Exelixis Inc (EXEL) 2004 Q1 法說會逐字稿

Good afternoon. My name is Marcy and I will be your conference facilitator today. At this time, I would like to welcome everyone to the quarter one 2004 earnings conference call. All lines have been placed on mute to prevent any background noise. After this speakers' remarks, there will be a question and answer period. (Operator Instructions). Thank you. Ms. Green, you may begin your conference.

Hello, everyone, and thank you for joining the Exelixis management team on our first quarter 2004 financial results conference call. Joining us on this call are George Scangos, President and Chief Executive Officer; Frank Karbe, Senior Vice President and Christine Ball, Vice President of Finance. Following this introduction, George will provide perspective on the quarter and the year, Frank will review the Company's financial performance for the quarter and provide guidance for the second quarter 2004 and then George will provide additional commentary, then we will open up the call for questions.

Please note 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 as a result of these risks and uncertainties which include without limitation risks related to our ability to enter into new collaborations, continue to existing collaborations and receive milestones and royalties derived from future products, develop from research efforts under collaborative agreement, the rate of growth, if any, in license and contact revenues; the timing and level of expenses associated with the growth proprietary program and the GSK collaboration; Exelixis' ability to enter into a new collaborations, continuing with exisiting collaborations and receive milestones and royalties derived from future products developed from its research efforts under collaborative agreement; the rate of growth if any in license and contract revenues, the timing and level of expenses associated with the growth of proprietary programs and the Glaxo Smith Kline collaboration; the potential failure of clinical testing of Exelixis product candidates to demonstrate safety and efficacy; the ability of Exelixis to file IND applications as a reference time; the ability of Exelixis to conduct a safe pre-clinical trial of XL119 sufficient to achieve FDA approval or to initiate the planned Phase III clinical trial in the second quarter of 2004; the ability of Exelixis to successfully advance and develop additional preclinical compounds, including XL647, XL999, XL844, XL820, XL880 and others.

These and other risk factors are discussed under risk factors in our annual report on form 10-K for the year ended December 31, 2003 and other SEC reports. We expressly disclaim any obligation or undertaking 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 I'll turn the call over to George Scangos.

Thanks, Jane. I'm happy to be here today and I thank you all for calling in. I think we had a really good quarter on the first quarter of 2004, which was extremely productive for us. We delivered better-than-expected financial results. At the same time, we made significant progress in expanding and advancing our development pipeline.

During the quarter, we filed an IND application for 647, which we filed in February. That IND is now active and we're on track to initiate the Phase I trial soon. XL999 continues to be on track and is proceeding towards an IND submission around the end of this quarter. We advanced two additional anticancer compounds -- XL880 and XL 820 -- into the clinical development, thus further building our IND pipeline for 2005. We received orphan drug destination for XL119 and we are finalizing the preparations for initiating the Phase III trial in bowel duct cancer, which contains to be on track to begin in this quarter.

Current partners continue to be pleased with our performance and we're progressing in our efforts to establish additional alliances that have the potential to leverage or enhance our R&D capabilities. We believe we are performing at a high level of organizational proficiency, operational efficiency and fiscal responsibility and that we're off to a great start with a year. I will expand on these points in just a few minutes, but first I'll ask Frank Karbe to review the quarter's financial results.

Thank you, George. I will start with an overview of our financial performance for the first quarter 2004 and I will then provide guidance for the second quarter. Exelixis' financial performance in the first quarter was strong. We delivered results that exceeded our guidance for the quarter, both in terms of revenue and expenses. At the end of 2003, we anticipated that revenue would decrease in the first quarter by 15-20 percent, as compared to the fourth quarter 2003 due to anticipated timing of shipments under our chemistry collaborations. In actuality, revenue decreased only 14 percent for the quarter as compound shipments were slightly stronger than planned.

We further anticipated that operating expenses, excluding non-cash and restructuring charges, would increase by 10-15 percent from the fourth quarter '03 levels. And in actuality, expenses increased only 9 percent due to careful management of our growth plans. However, let me be clear we continue to pursue an aggressive development strategy, but at the same time, exercise fiscal restraint and high-quality management controls throughout the Company. The organization is focused on achieving its clinical, financial and strategic goals for the year and we believe that the Company is in fundamentally sound condition.

