program, Ipsen is prohibited from competing with us for a period of time.

123

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item relating to our directors and nominees, including information with
respect to our audit committee, audit committee financial experts and procedures by which stockholders may
recommend nominees to our board of directors, is incorporated by reference to the section entitled “Proposal 1 –
Election of Class II Directors” appearing in our Proxy Statement for our 2016 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission, or SEC, within 120 days after January 1, 2016, which we
refer to as our 2016 Proxy Statement. The information required by this item regarding our executive officers is
incorporated by reference to the section entitled “Executive Officers” appearing in our 2016 Proxy Statement.
The information required by this item regarding compliance with Section 16(a) of the Securities Exchange Act of
1934, as amended, is incorporated by reference to the section entitled “Section 16(a) Beneficial Ownership
Reporting Compliance” appearing in our 2016 Proxy Statement.

Code of Ethics

We have adopted a Corporate Code of Conduct that applies to all of our directors, officers and employees,

including our principal executive officer, principal financial officer and principal accounting officer. The
Corporate Code of Conduct is posted on our website at www.exelixis.com under the caption “Investors &
Media—Corporate Governance.”

We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or

waiver from, a provision of this Corporate Code of Conduct by posting such information on our website, at the
address and location specified above and, to the extent required by the listing standards of the NASDAQ Stock
Market, by filing a Current Report on Form 8-K with the SEC, disclosing such information.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the sections entitled “Compensation of

Executive Officers,” “Compensation of Directors,” “Compensation Committee Interlocks and Insider
Participation” and “Compensation Committee Report” appearing in our 2016 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

The information required by this item relating to security ownership of certain beneficial owners and
management is incorporated by reference to the section entitled “Security Ownership of Certain Beneficial
Owners and Management” appearing in our 2016 Proxy Statement.

124

Equity Compensation Plan Information

The following table provides certain information about our common stock that may be issued upon the
exercise of stock options and other rights under all of our existing equity compensation plans as of December 31,
2015, which consists of our 2000 Equity Incentive Plan, or the 2000 Plan, our 2000 Non-Employee Directors’
Stock Option Plan, or the Director Plan, our 2000 Employee Stock Purchase Plan, or the ESPP, our 2010
Inducement Award Plan, or the 2010 Plan, our 2011 Equity Incentive Plan, or the 2011 Plan, our 2014 Equity
Incentive Plan, or the 2014 Plan, and our 401(k) Retirement Plan, or the 401(k) Plan:

Plan Category

Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights

(a)

Equity compensation plans approved by

stockholders (2) . . . . . . . . . . . . . . . . . . . . . .

29,428,042

Equity compensation plans not approved by

stockholders (3) . . . . . . . . . . . . . . . . . . . . . .

—

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

29,428,042

Weighted-average
exercise price of
outstanding options,
warrants and rights (1)

Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))

(b)

$4.19

n/a

$4.19

(c)

9,088,801

450,042

9,538,843

(1) The weighted average exercise price does not take into account the shares subject to outstanding restricted

stock units, or RSUs, which have no exercise price.

(2) Represents shares of our common stock issuable pursuant to the 2000 Plan, the 2011 Plan, the Director Plan

and the ESPP.

(3) Represents shares of our common stock issuable pursuant to the 401(k) Plan. We sponsor a 401(k) Plan

whereby eligible employees may elect to contribute up to the lesser of 50% of their annual compensation or
the statutorily prescribed annual limit allowable under Internal Revenue Service regulations. The 401(k)
Plan permits us to make matching contributions on behalf of all participants. We match 100% of the first
3% of participant contributions into the 401(k) Plan in the form of our common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

The information required by this item is incorporated by reference to the sections entitled “Certain

Relationships and Related Party Transactions” and “Proposal 1—Election of Class II Directors” appearing in our
2016 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated by reference to the section entitled “Proposal 2—

Ratification of Selection of Independent Registered Public Accounting Firm” appearing in our 2016 Proxy
Statement.

