Exelixis Inc (EXEL) 2002 Q2 法說會逐字稿

Good afternoon. My name is Corey and I will be your conference facilitator today. At this time I would like to welcome everyone to the Exelixis Second Quarter 2002 Earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star and then the number one your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you ladies and gentlemen. I would now like to turn the conference over to Ms. Jane Green, Vice President of Corporate Communications. Ms. Green, you may begin your conference.

Good afternoon and thanks for joining the Exelixis management team on our second quarter 2002 financial results conference call. Participating in this call are George Scangos, President and Chief Executive Officer and Glenn Sato, Chief Financial Officer and Vice President, Legal Affairs. Glenn will review the company's financial performance for the quarter and provide guidance for the third quarter and remainder of 2002. George will discuss the company's progress during the quarter and provide some commentary on our outlook for 2002. We will then open the call for questions.

Please be advised that the following discussion contains certain statements that are forward looking including, without limitation, answers to questions at the end of the formal remarks. These statements are only predictions and are based upon our current expectations. Forward looking statements involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in our forward looking statements are the result of many factors including our ability to enter into new collaborations, continue existing collaborations and receive milestones in royalties derived from future products developed from research efforts under collaborative agreements, the rate of growth, if any, and license and contract revenues, the timing and level of expenses associated with the growth of proprietary programs, the ability successfully to identify and develop compounds against proprietary cancer targets, the amount and timing of investments in manufacturing and chemical development of analog which is currently in phase two clinical studies, and the timing of the filing for an investment in our initial proprietary small molecule IND. These and other risk factors are discussed under "risk factors" in our quarterly report on form 10-Q, and elsewhere in Exelixis's annual report on form 10-K with the year ended December 31, 2002, and other SEC reports.

We expressly disclaim any obligation or undertakings to release publicly, any updates or revisions to any forward-looking statements contained herein, to reflect any change in our expectations with regard thereto, or any change in events, conditions or circumstances on which any such statements are based.

Now, Glen Sato will discuss the company's financial performance.

Thanks, Jane.

For the second quarter of 2002, we're pleased with our financial performance, was in line and consistent with the guidance we provided in our first quarter conference call. While our revenue increased over the comparable period in 2001, our revenue decreased from the first quarter of 2002, due principally to the impact of the previously announced expiration of the Pharmacia relationship in February of this year. As we have continued to invest in our development programs to meet our planned near term goal, our expenses grew in the anticipated range. Our expenses are being driven by investment and advancing our clinical development programs, specifically our first IND filing and the goal of two IND's per year beginning in 2003.

These investments include manufacturing for our analog, IND enabling studies for our proprietary small molecule IND candidates as well as advancing our other development pipeline programs to meet our product development goals. With respect to the specifics of our quarterly performance, as in the past, we are reporting results both including and excluding non-cash charges. References to non-cash charges include charges for stock compensation expense and average of intangibles. For the second quarter of 2002, we reported a pro forma net loss of approximately $22.1 million or 39 cents per share, excluding non-cash charges and discontinued operations.

This compares to a pro forma net loss of approximately $13.5 million or 30 cents per share in the second quarter of 2001. Including non-cash charges and discontinued operations, we reported a net loss of approximately $23.9 million or 43 cents per share for the second quarter 2002 compared to a net loss of approximately $23.7 million or 52 cents per share in the second quarter 2001. At June 30, 2002, cash and investments totaled approximately $173.8 million compared to $198.1 million at March 31. For the quarter ended June 30, our total revenues were approximately $9.9 million compared to $8.6 million for the same period of 2001. This increase in revenues was primarily driven by our corporate collaborations established in 2001 with Protein Design Labs and Bristol Myers/Squibb as well as compound deliveries under two of our five chemistry collaborations. As I noted, this increase was partially offset by the anticipated impact of the February 2002 completion of our collaboration with Pharmacia.

