Exelixis Inc (EXEL) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter and year end Exelixis earnings conference call. I'll be your Coordinator for today. At this time, all participants are in a listen-only mode. We will have a question-and-answer session towards the end of this conference. (Operator Instructions). I would now like to turn the presentation over to your host for today's call, Mr. Charles Butler, Head of Investor Relations. Please proceed, sir.

Thank you, everyone, for joining us for our 2008 fourth quarter and year end earnings call. As usual, joining me today are George, Frank and Mike, who will talk through the Company's outlook, a review of our 2008 financials, as well as an R&D update.

Before we go on to that, let me just briefly read our forward-looking statement. I'd like to note that during our presentation today, we'll be making certain statements that are forward-looking, including without limitations statements related to our financial objectives, our 2009 year end financial guidance and expectations regarding our 2010 cash balance, our expectations regarding future partnering and business development activities and goals, our development plans and goals for compounds in the pipeline, the potential efficacy of our compounds, and the execution of our business strategy. These statements are only predictions, and are based upon our current assumptions and expectations.

Our actual results and the timing of events could differ materially from those anticipated in such forward-looking statements because of risks and uncertainties discussed in presentation materials, the comments made during this presentation, and the Risk Factors section of our 10-Q for the quarter ended September 26, 2008, and our other reports filed with the Securities and Exchange Commission. We expressly disclaim any duty to make any updates or revisions to any forward-looking statements.

With that, I will turn the call over to George.

Thanks, Charles. Thanks, everyone, for joining us today on our year end call.

2008 was a busy and productive year for Exelixis, and typically I would devote a fair amount of time to reviewing our numerous clinical, business and corporate development achievements over the past year. I think our industry is facing a rather challenging time right now; and as proud as I am of our accomplishments over the next year, I know that what matters most today is where we're going, how we intend to rise to the challenges ahead of us, and how we're going to continue to make progress towards our goal of bringing innovative therapies to market in the face of a challenging economic climate. In our last quarterly call in October, we outlined a plan that we believed would enable us to operate free of the equity markets for the next few years. Our newest collaboration with BMS, which we signed in December, enabled us to end 2008 with $284 million, and is an excellent first step to achieving that goal.

One of the things we'd like to accomplish on this call is to explain the plan that will enable us to operate the Company through 2011. Our plan is based on careful management of our expenses, increasing support from our current collaborators, and a reasonable set of business development assumptions based on ongoing discussions and current assets. As you know, our goal was to end 2008 with more than $200 million in cash. In fact, we ended with $284 million. In 2009, we are again projecting that we will end the year with more than $200 million in cash, and that includes making the $35 million cash loan repayment to GSK.

This enabled us, to a large extent, to offset expenses through income based on a valuable set of compounds that we continue to generate. So our strategy of doing R&D at scale with critical mass, so that we can generate multiple high-quality assets with significant therapeutic and commercial potential, has been working. One part of that strategy involves establishing partnership around some of the compounds to bring in cash, offload expense, and gain access to increasing bandwidth. Clearly, we've done that. We anticipate additional partnerships this year.

The second related part of the strategy is to move the compounds rapidly into late-stage clinical development. We've accomplished that goal with XL184, and will continue to work to bring additional quality compounds into late-stage development.

Looking at our pipeline today, some of which we're advancing ourselves and some of which is being advanced by partners, it's clear that this has been an effective strategy for the Company. The question before us now is, in the currently environment, can we continue to generate the cash inflows that have largely offset our expenses over the past few years? And a thoughtful analysis indicates that we can for at least the next three years. We're certainly aware of the current economic situation, and I don't want anyone to get the impression that we're operating with rose-colored glasses. We know this is not business as usual. However, not only do we expect to end 2009 with greater than $200 million, we expect to end 2010 with a healthy cash balance as well, that will carry us well into the future.

So how are we going to achieve these goals? First, we've taken several steps to reduce our expense base, even while the costs for the development of XL184 continue to rise. In 2009 versus 2008 our operating costs, exclusive of 184, have been reduced meaningfully. As you remember, we instituted a 10% head count reduction last November. Additionally, we've gone through every line on our budget and taken out substantial costs. This year, we won't award any merit salary increases, we have reduced bonus payments, and we've made limit promotion awards among a number of other steps.

Second, as Frank will outline in more detail, an increase in share of our expenses is being reimbursed by partners. The largest increase in our budget is 184, and the cash received from BMS will cover a substantial portion of that spend.