125

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are being filed as part of this report:

(1) The following financial statements and the Report of Independent Registered Public Accounting

Firm are included in Part II, Item 8:

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity (Deficit)
. . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

80
81
82
83
84
85
86

(2) All financial statement schedules are omitted because the information is inapplicable or presented

in the Notes to Consolidated Financial Statements.

(3) See Index to Exhibits at the end of this Report, which is incorporated herein by reference. The

Exhibits listed in the accompanying Index to Exhibits are filed as part of this report.

126

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant

has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized

Date: February 29, 2016.

EXELIXIS, INC.

By:

/s/ MICHAEL M. MORRISSEY
Michael M. Morrissey, Ph.D.
President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below

constitutes and appoints MICHAEL M. MORRISSEY, CHRISTOPHER SENNER and JEFFREY J.
HESSEKIEL and each or any one of them, his or her true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this report on Form 10-K, and to file
the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed by the

following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures

Title

Date

/s/ MICHAEL M. MORRISSEY
Michael M. Morrissey, Ph.D.

/s/ CHRISTOPHER SENNER

Christopher Senner

/s/ STELIOS PAPADOPOULOS
Stelios Papadopoulos, Ph.D.

/s/ CHARLES COHEN
Charles Cohen, Ph.D.

/s/ CARL B. FELDBAUM
Carl B. Feldbaum, Esq.

/s/ ALAN M. GARBER

Alan M. Garber, M.D., Ph.D.

Director, President and

February 29, 2016

Chief Executive Officer
(Principal Executive Officer)

Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)

February 29, 2016

Chairman of the Board

February 29, 2016

Director

Director

Director

127

February 29, 2016

February 29, 2016

February 29, 2016

Signatures

Title

Date

/s/ VINCENT T. MARCHESI

Director

February 29, 2016

Vincent T. Marchesi, M.D., Ph.D.

/s/ GEORGE POSTE
George Poste, D.V.M., Ph.D.

/s/ GEORGE A. SCANGOS
George A. Scangos, Ph.D.

/s/ LANCE WILLSEY
Lance Willsey, M.D.

/s/

JACK L. WYSZOMIERSKI
Jack L. Wyszomierski

Director

Director

Director

Director

February 29, 2016

February 29, 2016

February 29, 2016

February 29, 2016

128

INDEX TO EXHIBITS

Exhibit
Number

3.1

3.2

3.3

3.4

3.5

3.6

4.1

4.2

4.3

4.4

4.5

4.6

Exhibit Description

Amended and Restated Certificate
of Incorporation of Exelixis, Inc.

Certificate of Amendment of
Amended and Restated Certificate
of Incorporation of Exelixis, Inc.

Certificate of Amendment of
Amended and Restated Certificate
of Incorporation of Exelixis, Inc.

Certificate of Ownership and
Merger Merging X-Ceptor
Therapeutics, Inc. with and into
Exelixis, Inc.

Certificate of Change of Registered
Agent and/or Registered Office of
Exelixis, Inc.

Amended and Restated Bylaws of
Exelixis, Inc.

Specimen Common Stock
Certificate.

Amended and Restated Secured
Convertible Note dated July 1,
2015 in favor of Deerfield Partners,
L.P.

Amended and Restated Secured
Convertible Note dated July 1,
2015 in favor of Deerfield
International Master Fund, L.P.

Registration Rights Agreement
dated January 22, 2014 by and
among Exelixis, Inc., Deerfield
Partners, L.P. and Deerfield
International Master Fund, L.P.