Let me now provide you more detail on our quarterly results. As in the past, we are reporting results both on a GAAP and non-GAAP basis. Non-GAAP results exclude restructuring expense and non-cash charges relating to stock compensation expense and amortization of intangibles.

Let's first take a close look at our net loss. For the quarter ended March 31, 2004, we reported a GAAP net loss of approximately $28.8 million, or 40 cents per share compared to a GAAP net loss of $23.1 million, or 39 cents per share for the quarter ended March 31, 2003. On a non-GAAP basis, we reported a net loss of approximately $28.1 million, or 39 cents per share for the first quarter '04 and a comparable non-GAAP net loss for the first quarter of '03 was approximately 22.4 million, or 38 cents per share.

Let me now turn to cash. At March 31, '04, cash, cash equivalents, short-term investments, and restricted cash totaled $207 million, compared to $241.9 million at the end of '03.

Let's next take a look at revenues. For the quarter ended March 31 '04, total revenues were approximately $11.9 million, compared to 12.3 million for the same period of '03. The decrease from '03 to '04 was primarily a result of the successful conclusion of our collaboration with Protein Design Labs in May, 2003, partially offset by an increase in revenues from compound deliveries under our communatorial (ph) chemistry collaboration.

Next, I will cover R&D costs. Research and development expenses for the quarter ended March 31, 2004 were 34.2 million, compared to 30.3 million for the equivalent period of 2003. The increase in '04 from the '03 level was driven primarily by increased expenses associated with advancing the Company's clinical and preclinical development programs.

Let's next take a look at G&A costs. General and administrative expenses for the quarter were $5.6 million, compared to 5.2 million for the comparable period in '03. The increase in '04 as compared to '03 was primarily due to merit pay increases for employees and an increase in facilities costs due to the Company's March '03 expansion into an additional building in South San Francisco, California.

Let me finally share with you our outlook for the second quarter of 2004 and please keep in mind that we have not included the potential impact of any product in-licensing, equity offerings or business combinations that may be closed or entered into during the close of the quarter. It's a fairly straightforward outlook this coming quarter. We expect that revenues as compared to the first quarter '04 will increase in the range of 5-10 percent in anticipation of meeting milestones associated with our collaboration and that operating expenses, excluding non-cash and restructuring charges, will remain relatively flat. With that, I would like to turn the call back over to George.

Okay, thanks, Frank. I would like to update everyone on our progress in the first quarter 2004 and give a little outlook for the rest of the year and we will take the programs from most advanced to least advanced. So start with our clinical progress, XL119. We're on track to initiate the Phase III registration trial for 119 this quarter. The process of identifying and setting up centers in North America in Europe, getting RFE approvals and other activities necessary to conduct the trial are well underway. During the quarter, the FDA granted orphan drug destination for the compound in bile duct cancer, which as most of you know, provide the benefits of extended market exclusivity for seven years, tax credits of up to 250 percent with qualified clinical trial expenses and a waiver of FDA user fees. We anticipate initiating the Phase III trial within the next several weeks. We're eager to begin the trial and fully explore the compound's therapeutic potential, which is certain to be of great benefit to patients and physicians and to the Company if XL 119 proves to be efficacious as these patients have no other therapeutic alternatives.

We're also initiating a range of pre-commercial activities, such as analyzing pricing, marketing, manufacturing and distribution scenarios. At the same time that we're initiating the Phase III trial, the NCI plans to conduct additional Phase II trials of XL119 in non-small cell lung cancer and leukemias, as well as Phase I-II trials with XL119 in combination with platinum-based cytotoxic agents. These trials should get up and running throughout the course of the year. We are pleased that the NCI is continuing to study the therapeutic potential of XL119 since encouraging results from these exploratory trials could suggest further development activities that Exelixis could undertake for the compound.

XL 784, we're also making a lot of progress with 784. As you know, we completed the Phase I safety trial, single doses of orally-administered 784 in healthy volunteers. Compound produced no toxic side effects and demonstrated an attractive pharmacokinetic profile. At the same time, we conducted preclinical studies in an animal model of renal disease. Those studies suggested a potential benefit and synergistic or additive effect with an ACE inhibitor in preventing kidney damage. During this year, we plan to perform for further pharmacology experiments to extend these data and to further assess XL784's potential as a treatment for diabetic nephropathy.