Third, there are some business development assumptions built into our financial plans. Currently, we're in advanced discussions on several collaborations that we expect will bring in substantial cash this year. Importantly, we expect to conclude some of these transactions in the first half of the year. We have several ongoing discussions. We have substantial insight into what the collaborations will look like, and we're confident in meeting our 2009 business development goals.

We have additional business development goals for 2010 and beyond. We believe that the assumptions for those future transactions are reasonable, and we've attributed a conservative value to the transactions based on the state of assets that we're likely to have. Given the confidence in this year's activities and the conservative assumptions for the future, we're confident that we can achieve the 2009 year end cash guidance, and expect to have a strong cash balance at the end of 2010 as well. So ironically, Exelixis finds itself in the best financial shape we've ever been. And the reason we're in good shape is that we generated many high-quality assets over the years, and we consistently have been able to partner them under attractive terms.

Certainly some of our compounds have not achieved their goals, and have been terminated. That's the business we're in. The important fact to remember is that we have several mid-to late-phase clinical compounds that continue to generate exciting data, and that are moving towards the market. These compounds include XL184, 880, 281, 518, 147 and 765. Additionally, there are earlier-stage compounds such as XL228, 888 and 019, that we're rapidly driving toward go/no-go decisions.

So for a company with so many opportunities, we actually have a pretty short to-do list, which is basically to continue what we've done over the past few months; That is, thoughtfully generate programs to generate near-term cash while retaining substantial long-term value; continue to manage our costs and maintain a pragmatic but productive balance between operational costs and financial resources; and focus our clinical developments, especially on 184 and, until partnered, on our two PI3K compounds, 147 and 765. In addition, we're making strategic investments in a limited number of other compounds to assess their clinical and commercial potential. We laid out this plan a few months ago, and we have already made significant progress in executing it.

Moving focused -- moving forward, we're focused on continuing to align our operational costs with our available financial resources, and balancing our spending with significant gains that stand to be made by investing wisely in programs with truly compelling therapeutic and commercial prospects. We're continuing to explore additional partnering opportunities around our clinical PI3K compounds, 147 and 765, and discovery-stage metabolism, oncology and inflammation assets, and we're confident that at least some of these deals will be successfully completed within the next few months, and will generate substantial near-term cash and long-term value.

We believe by assuring our financial stability over the near term, we'll be able to substantially advance our lead asset, XL184, and our other compounds in ways that substantially increase shareholder value. So our to-do list may be short, but we're going to be very busy in the coming months.

With that, I'll turn the call over to Frank, who will review our year end 2008 financials and our financial outlook for 2009.

Thank you, George.

Before I get into the financials in depth, I would like to emphasize that we are in a strong financial position and that our financial outlook is solid. We finished 2008 with $284 million in cash, which far exceeded our cash guidance for the year. With close to $500 million in cash and committed funding, we expect to generate significant new cash inflows from business development activities this year, and we expect to finish 2009 and '10 with a healthy cash balance. So in short, our financing strategy is serving us very well in the current tough economic environment.

2008 was a very successful year for us. We met our financial guidance for the year for revenue and operating expense, and substantially exceeded our guidance for year end cash. There is substantial liquidity available to us, and we expect significant additional cash inflows from ongoing business development discussions, as well as our already existing collaborations. Through our new partnership with BMS, we offloaded a substantial amount of future development expenses, and we reduced our operating expense base and substantially cut back on capital expenditure. All in all, we're confident about our objective of having the ability to operate financially independent from the capital markets for an extended period of time, and that is -- just as important, to be adequately resourced to aggressively advance our most promising clinical programs.

I would like to briefly review some of our 2008 financial accomplishments, before I turn to the Q4 and year end results in detail. Some of these reflect matters initiated early in 2008, in anticipation of a difficult economic environment. We secured a $150 million financing facility with Deerfield, that served as a safety net and put us in a strong financial position during our negotiations with potential new partners. We forged a new collaboration with BMS, which enables us to share costs on XL184, and entirely offload costs for the development of XL281. We prioritized our development pipeline, by deciding to discontinue XL647, XL844 and XL820, thereby eliminating a significant portion of future expenses, and we focused our development plans for XL019, XL288, as well as XL888, with a goal to get to a clear go/no-go decision later this year. Finally, we reduced head count, which will contribute about $10 million in savings to 2009, lower general operating expenses, and substantially cut back on our capital expenditures. As a result, we met or exceeded our financial guidance for 2008.