Form of Warrant to Purchase
Common Stock of Exelixis, Inc.
issued to OTA LLC

Indenture dated August 14, 2012
by and between Exelixis, Inc. and
Wells Fargo Bank, National
Association

Incorporation by Reference

Form

10-K

File Number

000-30235

10-K

000-30235

Filed
Herewith

Exhibit/
Appendix
Reference

3.1

3.2

Filing Date

3/10/2010

3/10/2010

8-K

000-30235

3.1

5/25/2012

8-K

000-30235

3.1

10/15/2014

8-K

000-30255

3.2

10/15/2014

8-K

000-30235

S-1,
as amended

333-96335

10-Q

000-30235

3.1

4.1

4.2

12/5/2011

4/7/2000

8/11/2015

10-Q

000-30235

4.3

8/11/2015

8-K

000-30235

4.2

1/22/2014

10-Q

000-30235

4.5

11/10/2015

8-K

000-30235

4.1

8/14/2012

129

Exhibit
Number

4.7

Exhibit Description

First Supplemental Indenture dated
August 14, 2012 to Indenture dated
August 14, 2012 by and between
Exelixis, Inc. and Wells Fargo
Bank, National Association

Incorporation by Reference

Form

8-K

File Number

000-30235

Exhibit/
Appendix
Reference

Filing Date

Filed
Herewith

4.2

8/14/2012

4.8

Form of 4.25% Convertible Senior
Subordinated Note due 2019

8-K

000-30235

4.2
(Exhibit A)

8/14/2012

10.1†

Form of Indemnity Agreement.

10.2†

10.3†

10.4†

10.5†

10.6†

10.7†

10.8†

10.9†

10.10†

10.11†

10.12†

10.13†

S-1,
as amended

333-96335

10.1

3/17/2000

10-Q

10-Q

000-30235

000-30235

10.1

10.2

5/3/2007

11/8/2004

8-K

000-30235

10.1

12/15/2004

10-K

000-30235

10.6

3/10/2010

10-K

000-30235

10.6

2/20/2014

10-K

000-30235

10.7

2/22/2011

2000 Equity Incentive Plan.

Form of Stock Option Agreement
under the 2000 Equity Incentive
Plan (early exercise permissible).

Form of Stock Option Agreement
under the 2000 Equity Incentive
Plan (early exercise may be
restricted).

Form of Restricted Stock Unit
Agreement under the 2000 Equity
Incentive Plan.

2000 Non-Employee Directors’
Stock Option Plan.

Form of Stock Option Agreement
under the 2000 Non-Employee
Directors’ Stock Option Plan.

2000 Employee Stock Purchase
Plan.

Schedule
14A

000-30235

A

4/13/2009

2011 Equity Incentive Plan.

Form of Stock Option Agreement
under the 2011 Equity Incentive
Plan

Form of Restricted Stock Unit
Agreement under the 2011 Equity
Incentive Plan

Form of Stock Option Agreement
(International) under the Exelixis,
Inc. 2011 Equity Incentive Plan

Exelixis, Inc. 2014 Equity
Incentive Plan

8-K

10-Q

000-30235

000-30235

10.1

10.3

5/24/2011

8/4/2011

10-Q

000-30235

10.4

8/4/2011

10-Q

000-30235

10.6

7/31/2014

8-K

000-30235

10.1

5/29/2014

130

Exhibit
Number

10.14†

10.15†

10.16†

10.17†

10.18†

10.19†

10.20†

10.21†

10.22†

10.23†

10.24†

10.25†

Exhibit Description

Form of Stock Option Agreement
under the Exelixis, Inc. 2014
Equity Incentive Plan

Form of Stock Option Agreement
(International) under the Exelixis,
Inc. 2014 Equity Incentive Plan

Form of Stock Option Agreement
(Non-Employee Director) under
the Exelixis, Inc. 2014 Equity
Incentive Plan

Form of Restricted Stock Unit
Agreement under the Exelixis, Inc.
2014 Equity Incentive Plan

Form of Restricted Stock Unit
Agreement (Non-Employee
Director) under the 2014 Equity
Incentive Plan

Non-Employee Director Equity
Compensation Policy under the
2014 Equity Incentive Plan

Offer Letter Agreement, dated
February 3, 2000, between Michael
Morrissey, Ph.D., and Exelixis, Inc.