We're also conducting 90-day tox studies and we're working to develop a new formulation of the compound suitable for chronic oral administration. We anticipate that all of this work should be completed around the year end so that in early '05, we could initiate what would likely be a Phase I-II clinical trial in patients with diabetes-related kidney disease. While it's still early in this process and we can't guarantee the outcome of these additional experiments, we are excited to have the opportunity to develop a potential treatment for such a large underserved indication.

XL647 -- during the first quarter, and that IND is now active. We will initiate the Phase I trial in patients who have failed other chemotherapies very shortly. We're particularly excited about beginning this trial as it will be the first clinical trial of a homegrown compound conducted in patients. The Phase I trial design allows for single as well as a repeat dosing and will be conducted as an all-comer in patients with solid tumors. As many of you know, XL647 is a spectrum-selective kinase inhibitor directed against selected members of a protein family called receptor tyrosine kinases. These are proteins involved in the growth and proliferation of many kinds of cells, including cancer cells. The spectrum of inhibition of XL647 is extremely interesting. It inhibits the EGF receptor, which as you know, is the target of ERISA (ph) and Tarceva. XL647 is a very potent sub-nanomolar (ph) inhibitor of the EGF receptor. In addition, it inhibits HER-2 (ph), which is the target herceptin. It's very potent HER-2 antagonist and it inhibits the VEGF receptor since it is a target of Evastin.

In addition to those three clinically validated targets, it inhibits another RTK receptor tyrosine kinase called Eferin B4, which came out of our internal research as a potential important receptor tyrosine kinase involved in the proliferation of cells. XL 647 has good or oral bioavailability and showed sustained inhibition of target RTKs in vivo following a single oral dose. In preclinical models of major tumor types, including human breast, lung, colon and prostate cancer, 647 demonstrated potent inhibition of tumor growth. We're excited to be moving this compound into the clinic.

We have a number of other compounds progressing towards INDs and I will briefly review these. Many of you already know some of them. XL999 is on track for IND filing at the end of this quarter. XL999 simultaneously inhibits the FGF receptor, VEGF receptor, PDGF receptor FLT-3 (ph) kinases with high levels of potency. Pre-clinical models of major tumor types, including breast, lung, colon, and prostate, 999 demonstrated potent inhibition of tumor growth and reduced tumor regression. 999 showed rapid in addition onset of action in vivo with significant tumor apoptosis, necrosis and vascular disruption observed after a single oral dose in two different cancer models. 999 is suitable for both oral and intravenous dosing and showed sustained inhibition of target receptor kinases in vivo following a single oral dose. In addition, 999 is a potent inhibitor of FLP-3, which is an important driver of self-proliferation in many patients with AML, acute myelogenous leukemia, and demonstrated remarkable potency in a FLP-3 driven model of leukemia.

XL 844, the next compound, is a potent selective inhibitor of check one and two kinases that induce cell cycle arrest in response to variety of DNA damaging agents. We believe that 844 is the first potent selective check inhibitor to advance towards the clinic. Preclinical studies, 844 demonstrated significant potency in biochemical and cellular assays, good oral bioavailability and an attractive pharmacokinetic profile. 844 potentiates the efficacy of chemotherapeutic agents in preclinical tumor models without a concomitant increase in systemic toxicity by exploiting genetic liabilities that arrive during tumor cell expansion. Exelixis will continue to evaluate the synergistic effects of 844 in combination with a variety of DNA-damaging agents in different cell lines, both in vitro and in vivo, and to explore the compound's potential as a radiation sensitizer. We anticipate filing an IND application for 844 in early '05.

Next compound, XL820, is a selective inhibitor of RTKs that demonstrate also potent inhibitory activity in biochemical and cellular assays against KT FLT-3 PDGF receptor and KDR. Also, it demonstrated potent inhibitory activity in cellular auto (indiscernible) assays against mutationally activated forms of human (inaudible) FLT-3 s that have been implicated in human cancers. XL820 has displayed excellent pharmaceutical properties and oral bioavailability in preclinical models and shows sustained inhibition of target RTK's in vivo. At doses consistent with those required for target modularization in vivo, XL820 exhibits dose-dependent growth inhibition in tumor models for breast carcinomas, gliomas and leukemia and has been shown to cause tumor regression. Consistent with this spectrum of activity, analysis of tumors from XL820-treated animals show a significant increase in tumor cell death and decreases in both tumor vascularity and tumor cell proliferation. We anticipate filing and IND application for 820 in the first half of 2005.

