Exelixis Inc (EXEL) 2005 Q4 法說會逐字稿

Greetings, ladies and gentlemen and thank you for holding. Welcome to the Exelixis fourth quarter 2005 and full year financial results conference. [OPERATOR INSTRUCTIONS]. It is now my pleasure to introduce your host, Mr. Charles Butler. Thank you, sir, you may begin.

Hi to everyone. Thank you for joining us on our Q4 year-end 2005 financial call and business update. Joining me on the call today is George Scangos, our CEO, and Frank Karbe, our CFO. Before we get into George's remarks, I would like to deal -- give the forward-looking statement.

Please note as set forth in more detail on the slide, the following discussion contains forward-looking statements such as our financial outlook numbers, the anticipated timing of our clinical trials, we expressly disclaim any obligation to give any updates or revisions to any forward-looking statements.

I'll now turn it over to George who will give an update on the business before Frank's financial overview.

Thanks, Charles. Thanks, and good afternoon to everybody.

I think as many of you know, 2005 was a great year for Exelixis. We made major advances on our pipeline, we presented data on four clinical compounds that confirm what we've been saying, that the compounds were of very high quality. We brought a number of new compounds into development, and the 2005 clinical milestones are listed on the next slide, and you can see that there were a lot of them. Positive compounds into development, initiation of four Phase I programs, achieving our clinical objectives in three Phase I programs, and a fourth [Parade 80], starting one Phase II program and carrying out a multinational Phase III trial, these are substantial achievements.

On top of these, we accomplished a number of business transactions, so that even in the face of the obviously increasing expenses due to the advancement of these compounds through the clinic, our cash balance increased by $30 million over the course of the year. We're moving compounds aggressively forward, bringing new compounds into development and increasing our cash position with minimal dilution. All in all, not a bad year. I think there were a lot of companies to talked more aggressively about their accomplishments but very few that actually accomplished them.

I'll come back to our business transactions in a few minutes, but I would like to take a few moments now to bring you up-to-date on our most important priority, and that is the progress of our pipeline. The pipeline is shown on the next slide here. I can't talk talk about all of these compounds in detail, but let me just talk for a minute or two about each of our most advanced compounds.

For XL119, Phase I data was presented at the EORTC meeting in November At that time, there were two partial and one minor response. Since then, the tumor in the patient with the minor response has continued to shrink and the patient now has a confirmed partial response. We had additional cases of long-term stable disease with two in renal cell and two in thyroid cancer.

Phase II trials are underway for XL999 in breast, colon, ovarian, and non-small cell lung, among the solid tumors and as well as multiple myeloma. The sixth trial for acute myelogenous leukemia will start soon, and some of these trials have multiple components. For example, the multiple myeloma trial actually provides two opportunities to see biological activity in 999. First, based on our understanding of the role of angiogenesis and myeloma, XL999 measured activity [vigorous in the addtion of the digestive sector].

In addition, we'll be monitoring for the subgroup of myeloma patients with a chromosomal translocation that activates the [FCL-3] receptor which is inhibited by 999. For 880, we made substantial progress in the clinical program for 880. The Phase I trial is still ongoing. The data we've generated to date warrants accelerating the compound into the Phase II clinical setting. At the time of the EORTC meeting, we reported on one patient with capillary renal carcinoma who achieved a minor response. This patient has achieved a confirmed partial response and continues on therapy.

Since that time, we also conducted pharmacodynamics studies with one patient with advanced metastatic melanoma. This patient has stable disease for several months and the tumor analysis showed a time-dependent decrease in the amount of phosphorylated net [NRONs] accompanied by decreased proliferation and increased apodosis in the tumor but not in the surrounding normal tissue. In this melanoma patient, the drug reached its target and had the desired effect. We plan to rapidly advance 880 into a Phase II trial for capillary renal cancers as soon as possible, and include a variety of tumor types in a broad Phase II program where MEK seems to play an important role in grounding tumor proliferation

647, now reached [dose of main tox, which is diarrhea] and we're gearing up for the Phase II program. As you know, 647 is being both intermittently and concurrent with starting up the Phase II program, we'll extend the Phase one trial to include daily dose of the compound. Phase II program will include trials with the intermittent schedule as well as with the data schedule. We anticipate that the Phase II program will begin in the second quarter, and that's about two or three months later than we expected. That's due to the fact that we needed additional cohorts in the Phase I study to identify the optimal Phase II dose.