Research and development expenses for the second quarter of 2002 were approximately $28.8 million excluding stock compensation expense up $500,000 compared to approximately $18.9 million excluding stock compensation expense of approximately $1.6 million for the corresponding period of 2001. The increase was driven primarily by expansion of our drug discovery and development operations. As I indicated a moment ago, including increased staffing and expansion of facilities to expand core programs, to support new collaborative agreements, expand our drug discovery operations and expenses for pre-clinical and clinical development related to our Rebecomycin analog and other proprietary compounds.

G&A, that is general and administrative expenses for the second quarter total approximately $4.6 million excluding stock compensation expenses approximately $300,000 compared to $4.3 million excluding stock compensation expense of $700,000 for the second quarter of 2001. The minor increase was driven primarily by costs associated with personnel and facilities to support expansion in our research and development operations.

With respect to guidance for the third quarter and for the full year of 2002, the timing of new collaborations will be the major determinant of our quarterly performance going forward. At this time we anticipate that any new deals will likely be established in the fourth quarter of the year. We remain confident that we will consummate at least one significant additional transaction by year end. Accordingly, for the third quarter we expect revenues to increase by 7 to 12 percent from the second quarter levels and operating expenses to increase by 7 to 12 percent from the second quarter levels as well, again excluding non-cash charges.

Based on the timing of our anticipated collaborations the recognition of revenue ratably over the term of the research under those agreements in these collaborations, we believe that our revenues for the year for increase in the range of 7 to 12 percent over the 2001 levels and our operating expenses will increase in the range of 43 to 45 percent over the 2001 levels, again excluding non-cash charges. For the year based on our expectation of consummating at least one major corporate collaboration and consistent with our previously provided guidance, we continue to expect to end the year with cash balances in excess of $104 million, our cash burn for the year. . . I'm sorry, $154 million. Our cash burn for the year is expected to be in the range of $68 to $78 million, including $13 to $8 million in world capital expenditures. The inherent unpredictability of the timing of collaborations in this environment and therefore the associated unpredictability of the effect of collaborations on revenue ramp and cash dictate that we manage our cash carefully throughout the year. As a result, we have implemented certain strategies designed to reduce our cash burn in the near term.

While we believe it is not necessary or appropriate at this time to take additional steps that would significantly reduce our ability to advance our clinical program or to facility obligations in current and anticipated partnerships, we will continue to carefully review our operating expenses with a commitment of managing our cash burn in a prudent manner. We remain fully committed to taking measures designed to ensure the long term success of the company.

Now let me turn the conference call over to George.

Thanks Glen and thanks everybody for listening. As Glen indicated, the quarter about as we anticipated and was consistent with the guidance we gave everybody at the end of the first quarter. Clearly, in the second quarter, we knew we would feel the impact of the Pharmacia relationship when it ended. And so we anticipated that we'd have a flat quarter and that's what we had. Our span was in line with our expectations and the span reflects the investments we think are necessary for those areas of the business that have the potential to deliver the highest return, and we believe they are sensible for us at this point in our development. though, we are being smart about cutting unnecessary expenses wherever we can and we're being actually very careful about how I'm managing our cash.

That's the only prudent thing to do, when in an environment like the one where we are today. What I wanted to focus today on, is I think the really substantial progress that we've made in all of the key areas of the company. How we're really very excited about a number of aspects of the company that have gone on in the past quarter. About our lead anti-cancer compound that's progressing toward status, our other compounds that are moving forward quite well, and we believe we'll lead the basis of additional as we go forward. D.A. Rebecca Myson development is going well, as we expected, and we are very optimistic about the potential for additional collaboration.

So let me talk about each of those in a little more detail. So our lead anti-cancer compound is something about which we are very excited, and we believe that the program has really quite significant potential. we previously talked about on previous calls, strategy here has been to both manage the risks and maximize our opportunities by having not just one compound against this particular target, but by having a series of compounds. And for those of you who are on the last conference call, we said we had two lead compounds, related compounds, one of which was subcutaneous and the other, which has activity. In addition to those two, we also created the set of compound directed against the same target, that we were also evaluating this potential I&D candidate.