XL 880 is a potent selective inhibitor of MET and VEGF receptor. This is a particularly interesting combination and has led to a particularly potent compound. The compound demonstrated excellent pharmaceutical properties and oral bioavailability in preclinical models and showed sustained inhibition of target RTKs in vivo following a single oral dose. Cup (ph) on a demonstrated dose-dependent growth inhibition of tumor models for breast, colon, small-cell lung cancer and glioblastoma and causes tumor regression. Consistent with this spectrum of activity and analysis of tumors from 880-treated animals showed significant increase in tumor cell hypoxia and death and decreases in both tumor vascularity and tumor cell proliferation. Interestingly, following a single oral dose of XL880, we see continued tumor shrinkage for 21 days. We anticipate filing and IND application for 880 in the first half of 2005.

We have a broad portfolio of compounds in lead discovery and optimization that could form the basis for potential IND applications later in 2005 and beyond. We're extremely proud not only of this high level of productivity and of our ability to sustain it, but also of the high quality of the compounds we are advancing. As many of you can hear, we are close to the airport here in San Francisco.

Generating and managing a portfolio filled with multiple promising product opportunities is a core strategy designed to arbitrage the risks and opportunities inherent in the process of discovery and developing human drugs and we believe it is critical to our ability to maximize our success over the long-term.

Let me quickly comment on our partnerships. All of our current partnerships are progressing well, both on the pharma and ag sides of our business. We're meeting our goals, maintaining the same level of commitment and aggressiveness relative to deliverables that has always characterized our partnering activity. We're especially pleased with the progress we made recently in our NMS oncology collaboration. Just a couple of weeks ago, we completed another draft pick of novel cancer targets, resulting in milestone payment to the company that will record in the second quarter. These targets represent diverse change involved in cell growth and transformation and several are key mediators of the beta kitenan (ph) pathway. As some of you know, beta kitenan is one of the most important pathways and one of the highly mutated pathways in human cancers. The beta kitenan pathway has been studied for almost 20 years, and up until this time, very few significant drug targets have been identified in this area. We have now identified several interesting targets capable of modulating signaling through the beta kitenan pathway and we're very excited about the potential that these targets represent. We anticipate moving these targets into high throughput screening with the goal of generating compounds that have the potential to fuel our proprietary anticancer pipeline in 2005 and beyond.

In terms of establishing additional alliances, we are actively engaged in many different kinds of conversations with a diversity of companies in different markets and we are optimistic that we will establish additional interesting and rewarding relationships during the course of the year. As we had previously said, we could expand our efforts into therapeutic areas outside of cancer and we're also looking at options to in-license as well as out-license. There's a lot of active interest in the Company from a variety of pharmaceutical and biotechnology companies right now, which is very gratifying.

So in conclusion, we remain focused on making high quality drugs, delivering on our commitments to our partners, operating at a high level of fiscal responsibility and building a sustainable business. We have ambitious goals for the year and in each of those areas and we're on track to meet them. So let me say that we are right now, we feel really good about where the Company is. We feel good about what we've accomplished, we've made a lot of progress, we feel very optimistic about the future of the Company, the compounds are making good progress, partnerships are going well, we understand that we have substantial challenges yet facing us, but we know what those challenges are and we've developed plans to deal with those challenges and the Company is at a very good position in time right now. And so we are truly optimistic about the prospects of the Company for this year and beyond. So with that, we'll end the speeches and open the conference up for questions.

(Operator Instructions). David Witzke, SunTrust.

Hi. Thank you for taking our call. I guess first on the scientific side, there has been recent published literature on using EGFR gene sequencing to identify mutations in the catalytically active side on EGFR that correlate to response with ERISA in non-small cell lung cancer. I know it's early, but I believe your 647 and 999 also target the ATP binding site and the various kinases that they target. And I guess my question is -- how do you view the prospects of genotyping or looking at molecular markers to sub-type tumors and identify who might respond to your RTK programs? And do you have plans to move this type of research into clinical trials?