As you may recall, 647 was very well tolerated in Phase I, allowing us to push the dose higher than we initially projected. We're now confident we have the good Phase II results with which to go forward. 647 will be tested initially in non-small cell lung cancer, and breast cancer and the subset of lung cancer patients which are relapsed of the responders.

784 is progressing rapidly to Phase II initiation. This drug is being studied for its impact on necropathy in patients with diabetes. Pre-clinical models of both diabetic necropathy and hypertensive necropathy, 784 demonstrated substantial protection of renal and cardiac function. The extra additive to those induced by ASE inhibitors and angiotension receptacles. In some of the models, XL784 showed the ability not only to prevent renal damage but to reverse established injury.

784 was very well tolerated in single and repeat dose Phase I study and Phase II trial is again in set in part. It will be a blinded placebo-controlled trial. In patients with diabetic necropathy. We'll compare H, and or R inhibition alone to what the group with those H and R inhibitions, and 784. We're very excited about the potential of this drug and have a real impact on the renal function in these patients.

820, a Phase program is progressing well. 820 is now being dosed at levels we expect to be therapeutic. Like our other compounds, it's readily available, it has a good half life. and the [cosmo level] is proportional to the dose administered to the patient. XL184 and 844, those Phase I are ongoing and we anticipate that those trials will continue to accrue patients for a good portion of the year.

In addition to those compounds, all of which are in the clinic, we expect to file an additional three IMDs this year. One of the compounds, XL418 targets HET and XSK, two very important numbers that CIC.8 p10 pathway. Seems to be a primary driver for many cancers, and a key pathway, that when activated, leads to resistance with variety of cytotoxic and targeted therapies. The second of these compounds, XL228 is an hinter of ABL and SRC. This inhibits the T33CI in ABL that confers resistance to gleevacs, as well as the second generation of ABL inhibitors from DNS and Novartis.

The third compound, XL281 will be the first potent specific RAC inhibitor tester in the clinic. In addition to these, we'll bring another three to five compounds into preclinical development this year in preparation for IND filing next year. Compounds are out of our collaboration with GSK and target under the hottest targets in cancer including TI-3 primates, Jak-2 and MEK.

Now, I think switch for a moment to the business side of the Company. On the next slide, you can see the three goals that we have for our business functions. One is to fund the aggressive clinical development of this rather amazing pipeline. Two, retain, maximize our residential of downstream rights of the compounds, and three, minimize dilution to ourselves and all of our investors. I think what we executed in 2005 was an example of this approach. We secured over $250 million of committed capital and only $50 million of that being through an equity fund. The result was we were able to move our compounds aggressively forward while increasing our bank accounts.

We enter 2006 with a good cash balance and revenues and additional partnering prospects to make us confident that we'll be able to continue to achieve these financial goals. On the next slide, it is a review of the financial transactions that we executed in 2005. And we've gone through these before so I'm not going to go through these in detail. Just a couple of minutes to put them in perspective. They're not just a random series. They're the result of a strategy we've been executing for some time.

In January of 2005, we amended our collaboration with GSK. This allowed us to take certain compounds and arrange separate financing. As a result, we were able to find the relationship with Symphony later in the year. The amendment also created new milestones of $35 million which we achieved in 2005. This was not new money. It is money that will be deducted from future milestones, but it does provide with us with cash in this critical phase of the evolution of our company. This milestone also reflects GSK's confidence that the later milestones will be achieved. I would like to publicly thank GSK for being an enlightened and helpful partner.

Our strategy differs from many other biotech companies in that we maintain a vigorous drug discovery program, and have produced a substantial clinical pipeline. To help fund all of our clinical programs, we reached an agreement with the Helsinn for the development of [bekaskaran for bowel cancer]. As a result of this transaction, we received payments from Helsinn and accept to receive future payments as well. Importantly, Helsinn has taken over not only expenses of the Phase III trial, but the management of the trial as well. This transaction aloud us to focus our resources, both manpower and financial on the clinical development of our internally develop pipeline. The Symphony transaction then provided funding for the three most advanced of those internal developments.

So, in this way, we arrange clinical financing for our four most advanced compounds, we've off-loaded the financial risk of failure of those and by retaining rights to the compounds in the case of success, we were able to keep the upside. All at minimal dilution.