In the past quarter we've gotten a lot more data around each of those compounds and one of those compounds in particular, one of those oral compounds, has demonstrated a truly superior pharmacological, characteristics and it is that compound that we have settled on as our lead IND candidate. And we're very encouraged by the activity of this compound and what, thus far in the early animal testing, seems to be an extremely clean toxicology profile. This compound is potent, it's specific, it has good pharmacokinetics, good pharmacology results and, so far, clean results in pre-GLP toxicology studies in several species. We believe the compound is broadly active and has demonstrated good anti-tumor activity after oral administration.

So the decision to go with this compound was data driven. This compound, simply, is better than the others. It has better efficacy in the , better kinetics, cleaner tox and it's orally active. Because of the excitement that we have about this mechanism, the particular target and the excitement of the -- excuse me, about the excitement we have about the compound itself, we're going to continue to refrain from disclosing the nature of the target or anything more specifically about the compound. And I know that the investors and analysts need this information in order to make their own judgments, I just don't think it's in the best interests of the Company right now to make that information public and, therefore, available to our competitors.

Now, the decision to focus on this compound does have an impact on the timing of our IND filing. As we've said all along, the lead compound that we have, this sub-Q compound, was on-track, could be on-track for an IND filing by year-end. We have made the decision not to do that, to go with this oral compound, which is much cleaner, much more potent and orally active, and the consequence of that is that we're now projecting an IND filing in the first quarter of 2003, assuming that the studies continue to go well. We still have to do regulatory toxicology testing and prepare the filing, but we believe we are on a timeline in order to complete those in early 2003.

So, I think -- I want to point out, of course, that compounds can die for all kinds of reasons. The pre-GLP tox is extremely clean, we have yet to do the GLP tox, but we so far, with all the data we have, we are very excited about this mechanism and this compound and I apologize for continuing to be a little bit recalcitrant about divulging additional information. And I think at the time we file the IND we'll be prepared to make a lot of this data public.

The Rebeccamycin is progressing well. We continue to be encouraged by the results and the progress of the sponsored Phase II trials and also by the cooperative nature of our interactions with the . We continue to work with the to collect and review the results of the ongoing Phase II programs and the goals for the program remain on track. As we've said before, we intend to finalize planning for the next phase of clinical development later this year and initiate new Exelixis sponsored clinical trials in early 2003. We continue to be encouraged by the potential of the drug in upper gastrointestinal tract tumors. Manufacturing of additional clinical supplies of the compound is progressing well and in accordance with this timing. As you know, we're working with a third party manufacturer and we're pleased with their progress that they've made so far. We feel confident that we'll have adequate drug supply to support our own clinical program and to continue this by the so that they can continue their own Phase II trials and as well as initiate additional .

Now our development group has been actively working to establish relationships throughout the clinical oncology community. We have formed a clinical advisory board that will provide insight into our lead clinical development programs including DEA Rebecomycin and our own proprietary anti-cancer compounds. This board is composed of leading oncologists from academic medicine as well as industry who have had experience with novel approaches to treating cancer with novel agents and we have scheduled a meeting of this board for later in the year.

Now as terms of partnering I think that in terms of our internal programs, they are all progressing extremely well. I think I have been. . . I think it is an honest statement that I do not think the work at Exelixis has ever been going better than it is right now in terms of the drug discovery projects that we are moving forward. In terms of partnering, we are currently involved in several late stage conversations with major pharmaceutical companies and agriculture companies about potential alliances. We have a lot optimism about these discussions for a number of reasons. First, I do not think we have ever been in more discussions than we are right now. This is a time when pharmaceutical companies are not looking particularly for novel technology.