Furthermore, our collaboration with GSK ended as scheduled in October of last year, which significantly simplified our story and freed up several clinical assets, some of which became the subject of our new partnership with BMS, resulting in upfront and other near-term payments of $240 million, as well as significant future R&D funding. Other business development discussions are still ongoing, and assuming we're successful in those discussion, we expect to offload a substantial amount of addition future development costs, as well as generate a significant amount of near-term cash. The bottom line here is that we're confident that we can meet our business development target presented at our R&D day in December. In summary, while more work is ahead of us, we are well positioned to see our way through the current economic environment.

Let me now turn to our fourth quarter and year end '08 financial results in detail. As a reminder, we are reporting our results on a GAAP basis only, and as usual the complete press release with our results can be accessed through our website at Exelixis.com. Revenues for the fourth quarter '08 were $29.6 million compared to $29.3 million for the comparable period in '07. Additional milestone revenue associated with the selection of XL413 under our 2007 collaboration agreement with BMS largely offset a decrease in revenue associated with our [LXL] program, which is also partnered with BMS, and the completion of revenue recognition associated with the collaboration agreements with Wyeth for our [FXL] program, and Genentech for our Notch program. In addition, our '08 financial results excluded revenue associated with our former subsidiary, Artemis, as a result of the sale of 80.1% of our ownership to Taconic in 2007.

Revenues for the full year '08 amounted to $117.9 million, compared to $113.5 million in '07. Increases in revenue, primarily due to milestone revenue associated with the selection of XL139 and XL413 under our '07 collaboration agreement with BMS, as well as the acceleration of revenue recognition as a result of the conclusion of the development term under our collaboration with GSK, more than compensated for decreases in revenue due to the completion of revenue recognition associated with the collaboration agreement with Daiichi Sankyo for our MR Receptor program, and with Wyeth for our [FXL] program. Again, note that '08 revenue excluded revenue from Artemis as a result of the divestiture in 2007.

Research and development expenses for the fourth quarter '08 were $56.9 million, compared to $60.2 million for the comparable period in '07. Research and development expenses for the year amounted to $257.4 million compared to $225.4 million for '07. The decrease in expenses in the quarter is primarily due to the transfer of the clinical trial costs associated with XL880 to GSK, lower manufacturing activity in our compounds, and various cost-saving measures implemented during the year. The increase in expenses for the full year reflects the increased costs associated with the maturation and advancement of our pipeline into Phase III clinical trials, as well as the initiation of various pre-clinical studies in Phase I and Phase II clinical trials.

General and administrative expenses for the fourth quarter were $9.1 million, compared to $11.8 million for the comparable year in '07. General and administrative expenses for the year amounted to $36.9 million, compared to $44.9 million for 2007. The decrease for both the quarter and full year primarily reflected the stronger growth of the research and development function compared to the general and administrative function, and was mainly due to the allocation of general corporate costs to research and development.

Net loss for the fourth quarter '08 was $38 million or $0.36 per share, compared to $19.9 million or $0.19 per share for the comparable period in '07. For the full year '08, net loss was $162.9 million or $1.54 per share, compared to $86.4 million or $0.87 per share in 2007. The increase in net loss for the quarter as well as the full year was primarily due to the divestiture of noncore businesses in 2007. Q4 '07 included a gain of $18.1 million associated with the sale of 80.1% of Artemis. In the full year '07 included gains of $36.9 million, associated with the divestiture of Artemis as well as our [plant trait] business. Cash and cash equivalents, short-term and long-term marketable securities, investments held by Symphony Evolution, and restricted cash on investments totaled $284.2 million at the end of 2008, compared to $299.5 million at the '07.

Let me turn to our financial outlook. For the full year 2009, we expect revenues in the range of $140 million to $170 million, and operating expenses in the range of $290 to $320 million, including stock-based compensation expense of approximately $23 million. The revenue guidance represents an increase over 2008 actual revenues of approximately 19% to 44%, while operating expenses year-over-year are expected to remain flat. The expected increase in revenue is primarily due to the revenue recognition in connection with our new collaboration with BMS, as well as from other anticipated business development activities. These increases more than offset the reduction in revenue as a result of the end of our GSK collaboration in October of 2008. Cash, cash equivalents, short-term and long-term marketable securities, and restricted cash balance at the end of 2009 is expected to exceed $200 million, which would imply a net decrease in our cash balance for 2009 of less than $85 million, which includes a $35 million cash repayment of the first tranche of the GSK loan. The 2009 year end cash guidance does not include any funds from the vehicle facility.