Also, during the year, we entered into collaborations with Wyeth for compounds that target FXR and with Bristol-Myers Squibb for compounds that target LXR. These programs originated with X-Ceptor, the small nuclear hormone receptor company we bought in 2004. By combining our drug discovery capabilities with the excellent nuclear hormone receptor biology and chemistry at X-Ceptor, we were able to rapidly advance these compounds to a mature state.

We're excited about these partnerships, and are optimistic about the success of these compounds which really could represent breakthroughs in the treatment of arthrosclerosis and potentially for other cardiovascular and other metabolic disorders as well. These partnerships also were not opportunistic, we had anticipated the ability to find partnerships when we acquired X-Ceptor. We believe that Wyeth and BMS we found excellent partners for the program.

Finally in 2005, we were able to form a productive partnership with Genentech for the development of antibodies that target Notch with the notch pathway. This pathway was initially identified in the lab of one of our scientific founders. And Exelixis is licensing the patents part of the members of the pathway. Recent data has implicated notch as the driver of several types of human cancers, and an important role in other p processes that include cell proliferation as well as differentiation as well. We're pleased to present Genentech as a partner for the development of antibodies against these targets.

So, that's a brief synopsis of '05. I'll come back at the end and tell you a little bit about what we expect to do in '06. Before that, I'll turn the call over to Frank who will take you through our 2005 Financials.

Thanks, George. 2005 was an exceptionally successful year for Exelixis, both in terms of our business as well as our financial performance. As you've heard from George, we've entered a number of transactions last year which had a significant short term and long-term financial impact for our business. 2005, new transactions allowed us to advance our free clinical pipeline and expand our development activities throughout the year while increasing our cash balance with a minimum amount of dilution to our shareholders.

We've demonstrated that the investment in the depth and quality of our pipeline not only diversifies our risks and maximize our chance of success, but also creates options to fund our activities through a variety of mechanisms. The announcement of two new collaborations with BMS and Wyeth in the fourth quarter completed an impressive 2005 track record of business and financing transactions, which in aggregate, provides about $250 million in noncontingent new funding, that is,excluding any milestones and royalties. In fact, beginning 2006, the total cash and committed non-contingent funding from all of our collaborations of about $350 million. With that, we're confident about our ability to continue the aggressive development of our pipeline and I think we've demonstrated that we can do so in ways that preserve significant economic upside and minimize dilution to our shareholders.

Turning to the next slide, we'll take a look at our financial results. I'll first read you the results for the fourth quarter and then full year '05. As usual, we're reporting results both on a GAAP and non-GAAP basis. Non-GAAP results exclude restructuring expense, acquired [influx of] R & D and non-cash charges for stock compensation and amortization of intangibles. As usual again, a reconciliation of GAAP results to non-GAAP results is contained in our fourth quarter and year end press release which is on our web site at www.exelixis.com.

Net loss under generally accepted accounting principles from $24.5 million or $0.29 per share, compared to $51.9 million, or $0.70 per share for the fourth quarter of '04. Net loss in the fourth quarter last year excluded a $26 million in-process R & D charge, related to our acquisition of [inaudible -- accent]. Non-GAAP net loss was $24.2 million, or $0.29 per share compared to $25.6 million or $0.35 per share for the fourth quarter of '04. Revenues were $14.4 million compared to $15.7 million for the comparable period in '04. The change was primarily due to the completion of our combinatorial chemistry collaborations as well as our collaboration with Genotra and Sandhill.

The decreases were partially offset by increased research in development funding and collaboration and the recognition of up-front payments with our new license agreement with Helsinn as well as our new collaborations with Genentech and Wyeth. R & D expenses were $36 million compared to $35 million for the comparable period in '04. The change from '04 to '05 reflects the continued expansion of our clinical and pre-clinical development activity. Increases were partially offset by significant decrease in lab supplies as a result of termination of our collaboration.

G&A expenses were $7.6 million compared to $5.5 million for the comparable period in '04. The change was primarily a result of higher personnel related expenses and increased charges for professional services. Cash, cash equivalent, marketable securities, investment sales and restricted cash investment totaled $210.5 million at the end of the year. Compared to $171.2 million at the end of last year.

I should point out that the 2005 year end balance excludes the $17.5 million upfront payment from our new collaboration with Bristol Myers Squibb As well as the second capital up to $40 million under our financing arrangement with Symphony.