They are not looking for targets anymore. They are looking for compounds. And they want to establish relationships with companies that have the capability to and have the platform and the infrastructure to identify and turn over to the pharmaceutical company, interesting, novel, high quality compounds that address significant clinical needs. And I think Exelixis, because of the base and the platform and the progress that we have made, is extremely well positioned to do exactly that and that has resulted in a great deal of interest from the pharmaceutical industry. So we are optimistic about our prospects for consummating at least one large pharma deal this year from the multiple discussions that are currently going on.

Now, obviously until the deals are actually signed and the money is in the bank, there is some risk. So, I want to be clear that we can never guarantee anything until after the fact. Nevertheless, I think the deal structures are. . . that we are in discussions about are of the magnitude that give us sufficient confidence that we can meet the financial projections that we made should we complete even one of the deals. So, I think we are talking about very interesting types of relationships here.

Now we are also engaged in some very interesting conversations concerning agricultural partnerships. There is significant potential for partnering in the area of our say leveraging our platform to exploit the potential of plants as factories or enhancing plant traits. We already have some interesting genes in hand in which we have had substantial interest. So, we also have a number of discussions going on in that area and we are optimistic that we will complete and deal as well.

Now, we also made good progress during the quarter in advancing our own research pipeline and managing our ongoing corporate partnerships. Programs in the areas of DNA repair, cell cycle control and are moving ahead extremely well and we are confident that we will get additional IND's out of these programs as we go forward. Our relationships with on the outside and PDL and BMS are also progressing very well. Despite the challenges that each of these companies is facing, there has been no interruption in the work that we have performed for our partners and no interruption in their management involvement in the relationships.

As we recently announced, our mechanism of action collaboration which was the first of our two collaborations that we signed with Bristol Meyers/Squibb, was just extended for another two years. We are very excited about that and I believe BMS is also excited about that. Both that collaboration and the oncology collaboration are going extraordinarily well and I think have been a true benefit for both companies.

In our cancer relationship with B.M.S, we just completed another of targets, for which we received a significant milestone payment. I think each of the companies is eager to advance the targets that we picked into screening.

So, I feel confident about our partners' commitment to our collaborations, and about our ability to continue to deliver on our roles.

So, kind of in looking at what we have accomplished so far this year, and what we intend to get done for the rest of the year, we're feeling very positive. I'm feeling pretty positive and optimistic about the company. I know this is a tough environment, but things are going extremely well inside the company.

We'll get our first files in the next month. We'll advance other resource programs in order to meet our goal of multiple a year, that we stated previously. We're confident we'll be able to do that. Develop the potential, and hope that it can add to the repertoire of cancer treatments that are available to patients. And we're confident that not only sustain the company, but can help transform the company into a powerful development enterprise.

So, we built a company that I believe has the potential to survive and thrive long-term to bring important medicines to the market, and improve the lives of patients. We have sufficient cash reserves to enable our programs, and we plan to manage carefully our cash and our expenses, reduce unnecessary spending, and make sure that we retain the ability to meet our clinical development and partnering goals.

So, while I'm cognizant of the significant challenges that are facing the biotechnology industry right now -- and I don't mean to belittle them at all -- I think we're managing our risks well. We have a strategy to do so. We're focusing on our deliverables. We've been aggressive about building our programs out, and I believe we're now in the phase of reaping the fruit of that building. So, I remain very optimistic about Exelixis' future.

So, I thank you all for your attention, and we'll be happy to open the call to any questions.

At this time, I would like to remind everyone, in order to ask a question, please press star and then the number one on your telephone keypad.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Mr. Matt Geller with CIBC World Markets.

Thank you. And I think it's really great that you're making your decisions based on the best science and the best drugs to develop.