Thank you, David. That is a complicated question, as you know. There's not a simple answer to that question. One way to answer that question is to say that we deliberately design -- our compound 647 being a good example -- to not only the EDF receptor, but also other important receptor tyrosine kinases as well, so the HER-2 and VEGF receptor in addition. And the reason for that is because -- and we believe -- that in many tumors that, for example, do not have you mutationally active forms of the EGF receptor, it is an important pathway, but inhibiting it alone may not provide an especially strong therapeutic benefit. And that inhibiting the combination of drugs will provide -- not drugs, but inhibiting combination of targets will provide a bigger therapeutic impact to patients -- to the majority of patients. So in that sense, a drug like 647, we hope -- and this is all a little hand waving right now -- but it's the rationale behind designing a compound like 647. We believe 647 will have a higher therapeutic potential for a large number of patients because its activity is not based solely on inhibition of the EGF receptor.

With that being said, of course we're putting a lot of work into understanding the biochemical and genetic bases that drives human tumors. And we're doing that both from looking at tumor expression data, we're looking at the phosphorelation (ph) levels of the various RTKs in human tumors, primarily isolates from human tumors, so that we can best understand which combination of RTKs drive the proliferation of what kinds of tumors so that we know not only how to take our current drugs forward, but how to develop more intelligently the next generation of drugs. Does that answer your question?

That's very helpful. In looking at competitive agents, can you kind of describe your approach pre-clinically looking at the ERISAs, the glevix (ph) and other agents to VEGFR-2 and how you compare your drugs to those pre-clinically?

We have -- let me just say that there would be no point developing a drug -- and we believe very strongly that we should not be developing any drug that we don't have a good basis to believe are more important, broader acting, have some advantages over other drugs that are already on the market or in late-stage clinical development, which clearly we're going to get to the market after them and we have to have some advantages. So we do believe that we understand how our drugs stack up and we do believe that, at least at the preclinical level, we have a very favorable profile of activity.

Finally on 647, any more details specifically on the Phase I recruitment goals, type of tumors you're particularly interested in, and when you think you would be in a position to move forward?

It's an all-comer study for solid tumors. So we are not making any attempt to enrich in any particular tumor type. Obviously, these are late-stage patients who have failed other therapies. It will initially -- each dose level will initially be a cohort of patients who get a single dose. If that dose is tolerated well, that same patient will be eligible to receive five sequential daily doses. And if that is tolerated well and the patient shows any benefit from having taken the drugs, then the patient is eligible for five additional doses every month -- every four weeks. So -- or every two weeks -- now I've just got confused in my head, but one of those. Anyway, so it is both a single dose and a chronic dose study. And a cohort of patients will be treated with that protocol at a single dose and then the next group will come in and be treated with that same protocol as a higher dose. And so we will continue that does escalation until we get the MPD and then we will take it forward in efficacy trials. So does that answer the question?

Yes, that is helpful. And dosing is at kind of 20 to 100 milligrams per kilogram, or kind of just a rough range where you start before escalation?

Yes, we really haven't said anything about that yet.

Thank you.

Brett Holly, CIBC World Markets.

Hi. Thanks for taking my question. I just want to take a little bit more. and for the spectrum selective kinase inhibitors, what you are expected to see as far as toxicity, and what you have seen in the preclinicals for 647, along with those lines. And just thinking about multiple kinase inhibition and what that might mean, as far as toxicity in humans?

Yes. Look I think the basis for your question is that people have a concern that as you broaden the activity of a compound, you increase the potential for unacceptable toxicity, and that is certainly a legitimate concern. It's one that we think about as well.

So let may address that a couple of ways. One is to say that I think very few of the kinases inhibitors that are in the clinic are actually specific or on the market, are actually specific. The fact is there are 530 some-odd human kinases. Even today with a lot of effort inside Exelixis, we can assay 200 and some-odd, 230 of those kinases, so we're getting up to about half of the kinases that we can assay. That means even we don't know very much about the inhibitory activity of our kinases against the other 200 kinases or 300 kinases that we haven't yet been able to assay. And I believe our ability to assay kinases is as good as anybody. We probably have the capability to assay more kinases than most other companies. So when any compound seems to be specific or relatively specific, it may or may not been. And I suspect that most of the compounds in the clinic do inhibit more than one thing. It's just that of the things other than their primary target are serendipitous and to some extent, undefined. So is absolutely unclear to me if the toxicities that have been associated with the kinases that are on the market or in clinical development are due to inhibition of their primary targets or due to off-target activities. And that will all get sorted out in the next couple of years, because there's increasing data accumulating.