The next slide, you look at the full year 2005 results. GAAP net loss for the full year '05 was $84.4 million or $1.07 per share compared to $137.2 million or $1.89 per share for 2004. Non-GAAP net loss was $83.2 million or $1.06 per share compared to $107.8 million and $1.49 per share for the prior year. The decrease in net loss year-over-year It was the result of significant decrease in revenues in the $10.4 million of expenses from reimbursements received from our financing arrangement with Symphony. Revenues for the year were $76 million, compared to $52.9 million for the comparable period in '04. The increase of over 40% was primarily due to milestones achieved with GlaxoSmithKline collaboration and the conclusion of Genotra collaboration, and the recognition of up-front payments received in our new agreements with Helsinn and Genentech.

R & D expenses were $141.1 million, compared to $137.7 million for '04. The change from '04 to '05 is again a reflection of the continued expansion of our clinical and preclinical development activity which was partially offset by the significant decrease in expenses the lab supplied, mainly as a result of the previously mentioned termination of our most [permanent neuro chemistry] collaborations. G&A expenses were 27.7 million compared to $20.9 million for the prior year.

Let me give you a little bit more detail here. This increase, which was right in line with our budget for the year, was primarily driven by two factors. One, it reflects the growth in our G&A infrastructure to support the expansion of our development activity. Most notably, we've added a new building and increased headcount and certain G&A functions, such as finance and facilities. And two, it reflects higher legal and accounting fees in connection with the various transactions we've executed this year as well as an increase in professional service fees related to our expanded corporate communication effort, training programs for all employees, and implementation of an enterprise resource planning system from SAP.

Let me briefly comment on the impact on our financial statements from the collaboration of BMS and Wyeth, which we announced in December. Our new collaboration with BMS became effective upon antitrust clearance in January of '06 at which point BMS paid us an up-front payment of $17 million. This payment will be recognized on a straight line base over a three-year period starting in January of this year. BMS will also provide and we will recognize the revenue, annual R & D funding of approximately $10 million per year, starting as of January of '06 for two years. In addition we may receive development and regulatory milestones totaling approximately $140 million per product or up to two products as well as sales milestones under this new collaboration.

In our agreement with Wyeth, we received a $10 million up-front payment in December which will be recognized as revenue over a one-year period. We also receive up to $147.5 million in development and commercialization milestones as well as royalties on the sale of products, commercialized under the collaboration.

The next slide, I'll briefly give you our financial outlook for 2006. For the full year 2006, we expect revenue in the range of $100 million to $110 million Operating expenses in the range of $210 to $235 million, and the year-end balance of cash, cash equivalents, marketable securities, investments held by Symphony and restricted cash of at least $130 million, Would characterize the projected year end cash balance at conservative estimate and the number that has upside to it.

The increase in operating expenses over 2005 reflects our aggressive development plans for this year. With up to five compounds in Phase II and five compounds in Phase I by the end of the year. To anticipate a majority of the increases to be covered by reimbursement in our financing arrangement with Symphony. Our expense guidance excludes estimated stock-based compensation expenses in the range of $15 to $20 million which will be included in our GAAP numbers since we adopted the FAS stock option expensing rule in January of 2006.

Previously mentioned the reconciliation of GAAP results to non-GAAP results as posted on our website. I would however like to clarify briefly how the new accounting standard will impact our reporting. There are three points I would like to make: First, we plan to abide by the FAS-123R prospectively, and with our GAAP income statements of 2006 and beyond will not be completely comparable to five years. Second, we plan to exclude stock-compensation expense in our non-GAAP numbers and to specify the charge for each quarter. Third, in our GAAP reporting, stock option expense is allocated and reported in each operating expense line. Specifically R & D and G&A.

In summary, we're entering 2006 with a strong momentum and a solid financial position and we're comfortable about our ability to continue the aggressive development of our promising pipeline which is our number one corporate objective for this year.

With that, I'll turn it back over to George.

Thanks, Frank. 2006 looks like another really exciting year for us. Our priority will continue to be on execution. We're aware that nothing is more important for us than the rapid and the thoughtful movement of our compound into and through clinical development. We anticipate substantial news this year about the clinical progress of our compound. At the same time, we'll continue to execute on the business front, so we can continue to fund our operations while we minimize dilution and retain long-term rights to our compact.

As you can see, on the next slide, we could have five compounds in Phase II testing this year. 999, 880, 784, 647, and 820. We expect to have Phase II data on up to three of these around the year, and the others in 2007. Our goal is to bring some of the compounds to the proof of concept decision toward the end of the year. We expect additional Phase I data on 999, 647 and 880 as well as to present, for the first time, Phase I data on 820, 184 and potentially 844 as well. So, this will be a busy year for us clinically.