First of all -- two sort of diverse questions -- one on . Can you give us any idea of whether you're seeing activity or , and when we might be seeing data? And on a broader scale, can you talk about -- it seems like you're getting of products that are getting ready for being into the clinic for filing . How sure -- how much confidence do you have that you'll have a few, and to what extent do you see that this as validation? How does it relate to your underlying drug development technology?

OK. Thanks. That's a lot of questions rolled up in one.

Let me talk about first. You know, as you may know, has been in over 300 patients right now. It has quite acceptable safety profiles -- , which is normal for agents of this type and not alarming. So, it looks to be acceptable from a toxicology profile. We continue to see positive data in the upper G.I. trial. Positive data meaning some , stable disease, so it looks like a compound that has biological activity. And, you know it's in trial as a single agent, so, we haven't even begun to explore its potential as a combination therapy yet. But it clearly looks like it has biological activity. So, we're quite optimistic about it.

We've had a number of interesting responses in some of the other trials are going on as well, and we just need more data to know if those responses are consistent enough and they are of a long enough duration in order to justify further development in those areas. But for as far as the compound has gone, it looks extremely interesting. In terms of our other compounds, we have had the philosophy all along, that we have to have multiple things moving forward in parallel because we have to face the fact that there is a high attrition rate of these products, no matter how smart you are and how clever you think you are, projects fail.

And so while I am extremely optimistic and confident that we will have multiple compounds moving into the clinic, that optimism is based on the fact that we have multiple projects moving forward. If you ask me about any single one of them, you have to say 'it looks good today, but we have more data to get' right? But we know, because we've been doing this for a while, that - and looking at - and we know what the industry's standard fall off rates are, and we hope to be better than those. I think we will be better than those. But even if we assume those, we should have multiple compounds entering the clinic every year. So we feel very good about that right now. Is it a validation of our technology? Well, you know, it depends. I think, you know, I think if you take point of view, you might say that the technology is only validated when you get a billion dollars in sales. But it is - what we are very confident of is that we are with our emphasis on understanding the biology of our targets is paying off. And it's paying off because of the drugs that we are getting based on those targets in all of the preliminary testing that we've done looked to be very interesting. And we believe that that understanding the biology of the targets will reduce the failure rates as we go forward.

Our drug discovery capabilities now, which are substantial, have been built on the same philosophy as our biology that is not to try to prove that any one technology is best, but to have a very broad platform, critical mass access to the relevant technology so that you can put them together in the right way. And in this case, both maximize the quality of the compounds that one gets, and minimize the time from identification of the lead compound out of secondary screens to candidate. And we believe that time now, at Exelixis, is about as short as it can be.

Great. Thanks a lot.

Your next question comes from Mr. with BKW.

Hi. Congratulations on a nice quarter of progress. I had a couple other questions about the rebeccamycin compound. Have you been able to garner any additional insights into the mechanism of action?

Yeah. Well we have not actively done any work on the mechanism of action of rebeccamycin. As you know, the compound we have is actually DEAE rebeccamycin. It's an analogue of rebeccamycin. It is a - it has, if you look in the literature, two inhibitory activity. Structurally it has similarities to , which is a inhibitor, so it may very well - a inhibitor, I'm sorry. It may very well have multiple mechanisms of action. And we just haven't put any effort into understanding the mechanism of action. I don't think that's the best use of resources right now.

Okay. And I also wanted to get a little more insight in terms of your partnering. And it sounds like you have many - several deals in the works. Can you give a little clarity as to what the structure of these deals might look like, if it sounds like you're looking at compounds, or at least where the most interest lies, and a little insight in terms of the chemistry capacity? I know you have been active in signing deals with Elan, Shering-Plough and others for chemistry related deals -- are you continuing to look at those as possible...