Offer Letter Agreement, dated
June 30, 2015, between
Christopher Senner, and Exelixis,
Inc.

Offer Letter Agreement, dated
June 20, 2006, between Exelixis,
Inc. and Gisela M. Schwab, M.D.

Offer Letter Agreement, dated
February 10, 2014, between
Exelixis, Inc. and Jeffrey J.
Hessekiel.

Offer Letter Agreement, dated
August 11, 2000, between Exelixis,
Inc. and Peter Lamb.

Transition and Consulting
Agreement, dated May 7, 2014,
between Exelixis, Inc. and Frank
Karbe

Incorporation by Reference

File Number

Exhibit/
Appendix
Reference

Filing Date

Filed
Herewith

000-30235

10.2

7/31/2014

Form

10-Q

10-Q

000-30235

10.3

7/31/2014

10-Q

000-30235

10.4

7/31/2014

10-Q

000-30235

10.5

7/31/2014

8-K

000-30235

10.1

10/16/2014

X

X

10-Q

000-30235

10.43

8/5/2004

10-Q

000-30235

10.5

11/10/2015

8-K

000-30235

10.1

6/26/2006

10-Q

000-30235

10.4

5/1/2014

10-Q

000-30235

10.7

7/31/2014

131

Exhibit
Number

10.26†

10.27†

10.28†

10.29†

10.30†

10.31†

10.32

10.33

10.34

10.35

10.36

Exhibit Description

Offer Letter Agreement, dated
May 9, 2005, between Exelixis,
Inc. and Deborah Burke

Special One-Time Bonus
Memorandum for Deborah Burke
dated May 15, 2014

Resignation Agreement dated
July 22, 2010, by and between
Exelixis, Inc. and George A.
Scangos

Compensation Information for
Named Executive Officers (2015
cash bonus and 2016
compensation)

Compensation Information for
Non-Employee Directors.

Exelixis, Inc. Change in Control
and Severance Benefit Plan, as
amended and restated.

Lease, dated May 12, 1999,
between Britannia Pointe Grand
Limited Partnership and Exelixis,
Inc.

First Amendment, dated March 29,
2000, to Lease, dated May 12,
1999, between Britannia Pointe
Grand Limited Partnership and
Exelixis, Inc.

Second Amendment, dated
January 31, 2001, to Lease dated
May 12, 1999, between Britannia
Pointe Grand Limited Partnership
and Exelixis, Inc.

Third Amendment, dated May 24,
2001, to Lease dated May 12, 1999,
between Britannia Pointe Grand
Limited Partnership and Exelixis,
Inc.

Partial Lease Termination
Agreement dated June 30, 2015, by
and between Britannia Pointe
Grand Limited Partnership and
Exelixis, Inc.

Incorporation by Reference

File Number

Exhibit/
Appendix
Reference

Filing Date

Filed
Herewith

000-30235

10.8

7/31/2014

Form

10-Q

10-Q

000-30235

10.9

7/31/2014

10-Q

000-30235

10.1

11/4/2010

8-K

000-30235

Item 5.02
disclosure

2/16/2016

10-Q

000-30235

10.3

5/1/2014

10-Q

000-30235

10.2

10/27/2011

S-1,
as amended

333-96335

10.11

2/7/2000

10-Q

000-30235

10.1

5/15/2000

S-1,
as amended

333-152166

10.44

7/7/2008

10-K

000-30235

10.46

2/22/2011

10-Q

000-30235

10.1

8/11/2015

132

Exhibit
Number

10.37

10.38

10.39

10.40

10.41

10.42

10.43

10.44

10.45

10.46

Exhibit Description

Lease Agreement, dated May 24,
2001, between Britannia Pointe
Grand Limited Partnership and
Exelixis, Inc.

First Amendment, dated
February 28, 2003, to Lease, dated
May 24, 2001, between Britannia
Pointe Grand Limited Partnership
and Exelixis, Inc.

Second Amendment, dated July 20,
2004, to Lease, dated May 24,
2001, between Britannia Pointe
Grand Limited Partnership and
Exelixis, Inc.