As you can see on the slide, we expect to have presentations at the major cancer meetings throughout the year. In addition to moving these compounds through clinical development, we expect to file an additional three INDs as well. On the business side, it is clear that we'll be able to find addition of partnerships and execute other transactions and we're evaluating our opportunities carefully in order to balance short term cash needs with the long term value retention.

Our pipeline as it may look at the end of the year is shown on the slide here. Year end, we expect to have ten internally generated compounds in clinical developments. Five in Phase one and five in Phase two. Which compares to the end of 2005, when we had one compound in Phase two and six Phase one trials going on. We had a successful year in 2005 and as we move into 2006, I believe we're poised for another fantastic year in which we'll continue to make substantial progress. We're comfortable with our financial position. We're excited about the prospects for our compounds and we're eagerly anticipating the Phase I and II data that should be available during the course of the year. We're looking forward to the day which comes ever closer, when some of our compounds are approved and are providing substantial benefits to cancer patients.

Once again, I want to thank all of our employees who work incredibly hard, and whose work has resulted in all of the success that we've had to date. To remind us all that although we've come a long way, we have a long way to go and we have to keep our eye on the ball and keep on executing. I have no doubt we'll continue to do so and that will continue on an increasingly successful trajectory. With that, I'll stop talking and open up the call for questions.

[OPERATOR INSTRUCTIONS]. Our first question is from Mr. Han Li of SunTrust.

Good afternoon. Thank you for taking the question. Two quick ones. First, on the financial guidance for '06, $100 to $110 million, does that include the option of GSK and milestone payment for the first --

No, it does not include any revenue from that.

Okay. The second question is regarding XL999 and for the Phase II study, you're going to use once a weekly dosing of 2.4 mg per kg in the Phase I study, you used biweekly dosing. Can you give us a rationale why you have this reached.

Sure. It is based on the rationale that more is better and we had, toward the end of the Phase one trial and under the EORTC meeting, so the data has not yet been presented publicly, we've done a substantial amount of Phase I or switching to the weekly dosing. We have a substantial body of Phase I data now. Based on the data we have, we thought that was the best dose to take into the Phase II trial where we could maximize our chances for seeing efficacy of the drug and still give ourselves a good start.

Will we be able to see the extension data sometime this year?

We are hoping that those data will be available at ASCO.

Ok, thanks.

our next question comes from Jeffrey Zekauskas from J.P. Morgan.

Hi, good afternoon. The first is a question of clarification. Your revenues next year are about $100 million. But you expect to be $100 million and this year you were roughly $64 million. So, the incremental revenues should be ten from the amortization of the Wyeth milestone, ten from the Wyeth research funding, ten from the BMS funding and six from the amortization of the BMS milestone. Is that right, Frank?

Not entirely. First of all, year end revenues were higher than what you just quoted. Secondly, sorry, it was $76 million.

That's right. I apologize.

That's the number of things taking place here. You are right. You'll see the revenue recognition from the new BMS collaboration. The up-front payment of $17.5 million will be amortized over three years so you only see one-third of that come through in 2006. That's a $10 million R & D funding portion which you will see come through in its entirety in '06.

Ok.

And then Wyeth, there is only enough fund payment. There is no R & D funding associated with the new Wyeth collaboration.

I double counted.

You double counted the $10 million, right. Then thirdly, you will see the impact from some of the transactions that happens in 2005, most notably, the GSK milestone as what you know is recognized under the term of the underlying agreement. You'll see the revenue recognition come through for the milestone that we hit early in '05. You'll see the annual R & D funding come through from GSK and then there's some amount of new business development activity included in our guidance.

Can you remind me what percentage of your revenues were from GSK for the fourth quarter and for the year and likewise from Bristol-Myers?

I can tell you what it is for the year. It will be disclosed in our 10-K as well. '05, the revenue split for GSK was 37%. Second thing is from Genotra. Which is now terminated. 32% and BMS was 7%.

And for the quarter?

I don't have a quarter. I don't think we have it to disclose on the quarterly basis.

It is not that relevant. Because all of the collaboration, most of them have once a year payments, the quarter can really distort.

Lastly, if I may, does the Phase II for 880 begin in the first quarter and when does the Phase II for 820 begin?