So the fact that we target ours to inhibit a small number of kinases does not mean that we necessarily hit more kinases than the others, it just means that we are able to define those that we want to hit. So that would be one way. So look at it that way, I don't think it is reasonable to conclude that because we are targeting multiple kinases, our compounds will have more or less toxicity than others.

Now with that being said, the proof is in the pudding, right? You put these things into animals and you see what the toxicity is. And eventually, you put it into humans and you see what the toxicity is. So all of the rest is just hand waving. And so 647 has been through GLP talks obviously because we have an active IND. We understand what the toxicities are. The dose (indiscernible) is GI for 647, as it is with many other kinases inhibitors, so there is nothing that we have seen that would cause us undue concern or to indicate that the general pattern of toxicity that we see with 647 will be different from other kinase inhibitors again. Let me caveat that by saying that none of that matters until you get into humans and you see what happens there. We just don't have those data yet.

And how are you defining selectivity? For the four kinases that 647 targets, what is the cut-off in the nanomolar range of inhibition of the 200 kinases that you have worked at? What are number 5 and 6 on the list as far as selectivity?

The difference is at least twenty-fold. So five and 6 at least twenty-fold or inhibited at least twenty-fold higher concentrations and then they go up from there. Some we can't even measure any inhibitory activity.

One last question. So 647, 999, 820, 880 and possibly 844 are all subjects to GKS -- is that correct?

Yes.

Am I right in saying that there is a review of the GlaxoSmithKline agreement later on this year?

Let me take a minute then and describe how that relationship works. These compounds are part of our collaboration with GSK. That means that at Phase II-A, GSK does have a call on these compounds. If they all were to get successfully to Phase II-Sa, they would not be able to call them all because there's a limited number of calls that they can make. But for those that they do call, they pay us a big milestone payment, they then fund the Phase II, Phase III clinical development, market introduction, we get generous double-digit royalties and co-promotion in North America. So we participate meaningfully in the economics of those compounds. If they choose not to call them at Phase II-A, we of course own them free and clear and we're free to develop them on our own.

I think what you are alluding to later on this year is a -- at the end of the second year of the collaboration, which is this October, there is a time window, so it doesn't have to be on that second year anniversary. There is a number -- a time window after the second year at which GSK can decide to super size the collaboration or leave it as it is. And obviously, we have some input into that decision as well. And so I think that is what you are alluding to.

And just the terms that would be decided is just productivity, etc.?

No, I wouldn't think so. Certainly partly, if we don't do a good job, then certainly they're not going to elect to pay us more money. But even if we do do a good job, it does not mean they will automatically elect a super size option. There are a number of factors that enter into it that have nothing to do with our performance under this agreement.

Thank you very much for taking my questions.

Eric Schmidt, SG Cowen.

Good afternoon. Sort of a related question on pan-kinases inhibition. George, at the Genentech analyst meeting in March, Art Levitson (ph) suggested that the biologic approach to inhibiting kinases was superior in that no one could possibly know which set of kinases you would like to inhibit with a small molecule compound. Firs, do you agree with that statement? And second, could you update us on what you're doing yourselves with your partners, in terms of (indiscernible) antibodies in some of these targets?

First, let me correct the term pan-kinase. That is exactly what we don't want here. Those are certainly toxic. So we believe that by not making pan-kinase inhibitors, but kinase inhibitors that target certain preselected kinases that are important in tumor cell proliferation, you can make more potent drugs. If you simultaneously inhibit EGF and VEGF, you should have a more potent drug than anything that inhibits one or the other, but not both. That has been the rationale here. So the potential here is for more potent drugs.

What Art is talking about certainly is that biologicals and antibodies are truly specific. You can make an EGF receptor antibody and it inhibits the EGF receptor, period. It's more complicated than that because these are multi-functional, multi-domain proteins and inhibiting the extracellular domain with an antibody doesn't necessarily lead to the same biological effect as inhibiting the intracellular domain with a kinase inhibitor. So I think there is plenty of room for both biologicals and small molecules that it is not clear to me yet -- it may be, but is not clear yet -- that an antibody target against the EGF receptor has the same effect as a small molecule drug that is truly specific and targeted against the EGF receptor.