Lease Agreement, dated May 27,
2005, between Exelixis, Inc. and
Britannia Pointe Grand Limited
Partnership.

Sublease, dated July 25, 2011,
between Exelixis, Inc. and
Nodality, Inc.

Consent to Sublease, dated
August 16, 2011, by and among
HCP Life Science REIT, Inc.,
Exelixis, Inc., and Nodality, Inc.

Side Letter dated April 12, 2012 to
Sublease between Exelixis, Inc.
and Nodality, Inc.

First Amendment to Sublease dated
effective June 1, 2012 by and
between Exelixis, Inc. and
Nodality, Inc.

Consent of Landlord dated June 1,
2012 to First Amendment to
Sublease dated effective June 1,
2012 by and between Exelixis, Inc.
and Nodality, Inc.

Second Amendment to Sublease
dated effective July 1, 2015 by and
between Exelixis, Inc. and
Nodality, Inc.

Incorporation by Reference

File Number

Exhibit/
Appendix
Reference

Filing Date

Filed
Herewith

000-30235

10.48

8/5/2004

Form

10-Q

S-1,
as amended

333-152166

10.46

7/7/2008

10-Q

000-30235

10.49

8/5/2004

8-K

000-30235

10.1

5/27/2005

10-Q

000-30235

10.3

10/27/2011

10-Q

000-30235

10.4

10/27/2011

10-Q

000-30235

10.1

8/2/2012

10-Q

000-30235

10.2

8/2/2012

10-Q

000-30235

10.3

8/2/2012

10-Q

000-30235

10.2

8/11/2015

133

Exhibit
Number

10.47

10.48

10.49

10.50

10.51

10.52

10.53

10.54

10.55

Exhibit Description

First Amendment to Consent to
Sublease Agreement dated
effective July 1, 2015 by and
among Britannia Pointe Grand
Limited Partnership, Exelixis, Inc.
and Nodality, Inc.

Sublease, dated July 25, 2011,
between Exelixis, Inc. and
Threshold Pharmaceuticals, Inc.

Consent to Sublease, dated
August 19, 2011, by and among
HCP Life Science REIT, Inc.,
Exelixis, Inc., and Threshold
Pharmaceuticals, Inc.

First Amendment to Sublease dated
effective October 1, 2013 by and
between Exelixis, Inc. and
Threshold Pharmaceuticals, Inc.

First Amendment to Consent to
Sublease Agreement dated effective
October 1, 2013 by and among
Britannia Pointe Grand Limited
Partnership, Exelixis, Inc. and
Threshold Pharmaceuticals, Inc.

Second Amendment to Sublease
dated effective July 1, 2015 by and
between Exelixis, Inc. and
Threshold Pharmaceuticals, Inc.

Second Amendment to Consent to
Sublease Agreement dated
effective July 1, 2015 by and
among Britannia Pointe Grand
Limited Partnership, Exelixis, Inc.
and Threshold Pharmaceuticals,
Inc.

Sublease Agreement, dated
August 5, 2013, by and between
Exelixis, Inc. and Sutro
Biopharma, Inc.

Consent to Sublease Agreement,
dated August 5, 2013, by and
among Britannia Pointe Limited
Grand Partnership, Exelixis, Inc.
and Sutro Biopharma, Inc.

Incorporation by Reference

File Number

Exhibit/
Appendix
Reference

Filing Date

Filed
Herewith

000-30235

10.3

8/11/2015

Form

10-Q

10-Q

000-30235

10.5

10/27/2011

10-Q

000-30235

10.6

10/27/2011

10-Q

000-30235

10.4

8/11/2015

10-Q

000-30235

10.5

8/11/2015

10-Q

000-30235

10.6

8/11/2015

10-Q

000-30235

10.7

8/11/2015

10-Q

000-30235

10.2

10/30/2013

10-Q

000-30235

10.3

10/30/2013

134

Exhibit
Number

10.56

10.57

10.58

10.59

10.60

10.61*

10.62*

10.63

10.64

Exhibit Description

Loan and Security Agreement,
dated May 22, 2002, by and
between Silicon Valley Bank and
Exelixis, Inc.