Let me also elaborate on our operating expenses. While our operating expenses for 2009 are expected to be about the same as in 2008, the proportion of our operating expenses that is paid for by partners is expected to increase significantly, mainly driven by changes in the cost-sharing dynamics for our development expenses. Development accounts for approximately 50% of our total operating expenses projected for 2009. In 2008, only 11% of our expenses were funded, and we expect the funded portion to increase to approximately 38% in 2009 and to over 50% in 2010. Funded portions may, in each case, potentially increase even further, depending on the outcome of our anticipated business development activities.

As it relates to discovery, discovery accounts for approximately 30% of our total operating expenses projected for 2009. As in the past, we believe that the output from our discovery operations will allow us to cover most of the expenses of this group.

Let me finally cover the impact of our new collaboration with BMS on our financial statements in a little more detail. The up-front payment of $195 million and the fully committed payments of $45 million that we will receive in the first half of 2009 will be amortized over five years, and recorded as license revenue from the effective date of the agreement in December 2008. Any milestone payments that we may receive under this agreement would be amortized over the same five-year period, but recorded as contract revenue.

As it relates to operating expenses, the basic principle is simple, though the underlying accounting is a little more complex. Both companies will perform work on both programs, and our operating expense will reflect 100% of the cost incurred for work performed by Exelixis on the two programs. As a general principle, Exelixis is responsible for only 35% of the aggregate development costs incurred on XL184, while BMS is responsible for the remaining 65%. As a contractual matter, Exelixis is responsible for funding the first $100 million dollars in development costs for XL184. However, from an economic perspective, we've used $65 million of that amount to be funded by BMS for the $45 million license fee we will receive in 2009, and $20 million of the up-front payment we received from December '08. As it relates to XL281, BMS is responsible for 100% of the costs associated with this program.

Now, as a result of this cost-sharing for XL184 and XL281, we expect the unfunded portion of our development expenses for the portion that Exelixis has to cover itself to be far lower in 2009 and beyond than it was in 2008. On an annual basis, to the extent net R&D funding payments are received from BMS, Exelixis will record the net cash inflow as revenue. Annual periods where the net R&D funding payment results in a payable to BMS, these amounts will be presented as collaboration cost-sharing expense.

I will close by saying that we are confident that we can achieve our objective of being independent from the capital markets for an extended period of time. We have diligently executed on all elements of our strategy, which puts us in a strong financial position. We started 2009 with cash and committed funding of close to $500 million, and over the next two years, we expect substantial additional cash inflows from committed R&D funding, milestones and up-front payments from new business development activities.

With that, I'll turn the call over to Mike.

Thanks, Frank.

Before we go into more detail about the activities within R&D, I'll start by saying first we've matured a set of first-in-class and/or best-in-class compounds that will either be the subject of new collaborations or that will develop independently. We believe that our small molecule franchise in oncology is one of the best in the business. Second, we currently have 12 compounds in development, ranging from Phase I to Phase III. These are being developed internally or by partners. Each of these compounds has an attractive clinical profile, with meaningful commercial potential. This is a point we've been building towards for several years. Finally, XL184 is our key priority. An ongoing Phase III trial in MTC, Phase II in glioblastoma or GBM, and a planned expansion which could lead to a Phase III trial in GBM later this year or early 2010.

So we ended 2008 with a bolus of momentum by first retaining XL184 and 281 from our collaboration -- from our GSK collaboration in October, and then partnering these compounds with BMS in December, after a groundswell of interest from the pharma community. Our primary objective for XL R&D moving forward in 2009 is to advance XL184 towards NAD filing as quickly and broadly as possible in our collaboration with BMS. In the simplest terms, the XL184 development program is our highest priority, and has top billing in all aspects of resource allocation and staff deployment.

In our collaboration with BMS, we have completed our initial planning phase of the full development program for XL184 in a variety of oncology indications, including potential pivotal trials that we expect to initiate in late 2009 and 2010 -- or early 2010, as well as a broad Phase II single [searching] trial that we plan to initiate this year to identify other potential indications. We have staffed the XL184 development program in a fashion that is competitive with other clinically active agents at this stage of development; and together with BMS have critical mass and expertise in clinical, regulatory, manufacturing and commercial, to extend the sizable lead we have with XL184 as the most advanced MET inhibitor in clinical testing.