Yeah, let me answer that last question first. The deals we have with Merck, with Shering AG and with others are focused -- I'm sorry, Shering-Plough -- are focused on chemistry, so they are not deals where we intend to deliver, you know, IND-ready compounds ready to move in the clinic. Those deals are a way for us to build up a large chemistry screening library and minimize the cost while we're doing it. So those deals have a very specific purpose. The reason we're attractive to those companies is because we make very high quality compounds where each one of them gets analyzed in a mass spec so we know what it is, we know its purity and because we're able to make 10mg of each compound, which is a lot in a chemistry facility, so that they have enough then to distribute the compounds to their various sites and supply for a long times' worth of screening.

The deals that we're anticipating signing going-forward are not that type of deal. You know, as we built out the Company, our deliverable here has changed and, clearly, the further you can take your own projects, the better the economics get. The better the short-term economics and the better the participation in products get. So it's been our strategy all along, as we've built out the Company, to make our deliverable later in the process. And we have to do that in a phased way. You know, a few years ago, our deliverable were the initial targets that we got out of invertebrates, then they became validated targets where we also did the work in mammalian systems, then they became screening assays. And in the discussions that we're having now that are of the most interest to us, are deliverable compounds and, depending on the particular partner and the discussion going on, most compounds can be either pre-clinical or clinical. And we certainly have the ability now to take compounds into the clinic and move them at least through Phase II and generate very interesting data. So the interesting deals that we are talking about, that I think would help us to achieve our strategicals, help us build out the company and allow us to maximize both near-term and long-term revenues, would be those deals which provide -- which call for us to deliver either compounds ready to go into the clinic or compounds that are actually in the clinic. And we have a number of discussions going on with various permutations.

OK, thank you.

Your next question comes from Mr. Eric Schmidt with SG .

Good afternoon. Just a quick question on the deal with Dow AgroSciences. I know you recently stated that you completed a mechanism of action screen for them and I was just wondering if there are other research-stage projects ongoing or if that's effectively the last piece of research that you are doing under that arrangement.

Yeah, no, it's an ongoing relationship, so we continue to work with Dow, they've been a very good partner for us and I think there's continued interest on the part of both companies of continuing that relationship.

Great, thanks.

Your next question comes from Mr. with JP Morgan.

I guess just a couple of questions of clarification. In the tumor suppressor gene collaboration with Bristol, did Bristol contribute any targets?

No. To answer that, they've -- the purpose of the relationship from Bristol's point of view is to have us deliver target to them and they are particularly interested in targets that are novel, that are not being worked on by a lot of other companies that have very good biology behind them, so they can be relatively confident about the effect that a drug directed against that target would have and that target important aspects of cancer such as apoctosys. So, the target flow goes from Exelixis to BMS.

Do both companies get targets in the P53 pathway?

Yes.

OK. And again, a question of clarification, on the oral compounds that you intend to file an IMD on, was that your lead compound or was that a backup compound?

Well, that was a backup compound. Let me be clear here because I think that terminology can be used in different ways. Our most advanced compound was a sub Q compound. This oral compound we have is a structurally related compound so it is not technically a compound. A backup would be a compound against the same target from a different structural class. We also have those. But the one that we are now advancing is of the same structural class as the initial sub Q compound. It has the advantage of being orally active and it has, as I said, better pharmacology, cleaner toxicology, good kinetics, is orally available. So, from any way you look at it, it is a superior compound and that is why we decided to take that one forward.

I guess this sort of last question. In the mechanism of action collaboration with Bristol, what therapeutic area is that in and does it have to do with the tumor suppresser gene area?

No. And in fact it is not limited to an area. In that kind of collaboration, we get compounds from BMS and we identify the targets of those compounds. We do not know the area. We do not know anything about the compounds when they come to us. We get them as a white powder, we identify the targets, we give the targets back to BMS. So, it is not a collaboration that is restricted by disease area.

OK. Thank you very much.

Your next question comes from Mr. Jim Reddick with Bank of America Securities.

In the Wall Street Journal article that mentioned your Alzheimer's program this morning, it actually prompted the question for me which is programs like the deal which has resulted in a program like Alzheimer's, how knowledgeable are you about the timing of leads that might come from those or IMD's that come from those? And do you know the status of Pharmacia's program since the deal ended back in February? Thanks.