Loan Modification Agreement, dated
December 21, 2004, between Silicon
Valley Bank and Exelixis, Inc.

Amendment No. 7, dated
December 21, 2006, to the Loan
and Security Agreement, dated
May 22, 2002, between Silicon
Valley Bank and Exelixis, Inc.

Amendment No. 8, dated
December 21, 2007, to the Loan
and Security Agreement, dated
May 22, 2002, between Silicon
Valley Bank and Exelixis, Inc.

Amendment No. 9, dated
December 22, 2009, to the Loan
and Security Agreement, dated
May 22, 2002, between Silicon
Valley Bank and Exelixis, Inc.

Amendment No. 10, dated June 2,
2010, to the Loan and Security
Agreement, dated May 22, 2002,
by and between Silicon Valley
Bank and Exelixis, Inc.

Amendment No. 11, dated
August 18, 2011, to the Loan and
Security Agreement, dated May 22,
2002, by and between Silicon
Valley Bank and Exelixis, Inc.

Note Purchase Agreement, dated
June 2, 2010, by and between
Deerfield Private Design Fund, L.P.,
Deerfield Private Design
International, L.P. and Exelixis, Inc.

Consent and Amendment dated as
of August 6, 2012 to Note Purchase
Agreement, dated as of June 2,
2010, between Exelixis, Inc.,
Deerfield Private Design Fund,
L.P. and Deerfield Private Design
International, L.P.

Incorporation by Reference

File Number

Exhibit/
Appendix
Reference

Filing Date

Filed
Herewith

000-30235

10.34

8/6/2002

Form

10-Q

8-K

000-30235

10.1

12/23/2004

8-K

000-30235

10.1

12/27/2006

8-K

000-30235

10.1

12/26/2007

8-K

000-30235

10.1

12/23/2009

10-Q

000-30235

10.3

8/5/2010

10-Q

000-30235

10.7

10/27/2011

10-Q

000-30235

10.1

8/5/2010

8-K

000-30235

10.1

8/6/2012

135

Exhibit
Number

10.65

10.66

10.67

10.68

10.69*

10.70*

10.71

Exhibit Description

Amendment No. 2 dated as of
August 1, 2013 to Note Purchase
Agreement, dated as of June 2,
2010, between Exelixis, Inc.,
Deerfield Private Design Fund,
L.P. and Deerfield Private Design
International, L.P.

Amendment No. 3 dated as of
January 22, 2013 to Note Purchase
Agreement, dated as of June 2,
2010, by and among Exelixis, Inc.,
Deerfield Private Design Fund,
L.P., Deerfield Private Design
International, L.P., Deerfield
Partners L.P. and Deerfield
International Master Fund, L.P.

Amendment No. 4 dated as of
July 10, 2014 to Note Purchase
Agreement, dated as of June 2,
2010, by and among Exelixis, Inc.,
Deerfield Private Design Fund,
L.P., Deerfield Private Design
International, L.P., Deerfield
Partners L.P. and Deerfield
International Master Fund, L.P.

Security Agreement, dated July 1,
2010, by and between Deerfield
Private Design Fund, L.P.,
Deerfield Private Design
International, L.P. and Exelixis,
Inc.

Collaboration Agreement, dated
December 22, 2006, between
Exelixis, Inc. and Genentech, Inc.

First Amendment, dated March 13,
2008, to the Collaboration
Agreement, dated December 22,
2006, between Exelixis, Inc. and
Genentech, Inc.

Second Amendment, dated
April 30, 2010, to the
Collaboration Agreement, dated
December 22, 2006, between
Exelixis, Inc. and Genentech, Inc.