Well, let's take 880 first. 880 is still in a dose escalating Phase I trial. And we are dosing now at quite high levels. The drug is very well tolerated. We're dosing at many times the level where we saw both the partial response and the encouraging pharmacodynamic data from the melanoma patient with both higher than that now. We believe we're at good therapeutic levels. Nobody believes I think -- you don't believe we're going to be able to go too many more dose levels.

So, our best guest is the trial will start somewhere around the middle of the year. But take that with a grain of salt. If we hit goals earlier, then the drug could start earlier and could also go a little later. It is completely data driven and we don't have all of the information yet.

820. I can give you that for 820. We know those will both get into Phase two trials because of the level in which they're already being built. I just can't give you with any more precision the time. Because of the uncertainty of when we'll hit those.

The Phase II trial, after 999, the next Phase II trial for Exelixis will begin in the second quarter.

No. We're actually, if you think about it on a global scope, we're starting about one Phase II program per quarter.

Ok.

So, in the fourth quarter of last year, we started 999. First quarter of this year, we're likely to start 784. Ok. Second quarter of this year, we'll certainly start 647. And somewhere around the middle of the year, could fall into the end of the second quarter, could go the beginning of the third quarter, we'll start 999. I'm sorry, 880. Too many compounds even for me to keep track of. And then sometime probably in the third quarter, I would guess maybe fourth quarter, we would start 820.

Thank you. That's very clear.

Our next question comes from Edward Tentoff with Piper Jaffray.

Great. Congratulations on a very productive '05. Looks like we have a lot to look forward to this year. What do you guys expect to show at ASCO this year, and I'm sorry if I missed this, but can you give a little more detail on the status of the 999 trials and what were the indications you said likely for 880?

Ok, the first part of that question was -- ASCO. We have abstract or we don't but the investigators do in the trial. Have submitted abstracts for our four most advanced compounds. Cancer compounds. 647, 999, 880 and 820 all have abstracts submitted to ASCO. We have no idea on what the status is. The potential data on all of those.

The indications for 880 are still being developed. We have a clinical advisory board we've been talking to a lot about 880, and there are a number of large number of indications which include, of course renal, lungs, colon, breast, neoblastoma, their issue is not finding -- the problem is not finding tumors were met and have a role but it has been prioritizing them relative in discussion with GSK. What the right size of initial trials should be. We would expect to finalize that within the next few weeks.

What was the other part of your question?

The only other one was -- just an update on how the 999 trials are enrolling.

They seem to be enrolling well. There are a lot of patients -- of course we don't know how the responses are in those patients, they haven't been up that long. But they seem -- we don't anticipate any real issues with enrollment in this trial.

Thank you.

[OPERATOR INSTRUCTIONS]. Our next question comes from David Witzke with Banc of America Securities.

Yeah, hi, thanks for the question. Regarding 880, I understand the role of MEK mutations in hereditary capillary renal, But 880 also inhibits KDR which is probably important here as well. So I guess the question is, do you have -- is there an opportunity to get two more sequencing data identifying a mutation in the MEK Domain from the patient that responded I guess more generally, is there kind of a biomarker approach that you could take in hereditary capillary renal, that could maybe move this faster to market?

Yeah, the first question is can we get genetic data on the first patient who responded and determine whether or not that MEK mutation -- the answer is we're trying hard to do that. And we may or may not be able to. In general, we certainly will do a biomarker approach.

It is possible to effectively enroll patients with capillary renal carcinoma and get their genetic status so we can understand even if we don't have an inclusion criteria, they have to have a mutation in there, at least be able to distinguish the response rate among the patients. As you said, the activity could very well give this compound activity in renal cancer. So, we will test it broadly. We will look at the subset of patients with MEK activations

In general --

We will be looking at biomarker data.

Does the size justify a fast return to market or is it at the scientific the level of trying to understand who to respond and it is it is. Or -- contributing to the benefit.

I think the answer to it is that it is a potentially interesting commercial opportunity. The incidents of the familial, the hereditary capillary renal carcinoma is, as you know, those are relatively rare. However, there are erratic cases of capillary renal carcinoma, many of which also have activated. So, if you take that population of cancer, [inaudible] With that population as well.

I recall the original formulation had a taste element. It did not taste good. Where are you in formulation and is that sorted out before you go into Phase II?

You have a good memory! It all started out. We had nice little tablets and no taste issues at all. We have a good solid dosage form.

Then for Frank, sorry if I missed it earlier. The percent of the revenue guidance that's contractually committed revenue versus new business development, and can you give us the deferred revenue balance at quarter close?