We have developed a consolidated XL184 regulatory strategy that provides several shots at NDA filing, depending of course on the data that are generated from current and future trials. For competitive reasons, we'll continue to speak about these plans at a high level, and hope to be more transparent as data from ongoing trials are published, and provide a backdrop for more granularity. Our XL184 GBM program is advancing rapidly, and represents an opportunity to potentially accelerate timelines from a regulatory perspective. Enrollment was completed very quickly, and our initial second-line Phase II GBM trial, where 40 and 46 patients were enrolled in less than three months after the first six patients had passed a protocol-mandated safety review. We believe this reflects both a substantial unmet medical need in this indication, and the enthusiasm for the potential of XL184 in the neuro-oncology community.

While highly selective VEGF-derived therapies such as [Metafizimab] and Cediranib are clinically active in GBM, emerging data suggests that dual MET/VEGFR2 inhibition by XL184 can have substantial activity in this tumor by a number of mechanisms. For example, MET and its lygen HGF are both overexpressed to gliomas, and appear to act in autocrine fashion to directly stimulate the proliferation and invasiveness of cancerous glioma cells. In addition, MET also appears to promote the growth and stabilization of the tumor vasculature, and preclinical data demonstrates that MET and HGF cooperate with VEGF and VEGFR2 to drive tumor angiogenesis.

Our collaborator, Dr. Donald McDonald at UCSF, has generated compelling pre-clinical data indicating that simultaneous inhibition of both MET and VEGFR2 with XL184 results in more tumor natural destruction that selectively inhibit VEGF. Therefore, the target inhibition profile of 184, namely extremely potent and long-lasting MET and VEGFR2 inhibition, provides a potential novel and improved treatment modality for GBM. Although it's still early, the clinical data we've seen thus far in GBM is consistent with this hypothesis, and continues to look encouraging. The full data set on the first 46 patients to (inaudible) of [Parasco], where we have submitted three abstracts for XL184 in GBM.

Based on the strength of the available data, we recently submitted an amendment to the current second-line GBM protocol that would allow us to add an additional 100 patients to the study to provide further insight into the clinical activity and safety of XL-184 in this GBM setting. While I won't dive into the details of this amendment now, it's safe to say that we expect to enroll additional cancer patients very quickly, based on our previous experience with the first 46 patients, and the overwhelmingly positive feedback from our investigators. We're targeting ASCO 2010 to be able to present these consolidated findings.

Assuming this data holds up, it would provide a compelling rationale for evaluating XL184 in late-stage trials for GBM. As the results of the Phase II trial show evidence of clear clinical and commercial potential, we together with BMS plan to move quickly to initiate a Phase III clinical trial in this indication potentially in late 2009 or early 2010.

The Phase II trial in MTC is on track, and enrollment is in line with our expectations. While we don't comment on accrual in ongoing studies, I will remind you that this is an international trial targeting approximately 80 sites, and is currently open in both the U.S. and in Europe. Based on the experience of the (inaudible) MTC trial that completed enrollment in 2008, we expect that European sites will contribute the majority of patients to the study, and we are focused on initiating these sites with the highest priority. We continue to be impressed by the clinical activity we have seen in the MTC patients in our Phase I study, and are excited to be working with top investigators in both North America and Europe to advance this Phase [III] program. While MTC is not a large commercial opportunity, it does provide important regulatory flexibility and depth that may play a central role in meeting our overall regulatory goals over the next several years.

While we plan to expedite those trials for XL184, [and] to find a path to registration, our plans also include a broad assessment of XL184 activity in Phase II trials in multiple solid tumors. The potential for XL184 to extend beyond MTC in GBM is very strong, as our Phase I date set revealed that multiple tumor types appeared to respond, with either tumor shrinkage or prolonged stable disease in heavily (inaudible) patients. The Phase II plan includes the ongoing Phase IBii trial in non-small cell lung cancer that will study XL184 alone and in combination with erlotinib. We'll also use a phase II signal searching approach that we expect to initiate this year to identify other potential indications. A broad phase II clinical program could potentially lead to various randomized trials on larger tumor types, either as single agents or in combination with other compounds, and is the fastest way to identify additional indications that could help expand the market for XL184. With this comprehensive clinical development program in place, we could be in a position to file an additional NDA for XL184 in the next few years.