Incorporation by Reference

File Number

Exhibit/
Appendix
Reference

Filing Date

Filed
Herewith

000-30235

10.1

10/30/2013

Form

10-Q

8-K

000-30235

10.1

1/22/2014

10-Q

000-30235

10.1

11/4/2014

10-Q

000-30235

10.2

8/5/2010

10-K

000-30235

10.39

2/27/2007

10-Q

000-30235

10.1

5/6/2008

10-Q

000-30235

10.5

8/5/2010

136

Exhibit
Number

10.72*

10.73*

10.74

10.75*

10.76*

10.77*

10.78*

10.79*

10.80*

Exhibit Description

Form

File Number

Exhibit/
Appendix
Reference

Filing Date

Filed
Herewith

Incorporation by Reference

License Agreement, dated May 27,
2009, between Exelixis, Inc. and
Sanofi.

10-Q,
as amended

000-30235

10.1

7/30/2009

Collaboration Agreement, dated
May 27, 2009, between Exelixis,
Inc. and Sanofi

Letter, dated May 27, 2009,
relating to regulatory filings for the
Collaboration Agreement, dated
May 27, 2009, between Exelixis,
Inc. and Sanofi.

Termination Agreement, dated
December 22, 2011, between
Exelixis, Inc. and Sanofi.

Amended and Restated
Collaboration Agreement, dated
April 15, 2011, by and between
Exelixis, Inc., Exelixis Patent
Company, LLC., and Bristol-Myers
Squibb Company.

Amended and Restated
Collaboration Agreement, dated
April 15, 2011, by and between
Exelixis, Inc., Exelixis Patent
Company, LLC., and Bristol-Myers
Squibb Company.

Amended and Restated License
Agreement, dated April 15, 2011,
by and between Exelixis, Inc.,
Exelixis Patent Company, LLC,
and Bristol-Myers Squibb
Company.

Amended and Restated
Collaboration Agreement, dated
April 15, 2011, by and between
Exelixis, Inc., Exelixis Patent
Company, LLC, and Bristol-Myers
Squibb Company.

Exclusive License Agreement,
dated December 20, 2011, between
Exelixis, Inc. and Merck.

10-Q

000-30235

10.1

7/31/2014

10-Q,
as amended

000-30235

10.3

7/30/2009

10-K

000-30235

10.83

2/22/2012

10-Q

000-30235

10.6

8/4/2011

10-Q

000-30235

10.5

8/4/2011

10-Q

000-30235

10.7

8/4/2011

10-Q

000-30235

10.8

8/4/2011

10-K

000-30235

10.91

2/22/2012

12.1

Statement Re Computation of
Earnings to Fixed Charges

X

137

Exhibit Description

Form

File Number

Exhibit/
Appendix
Reference

Filing Date

Filed
Herewith

Incorporation by Reference

Exhibit
Number

21.1

23.1

24.1

31.1

31.2

32.1‡

Subsidiaries of Exelixis, Inc.

Consent of Independent Registered
Public Accounting Firm.

Power of Attorney (contained on
signature page).

Certification required by Rule 13a-
14(a) or Rule 15d-14(a).

Certification required by Rule 13a-
14(a) or Rule 15d-14(a).

Certification by the Chief
Executive Officer and the Chief
Financial Officer of Exelixis, Inc.,
as required by Rule 13a-14(b) or
15d-14(b) and Section 1350 of
Chapter 63 of Title 18 of the
United States Code (18 U.S.C.
1350).