Well, I haven't given you the split off what it has committed versus what it is outstanding for business activity. What I did say though was there was some new business development activity included in our guidance and you can probably estimate roughly what it is by taking into account the revenue recognition from the various transactions that we've recently signed in already.

The deferred revenue balance, I don't know whether we've actually ever disclosed this on our quarterly calls. So, I think I would wait until I had a chance to check with my colleagues here. It will be disclosed in the 10-K, I believe. But the 10-K has not yet been finalized, I don't want to jump ahead and disclose it here.

Thank you.

our next question comes from Eric. Schmidt with SG Cowen Good afternoon.

One remaining question for me on XL820. George, if I read you right, it seems like you've made the decision internally to start Phase II studies there. Yet unless I missed something, you haven't told us whether the drug has demonstrated clinical activity. So I assume that it has and that you're holding that back for some future presentation.

Well, good question, Eric. You know I can't comment on it. We will present -- save the presentation for one of the cancer meetings and there is an abstract committed to ASCO.

But you have made a formal decision in internally leased?

Yeah, I can tell you that 820 is being dosed at levels that achieve a very high plasma level. That level correlates well with the level that led to efficacy in the animal models. We believe we have biological meanings. And we're still going. We have not [inaudible] so, based on those criteria alone, it is probably [inaudible] suggesting in Phase two because there are some obvious applications. 820 where we could get a very quick answer.

Ok.

I think without commenting on the clinical data,.

Thanks a lot.

Our next question comes from George Farmer with Wachovia Securities.

Hi, George. I guess it is evident from the inhibitors and other therapeutics can be used as single agents in their respective and indicated tumor types, and I guess from what we've seen, certainly goes for some of your drugs as well, but ultimately, it would be important to see if any of these things can work in combination with the existing therapies. When do we start thinking about -- when do you start thinking about designing these trials? Do you have to wait for GSK to select candidates or do you go about them on your own first?

We've been thinking about that for awhile, I think. Because there are many examples where drugs that did not look that good as single agents prove to be very useful and in times of progression [inaudible]. In combination with other drugs. So, that's likely to be the case with some of our drugs as well. So, we've been thinking a lot about that. What we're trying to do now is explore fertility of our drugs in a number of different indications to see where we have some types of biological activity. As soon as we have that, we blast forward in those indications as a single agent, in combinations, in first line and second line and so you know, I can't give you a specific answer except to say that we've been thinking about that. We've been talking about that for each of our compounds, we have good ideas. And we'll get those started as soon as we can.

Wouldn't there be any concern of losing ground? I mean because usually after Phase I studies begin and you move into Phase II as we've seen with other cancer developments, is when B studies come in evaluating the drugs in combination and I kind of see the quandary where you are that maybe you don't want to commit resources to Phase Ib studies ahead of GSK moving forward on electing any of their compounds. Is that -- am I kind of on the right page? And how are you guys thinking about that?

We've had a lot of discussions with GSK. No one wants to delay the progression of valuable compounds because of contractual issues. So, to handle that [inaudible]. We do have some combination studies in mind and keep in mind that the Phase I study for our most advanced compounds 647, 999, are -- I mean we've hit those and we're still moving into Phase II but there are still patients enrolled in that Phase I study and they're continuing. So, that's not the end of the road for the Phase I program. We've been focusing more on the [inaudible].

Ok. Thanks.

Your next question comes from Bret Holley with CIBC World Markets.

Yes, I have a question about -- you said you could have Phase II data for three of the compounds by the end of the year for three of the compounds and the decision process by GSK might soon thereafter. Are we going to see any of the Phase II data on which GSK might or might not be making their decision?

Let me accent we'll have Phase II data on up to three of the compounds. The reason I think that's important is we are -- reasonably confident about 999. We're reasonably confident about 880. We'll probably have 647 data as well. You know, heroic effort on the part of our clinical regulatory development. Go forward in time if we obviously don't control completely case enrollment where everything seems to be fine.

So, I want to hedge that a bit and the reason I worded that is the way I did. I can't guarantee you that we'll have the compounds of day to day by the end of the year. That's an internal goal. We're working like hell to achieve it. Hopefully we will.

The second question we received Phase II data, I assume since these are being done outside investigators, as you will see,. Obviously EORTC and [inaudible]. At the end of the year and we're hopeful we'll have some data there.

Ok, thank you.