As you know, the development agreement with BMS also covers XL281, a highly potent and selective inhibitor of both wild-type and mutationally activated RAF kinase. XL281 is the leading selective RAF inhibitor in clinical development. RAF acts (Inaudible) with RAS, and both RAS and RAF play key roles in cancer-related signalling. Clinical data shows that patients with ARAS or BRAF mutations benefit from do not benefit from EGFR inhibitors. We believe that XL281 has the potential to provide benefit in these patients by acting downstream with EGFR. BMS has exclusive rights to XL281, and is responsible for all costs of this program going forward.

We expect to continue a number of these clinical trials over the next two years. Our initial focus is to enroll additional patients with tumors likely to have RAS/RAF pathway alterations, such colorectal cancer, non-small cell lung cancer, melanoma and capillary thyroid cancer. As part of these studies, we will continue to document clinical pathway inhibition and pharmacodynamic evaluation in these expansion cohorts.

Beyond 184 and 281, we have a variety of other first-in-class and/or best-in-class compounds in [inhibiting] key pathways, which play important roles in tumor growth, proliferation and survival. As part of our general strategy to identify potent and selective inhibitors of key signalling pathways, XL147 and 765 are today two of the most advanced PI3K inhibitors in clinical development. The early clinical data has generated a significant level of interest from potential pharma partners, clinical investigators, and the oncology community as a whole. This interest is largely due to the impressive level of clinical targeted pathway inhibition observed in a range of tumors and (inaudible) tissues from patients treated with these compounds at well tolerated doses.

We're on track to complete the Phase I single agent studies, and the Phase IBii trials for each compound in 2009, and have several Phase II studies planned for initiation once the partnership for the compounds is finalized. Ongoing Phase IBii studies for 147 include combinations with erlotinib in non-small cell lung cancer, and carboplatin and paclitaxel in advanced solid tumors; while XL765 is under investigation in combination again with erlotinib in non-small cell lung cancer, and [tamizolimide] in (inaudible) blastoma. As we've stated publicly, our strategy is to partner these (inaudible) assets in a manner that provides for significant near-term cash and long-term value. We are in advanced discussions for partnerships that could include XL [emphasis] participation, additional PI3K key pathway discovery programs, and our continued involvement in the development of XL147 and 765.

The interest in these programs nearly rivals what we saw at the end of 2008 with our other advanced clinical assets. We believe this highlights the intrinsic value of our early clinical evaluation process, and the broad integration of our translational medicine strategies that allows for the potential of de-risking of first-in-class agents like XL147 and 765, with unprecedented speed and depth. Finally, other compounds in early stage clinical development, including XL228, XL888 and XL019, will complete studies that will lead to go/no-go decisions in 2009.

In addition, we recently reached the MTD with XL518, our highly potent, selective MEK inhibitor, which triggered the transfer of that compound to Genentech under our existing collaboration. We expect to complete the IND transfer over the next several weeks, and after that point will not carry out any additional work nor incur any additional expense moving forward.

So in closing, we are extremely focused, with a clear priority on our near-term value drivers. XL184 is at the top of our list, and we also continue to advance other programs in the context of looking for compounds and indications with compelling commercial value, relatively short development timelines, and attractive partnering possibilities. We are looking forward to ASCO in late May, and we expect to hear back shortly on which of the ten abstracts we submitted in January will be accepted for presentation in either oral or [posted] remarks.

So with that, I'll turn the call back to George.

Okay. Thanks, Mike.

I'll be brief here in my summary. I hope you can see from all of that, that we're in a strong and stable financial position. We brought in a lot of cash at the end of 2008, and we expect to bring in substantially more cash this year, both from existing partners and from new partnerships. We've reduced our expenses. As it has in the past, our discovery route is expected to cover the majority of its costs through the compounds it generates, and an increasing fraction of our development costs are being borne by partners. The result is that we're well on our way to fulfilling our goal of financial independence for a substantial period of time.

At the same time, we've moved key assets in our pipeline forward, and they have generated encouraging data. Together with BMS, we're mounting an aggressive late-stage development program for 184. This compound has well -- utility well beyond MTC, and we hope you will get a first glimpse of that if our abstracts are accepted at ASCO, and 184 has several opportunities to gain regulatory approval in the next few years.