101.INS

XBRL Instance Document

101.SCH

101.CAL

101.DEF

101.LAB

101.PRE

XBRL Taxonomy Extension
Schema Document

XBRL Taxonomy Extension
Calculation Linkbase Document

XBRL Taxonomy Extension
Definition Linkbase

XBRL Taxonomy Extension
Labels Linkbase Document

XBRL Taxonomy Extension
Presentation Linkbase Document

X

X

X

X

X

X

X

X

X

X

X

X

† Management contract or compensatory plan.
*
‡

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

138

CORPORATE INFORMATION
Exelixis, Inc.
210 East Grand Avenue
South San Francisco, CA 94080
650.837.7000 tel
650.837.8300 fax
http://www.exelixis.com

CORPORATE COUNSEL
Cooley LLP
Palo Alto, CA

TRANSFER AGENT
Computershare Trust Company, N.A.
250 Royall St.
Canton, MA 02021
(866) 416-6111
www.computershare.com/investor

Mailing addresses
Shareholder correspondence should be mailed to:
Computershare
P.O. Box 30170
College Station, TX 77842-3170

Overnight correspondence should be sent to:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845

Shareholder website
www.computershare.com/investor

Shareholder online inquiries
https://www-us.computershare.com/investor/contact

INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
Redwood City, CA

FORM 10-K
A copy of the Exelixis annual report on Form 10-K filed with the
Securities and Exchange Commission is available free of charge
from the company’s Investor Relations Department by calling
650.837.7000.

STOCK INFORMATION
The common stock of the company has traded on the NASDAQ
Global Select Market under the symbol “EXEL” since April 11,
2000. No dividends have been paid on the common stock since the
company’s inception.

COMMON STOCK
The following table sets forth, for the periods indicated, the high and
low intraday sales prices for the company’s common stock as
reported by the NASDAQ Global Select Market:

QUARTER ENDED

January 1, 2016
October 2, 2015

July 3, 2015

April 3, 2015

HIGH

$6.42
$6.81

$4.18

$3.16

LOW

$4.70
$3.31

$2.51

$1.54

BOARD OF DIRECTORS
Stelios Papadopoulos, Ph.D.
Chairman of the Board, Exelixis, Inc.

Charles Cohen, Ph.D.
Chairman of the Compensation Committee, Exelixis, Inc.; Chief
Executive Officer, On Target Therapeutics, LLC; Chief Executive
Officer, Perform Biologics, Inc.

Carl B. Feldbaum, Esq.
President Emeritus, Biotechnology Industry Organization

Alan M. Garber, M.D., Ph.D.
Chairman of the Nominating and Corporate Governance Committee,
Exelixis, Inc.; Provost, Harvard University; Mallinckrodt Professor
of Healthcare Policy, Harvard Medical School; Professor, Harvard
Kennedy School of Government; Professor, Department of
Economics, Harvard University

Vincent T. Marchesi, M.D., Ph.D.
Director, Boyer Center for Molecular Medicine and Professor of
Pathology and Cell Biology, Yale University

Michael M. Morrissey, Ph.D.
President and Chief Executive Officer, Exelixis, Inc.

George Poste, DVM, Ph.D., FRS
Chairman of the Research & Development Committee, Exelixis,
Inc.; Chief Scientist, Complex Adaptive Systems Initiative, Regents’
Professor and Del E. Webb Professor of Health Innovation, Arizona
State University

George A. Scangos, Ph.D.
Chief Executive Officer, Biogen, Inc.

Lance Willsey, M.D.
Member of the Visiting Committee of the Department of
Genitourinary Oncology at the Dana-Farber Cancer Institute at
Harvard University School of Medicine and Oncology Consultant

Jack L. Wyszomierski
Chairman of the Audit Committee, Exelixis, Inc.

MANAGEMENT
Michael M. Morrissey, Ph.D.
President and Chief Executive Officer

Dana Aftab, Ph.D.
Executive Vice President, Business Operations

PJ Haley
Vice President, Head of Commercial

Jeffrey J. Hessekiel, J.D.
Executive Vice President, General Counsel and Secretary

Peter Lamb, Ph.D.
Executive Vice President, Scientific Strategy and Chief Scientific
Officer

Gisela M. Schwab, M.D.
President, Product Development and Medical Affairs and Chief
Medical Officer

Christopher J. Senner
Executive Vice President and Chief Financial Officer

210 East Grand Avenue
South San Francisco, CA 94080
650.837.7000 tel
650.837.8300 fax
www.exelixis.com