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

Hi, George. I want to ask a little bit -- obviously you have a lot of -- and a number of them are now in Phase II trials but most of these Phase II trials are non-randomized open label studies. As you know, with the [molecules], the dosing is extremely important, especially if you're getting into a private market where you have a number of other agents on the market.

So, the magnitude is important. How do you know really whether you have good data from these nonrandomized open label study that you're testing one dose on?

Yes, well, I think the question that -- how we thought about it is the following. If the compound is active in a given tumor type, is it likely that we'll miss it with a dose -- that we'll miss seeing effectivity with the dose that we're seeing but we would see it with another dose. And as we've come to our Clinical Advisory Board about that and the answer is universally, no, we're not going to miss it. Because the dose -- we have a pretty good idea of what the dose should be.

So, the way we're thinking about these initial trials is that we'll see activity or not in the various tumor types that will allow us then to prioritize where to put larger amounts of resources when we do randomized trials, when we do combination trials. And so we can do those in indications where we have good data from the first set of trials and a couple that with other data about the mechanism with the world's. Does that answer your question?

Let me pick up a few more. There was a lot of static. So, in the Phase II studies when you move into the next study, you are more or less on line to use whatever dose that you have. I guess my question frankly is whether that's the optimal dose and there's no way to tell.

Well, I guess -- I don't know quite how to an that question, May-Kin. Let's take some real examples here. With 999, or 647 as an example. We're going forward now with a dose where we've done actually a lot of work in Phase I to find a daily dose that maximizes exposure of the patients to the compound while giving us an adequate safety margin We've done a lot of genetics and a lot of modeling. We've looked at this as dosing on the milligrams per kilogram basis. We've looked at 647 dosing on a milligrams per patient basis. Active milligrams per patient basis, which lowers our ability. So we're going to head on that basis. And so we have a pretty good view of what the right dose is.

It could turn out, of course, then in combination studies, when we do the combination studies, that will somehow get in the way and we'll have to drop the dose down. I think with the single agent studies, we're reasonably confident that we have a good dose for 647. The reason the 880 trial isn't starting immediately for example, is we already think we have a dose that will provide efficacy but if we can get more of the drug into the patient without inducing unacceptable toxicity, we believe we'll have a more potent draw so we're pushing that.

But I think in both of these, all of the studies will have pretty good idea of the dosing. I think the experiment that's interesting to do that I don't think has been done yet, is to compare high dosing with a continuous daily dose. And almost all of these drugs are given continuously, daily, outside of toxic drugs . In. So, for example, with 647, we are doing both intermittent and daily dosing and indications so that we can answer just that question. Which dosing regimen is more likely to lead the efficacy wise or minimizing toxicity.

So, there are open questions. I don't think we do anything very differently from what most companies do use. You identify an MTD in the Phase I studies and you go forward based on the maximum tolerated dose from the Phase I into the Phase II program. And there are a lot of different regimens. You can try daily. You can try monthly. 28 days on and seven days off. So, I think there is a trade-off here. In many cases between efficacy and. And we're trying to do our best [inaudible].

Thank you.

We have a follow-up question from Jeffrey Zekauskas

Hi, this is Karen Buchkovich with Jeff Zekauskas. I have a couple questions related to the compounds you may be moving into preclinical development this year. You mentioned using three to five compounds in the preclinical development. I believe that was PI3-Tinase Jack 2, and MEK. I was wondering if your -- and if those were all outside of the GSK collaboration, I was wondering if you're moving this to GSK eligible compounds in the preclinical this year and also wondering if the three preclinical programs you mentioned are Exelixis lead proprietary programs. Is there anything in P10 and Beta-Katinin. Going on?

Well, what we've done, Karen, is to try and target most of the compounds That are known in the P10 and PI3 tinase path So, both -- many of our compounds are members of those pathways. So, yeah, we have tried to be very aggressive about that.

I think the reason I mentioned those three is because they're targets and we have really advanced compounds that we're very confident will make it into development this year. We have other programs, as well, going forward where they're a little further behind and I think there is a little more risk. That's why we said three to five. We're very confident about three and we may have more and then I would rather not say at this point what the other two are.

What about GSK eligible compounds?

Well, I think I wouldn't comment on that right now because that's with GSK.

Ok. Thank you.

Gentlemen, there are no further questions at this time.

Ok. No more questions. Then, thank you, everybody. And we'll look forward to keeping you posted on our progress as we go forward. Thanks.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.