So small molecules have the advantage I think of being able to target more than one. They do have the risk of targeting some combination that leads to unacceptable toxicity, so there is a benefit in a risk and antibodies are the converse. So we do have a number of antibody targets, some of which are receptor tyrosine kinases, some which are not that we believe could be inhibited effectively with antibodies. And those antibodies could lead to interesting therapeutics, potentially effective therapeutics. We are making those antibodies. Some of them we have made, some of them are being made as we speak and we will test them in preclinical models. And as we identify those that we believe have some therapeutic potential, then we have to figure out how to move those forward. And since that is a field where we have no expertise and no IP, we would certainly need a partner to do that. But our first goal is to identify those antibodies that we think have therapeutic potential, and we're doing that as we speak.

Thanks a lot.

Jeff Zekauskas, J.P. Morgan.

Hi, good afternoon. George, have you thought about structure and timing of a Phase II-A trial for XL784?

Well, yes. Have we talked about it? Yes. Do we have definitive plans? No. The timing is -- such trials are likely to begin in the first part of next year. Since the drugs seems to have -- or let's say we hope it has activity and it preclinically has activity in renal failure -- to do a Phase III trial in renal failure is a big trial. And that is a trial probably with thousands of patients followed over some period of time. It's probably not a trial we want to undertake on our own. We don't have to make that decision today. But if we had to make it today, we wouldn't do it on our own. We may be a different company by the time we get there.

But and so one question we have asked ourselves is -- what are the surrogate markers for renal failure, what kind of a Phase II trial do we have to do to get data that are compelling enough for us and for a partner to say, yes, we're willing to put the time and money into such a large Phase III trial. So that's obviously the intent to do in the Phase I-II trial. And honestly, we're working that out now. We don't have a final plan yet. We have been talking to a group of nephrologists and we're making those plans. But I cannot tell you what the trial design will be sitting here today.

That is your agnostic trial design? Surely, you have made sort of some progress?

Of course. But I think we're not ready to say what that trial design is publicly yet, because it's not completely finalized in our own minds.

When do you think it might be finalized?

Well, we are doing a number of things in parallel. We're doing the formulation, were doing the tox, we're doing some additional pharmacology and we're doing the clinical trial design. And our goal is for all of that to come together towards the end of the year. And so the design of that trial is not, by any means, on the critical path of this project. So it's not something that we are -- feel like we have to do by June or July. It's something that we need to have in place when we have all of the other data so that we can go ahead without losing any time on the project. So I think later on in the year, we will have the data. Or we won't have the data, we'll have the design.

I have a couple of questions for Frank. The burn rate in the first quarter was on the order of 35 million? And like is a reasonable number for the year something more than 100 million?

No. I think you know, on our last call, when we gave guidance for the full-year '04, and that guidance is unchanged. And at the time, we gave guidance for our burn rate of 95.7 million.

95.7, okay.

Which I think is still on track. I would further add that the burn rate in the first quarter is not necessarily indicative of what it's going to be in the following three quarters because it may change from one quarter to the next.

I guess secondly is, excluding whatever successes you may have in advancing compounds into successful Phase II-A results, all things being equal, should we think of Exelixis as sort of a $50-$60 million revenue company until the time when one of these compounds works or does not work, or should we think about it in some other way?

That is for you to decide. We cannot give you long-term guidance. We give guidance year to year and we have given guidance for this year. And our challenge and goal is to build a great company here. And there are a number of roots to accomplish that, and that is why I don't think it is really reasonable or realistic for us to give guidance much beyond the end of this year because there really are legitimately different strategic paths that we can take. And we are analyzing a number of them as we speak, but it is an ongoing process.

I think for now, the guidance we've given for year-end a quarter ago is unchanged.

(technical difficulty). I'm not trying to extract extra guidance, it's just a matter of sort of understanding the Company's priorities, in terms of -- it doesn't want to make alliances? Is that really the priority? Or it is more to develop what you've already got?