Well, the short answer to that is we do not know very much about the status of those programs inside Pharmacia and if we did, we probably could not say that anyway since that would be their proprietary information. But we will be getting a progress report on where they are and they do have diligence obligations and they have to report to us on those. So, we expect to have that information soon but we do not have it yet.

OK. And speaking of collaborations like that, the protein design labs collaboration, have you given any indication of when the first antibody from that collaboration might go into clinic?

No. We. . . the collaboration is going well. There are antibodies in progress and I think it is on track and it is doing what we hoped. But I would not want to make any guess at this time as to when those first antibodies will go into the clinic.

OK. Great. And last question is, how many of your scientists would you say are working on collaborative programs versus revenue generating collaborative programs versus for your sole proprietary pipeline?

Well, that is a little bit hard to answer, because if we take, for example the scientists working on agriculture, they're all devoted to proprietary programs, since we have no intent of making our own products in agriculture. They're all working on partner programs.

If we look at cancer, for example, B.M.S. and P.D.L. give us support, but the same people who work for B.M.S. and P.D.L., and provide targets to each of them, are also providing our internal targets for cancer by the way we structure those relationships. So, those people are providing both proprietary targets, and partner targets.

So, we have tried to say, diverge from the normal model that you'd have 50 people working for some company in some disease area and give up your rights in area, and use the extra money you get then to proprietary programs. But, we now have a blended model where the support we're getting from the partners actually helps to pay for our proprietary programs.

So, if I had to guess, I would say that it might be half and half, roughly. But, that's only a rough guess, because it is mixed and it's hard to apportion those people specifically.

All right. Thanks. And the last question -- sorry if you did mention this before, but when do you plan to disclose the target of your first ? Do we have to wait until the is actually filed?

I think we will do it around the time of the filing. You know, there's obvious pushes and pulls here, and I know that, you know, for you and everybody else, in order to make your own independent judgment of the value of the program, you need the details. You can't do it in a vacuum, and you can't think it's great just because we tell you it's great.

But, you know, to counter our argument for us is that when we divulge the target and something about the compound, then that information is available to our competition. And, we believe we are substantially in the lead in developing compounds against this particular target. And, I just don't think it's in the long-term interest of the company to be giving away proprietary details so early in a project. I mean no company would think about divulging those kinds of details at this stage of the development. And, of course, biotech companies -- especially ones like ours who are about to do this for the first time -- everybody wants to know the details.

So, I understand the tension here, but we're trying to build a company here for the long-term, and trying to behave consistently with that. So, I apologize for not being more forthcoming. By nature pretty open. But, I think it's just best for us to hold off for a few more months until we've filed the .

All right. Great. Thank you.

You next question comes from May-Kin Ho with Goldman Sachs.

Hi, George.

A question on manufacturing: first on . How much material would you have by yearend or early next year, and what kind of trials can you start? And second, on your programs for the proprietary compounds. These compounds typically manufacture, and is manufacturing one of the that's in your starting phase-one studies next year?

OK. Well, first. We aim to have some kilograms of compound, which will enable us -- which then won't be rate limiting in the clinical trials. And it looks like we're on track to meet that goal.

For our own compounds -- they are not fermentation products. They're synthetic products, and so they are much less worrisome in terms of manufacturing. So, manufacturing is actually not on the critical path for those compounds, as well. And, we will also do that manufacturing by contract, and of course, it's much easier to get contract manufacturers for synthetic compounds. So, that's not gonna be a rate-limiting step for us.

And, can you explain a little bit more about the rationale for switching over to the oral compounds, because for cancer indications that may, or may not be important.