Our goal clearly is to become a product-based company and to move our own compounds forward, eventually get some of them on the market; to continue to move new things into the clinic, because we all know what the risks are of the business that we're in. Everybody talks on shots on goal. That's important, but it's also how good those shots are. And so our goal is to put a large number of what we believe to be very high-quality compounds into the clinic with the intent of at least getting some of them out the other end and onto the market. Now as you know, that takes some time to end it takes a reasonable amount of cash to do that. So there are number of strategic alternatives, such as partnering, that provide us -- that are not for us a strategic end, but are a means to help us achieve that end. So if we can enhance our ability to do that by partnering, if we can increase the revenues that we have -- pre-cash revenues that we have through partnering -- if we can increase the number of compounds we have in clinical development through partnering, then we will do that.

And so for me, there is kind of a concept of the number of compounds you have in the clinic times the percentage you own of each compound. That is really kind of a clinical ownership index, or I don't know what you want to call that. But that needs to increase. And the bigger than number is, assuming the compounds are good quality, the more likely we will have ultimate success. So any partnering we do should help us to do that end. Because our goal, our strategic goal, is not to partner. Our strategic goal is to be the product company. Partnering is a very useful tool to help us get to that strategic goal, as are other kinds of activities and other kinds of alliances that we're discussing.

Okay, thank you very much.

I just want clarify one other thing. At the very beginning, were you asking about the burn rate? I just wanted to be clear. We generally don't give guidance on cash burn rate. But you can deduct it of course from the guidance that we've given you in our last earnings call when we said that our cash balance at the end of the year will be somewhere around 175. And we also disclosed of course what our ending cash balance was at the end of last year. And we said that we're planning to draw down further on the GSK loan. And so from that, you can deduct the number that I was just giving you.

(Operator Instructions). May-Kin Ho, Goldman, Sachs & Co.

Hi, George. Can you talk a bit about philosophy, in terms of how you're going to design your clinical studies now that we have some pretty good data from both antibodies against EGF, as well as small molecules? And then of course as VEGF blockers as well. And as you know, Novartis may have data coming out next year on small molecules blocker. So for your inhibitors, are you looking to basically use it in patients that are refractory to the other VEGF and EGF blockers? Otherwise in first-line therapy, sometimes it's a bit challenging.

Yes, it certainly May-Kin. And the question you ask is one we have been thinking about a lot because the kinds of drugs that are available to cancer patients are now changing so rapidly that, by the time you have to do a pivotal trial, the standard of care might be very different from what it is today. And that's one of the reasons we need to make sure that our compounds have some substantial, at least theoretical, therapeutic advantage.

So the question to your answer is partly data-driven, that by the time we have to make that decision for a pivotal trial, we will has data from a large number of patients of different tumor types who have been seeing other agents and we'll be able to do it based on a data-driven decision. And I'm always a believer that is the best way to do it. Again, I believe that a compound like 647 that hits both EGF and VEGF and HER-2 and hefrin (ph) is likely to be more broadly active and have a bigger therapeutic impact than agents that hit only one of those targets. That is -- seems to be true in pre-clinical models. Whether that holds true in humans, we will have to see in a clinical trial. So I can just tell you what I think is going to be the case, but obviously, the data will dictate in the end, the final clinical developments.

Because at the rate we're going, after a patient gets into a certain line, the patient might have been exposed to a VEGF blocker as well as an EGF blocker already.

That is true for some patients. It depends for what tumor types. Certainly, ERISA, Tarceva, as well as the antibodies, will become widely used for some types of patients; not for all patients. And so that is the same -- it is not a novel issue. If you have a novel taxane and you have Taxotere and Taxol on the market or something like that, you still have that same issue. So this is not a novel issue. Bat as the number of therapies goes up, then what becomes first, second and third line therapy changes. And so the therapeutic benefit you have to provide also goes up. And that is of course a good thing for patients. And I think it's just too early cancer that question with any real seriousness, May-Kin. It's just all hand-waving right now until we get some data in the clinic. I'm not trying to avoid it, I'm just trying -- I think it is really a database and data-driven decision that we'll make.

Thank you.

There are no further questions at this time.

Okay. If there are no more questions, then let me thank everybody for your attention and your interest and we will get back to work and try and push some of these compounds forward. So thanks a lot.

This concludes today's quarter one 2004 earnings conference call. You may now disconnect.