It's true. If it were only oral verses , that may - I mean, of course you'd rather have an oral compound anyway. But that in itself would not have been enough, but the fact is we see better efficacy in pharmacological models. We see cleaner in the studies. In fact we see absolutely clean in the studies that we've done so far. The half-life of the compounds is very nice, so from every aspect that we look at this, it is a better compound. So it's not - we didn't switch from to oral just for that. We switched from a compound that was good, and we were taking it forward, but the one, since really seems quite exceptional in it's pharmacologic and capabilities. And I also think as we go forward, you don't know how these compounds are going to work in the clinic. The current paradigms of how cancer treatments are administered, you know, high doses, short duration followed by a period of time for the patients to recover, may not be the best way to take them forward. And it's kind of dictated by the fact that the compounds are so toxic. So if you think about how cancer compounds are going to be given in the future, once you get compounds that are less toxic, they maybe given chronically. And for that kind of treatment you also want an oral drop. So it's a combination of all those factors, .

Thank you.

Your next question is a follow-up from Mr. Jeff with JP Morgan.

a question about your third quarter guidance. The - as I understand from the press release, revenue growth is supposed to be, I don't know, 8% to 12% -- 7% to 12% -- 8% to 12%?

Right Jeff.

And you just announced that you booked a significant milestone payment from Bristol-Meyers?

Yes.

And you know, I don't think your revenues should really drop off from ongoing business in the second quarter? So why isn't your revenue expectation higher for the third quarter?

Well, as you know, or you may recall, Jeff, we've amortized milestone's payments over the research term,

Okay.

so, you know, any given amount in any given period of time will not have as dramatic an impact for us as it might for some of our other peers, and then I say it explains principally why you'll see us grow revenue at it's lower rate, and that's also why, not withstanding whatever other amount, since we the through year end. You just won't see that dramatic impact from achieving the milestones that we will achieve.

So over what period of time will this milestone be amortized?

The remaining research term of the agreement.

How long is that? Forgive me for not knowing that.

Yes. I guess it's two years left.

Two years left?

Yes.

Okay. In terms of the significant deal you want to sign in the hope to sign or plan to sign in the fourth quarter, is that bigger than the Bristol deal, smaller than the Bristol deal, the same size as the Bristol deal?

Jeff, I would love to answer that question, but I just don't think we can speculate about that now. It will be a substantial deal, and -

Or if you had to compare it to any deal that you've ever signed which one is it comparable to?

Well, it will be a new kind of deal, and each of our deals has been different from the one we've signed previously. They've each been very interesting in their own right, and I believe that this one will be different from the ones we've signed previously and will also be interesting in its own right. So I just don't think it's fair to speculate. I think you can get some view of what we're expecting by looking at the financial guidance that Glen has given. And so I don't think we really can say too much more than that right now.

OK, and, I guess, like a last question. how much do you intend to reduce your cash burn and how do you plan to do it or what's the target?

I guess the way I would describe it is, you know, right now we have a head-count freeze in place so we're going to take actions like that, obviously, through the nature and the timing of a deal or deals that we would do will dictate what we want to do to address the burn. So, right now, I think we are committed to moving our programs along with respect to achieving the goals that we've set out for 2003 and, in line with, you know, having a significant collaboration before year-end, and that's the track that we're working on. We have some contingency plans, we, you know, made some adjustments to cut at the edges here with respect to programs and the timing of programs and the implementation of some things that we'd like to do. So I think we feel that we've got a handle on planning for purposes of making sure that, you know, we're monitoring cash and protecting our cash balances for year-end.

At this time, there are no further questions. Ms. Green, Mr. Sato, Dr. Scangos, are there any closing remarks?

No. I would like to thank everybody for the -- taking the time to listen to the conference and just reiterate the fact that we are truly excited, I think, about the prospects that Exelixis has right now and I hope we're able to convey some of that to you in a realistic way and being cognizant of the challenges that face us all. So thanks, everybody for your attention.

This concludes today's Exelixis second quarter 2002 earning call. You may now disconnect.