Although we've talked a lot about 184, since it's our most advanced compound, we don't want anyone to get the impression that we are a one-trick pony. Many of the other compounds that we have continue to generate encouraging data as well, so that our maturing pipeline of oncology compounds is taking shape and, I think, emerging as one of the most promising in the industry. In the coming months, we expect to have news on both the medical and business fronts. We've submitted 10 abstracts to ASCO, and we should hear about their acceptance within the next few weeks. We look forward to presenting data on some of our mid- and late-stage compounds at that meeting, and will, of course, have more data later in the year at EORTC and ASH. We expect to initiate further pivotal trials for XL184, as well as start a number of Phase II trials for the compound.

On our financial business and development side, we are in discussions around potential new collaborations for PI3 kinase program. We're having multiple discussions concerning those compounds, and we're confident of signing an attractive partnership within the next few months. Additionally, we're having discussions around several programs that are pre-clinical, including compounds for oncology, metabolic disease and inflammation. So we believe that the combination of our compounds advancing and generating encouraging data, financial stability, and the additional partnering revenue this year, could substantially increase shareholder value over the coming months and years.

So I'll stop there, and now we'll be happy to open up the call for questions.

(Operator Instructions). Your first question comes from the line of Eric Schmidt with Cowen & Company. Please proceed.

Good afternoon. I was just curious, I think it was actually Frank who mentioned that you re-jiggered some of the Phase I studies on 228, 888 and 019 to get to a sooner or clearer no-go decision? I'm just kind of curious as to what's potentially changed in some of those protocols, how you're now designing those studies?

Yes. I think really, Eric -- this is Mike. It revolves around, for all those compounds, having a minimal data set either in the dose escalation phase or in expansion cohorts that will allow us to show very clear on-target activity at the MTD, and then some level of clinical activity in specific tumor types, and those are all different for individual compounds, obviously. So -- but it's a very focused approach that gets us to a very crisp go/no-go based upon clinical data this year.

Okay. And then on the PI3 kinase partnership front, how important is it that you get some signs of clinical activity out of those compounds, and not just target modulation and those that work with the terms that you're kind of interested in getting? Can you get to where you want to be without a clear clinical response, for example?

Well, I guess I would caution you that we've made -- you know, the last data set that we published was last -- last fall, last October at the EORTC. So that's another four months since then. So I think we are very well along in terms of those discussions, and I think the totality of the data with both compounds looks very, very encouraging right now.

Okay. And last question on the $35 million payment to GSK. I guess a question for Frank, have you made a decision to pay that initial repayment to GSK in cash, or didn't you have the option?

Eric, we have not made a decision, but we have been conservative in our financial projections, and we've assumed that we would repay it in cash. What we eventually end up doing will depend on a variety of factors once we get closer to the actual payment date. But again, on our financial projections, we try to be as conservative as possible.

Okay. And do you have a stock price at which you'd be potentially more interested in paying it in cash?

Well, we will have to evaluate a variety of factors at the time when the payment comes due, and stock price is one of them and, you know, we'll see where we come out at that point in time?

Okay. Thanks a lot.

Your next question comes from the line of Cory Kasimov with JPMorgan. Please proceed.

Good afternoon, guys. I also have a couple of questions for Frank relating to the '09 financials. On the spending related to XL184, when do you expect to get through that initial $100 million before switching over to this 65/35 deal with Bristol?

We're not really disclosing that. It depends, obviously, on the progress that we're making under the program. We have agreed on the budgets with BMS, but we're not exactly disclosing how exactly we're going to burn through that money.

Maybe asking this another way, can you tell us roughly what percent of your '09 R&D spend is dedicated to -- or budgeted spend is dedicated to 184?

Not exactly. We're also not disclosing that. As you know, in the past, we have never really disclosed spend on a program-by-program basis. What we can say is that, for 2009, roughly 50% of our total operating expense is development-related, and a substantial portion of that is related to Xl184. And, as you know, a big portion of that will be covered by BMS. And I hope you understand there, of course, is some sensitivity here in what we can and cannot say about both the development plans as well as the actual budget, because we have to coordinate here with BMS.

Okay. Let's see if I can go with three for three here with difficult to ask or answer financial questions. Your top-line guidance for '09, can you comment on what that might look like if we were not to assume any new deals this year?

The top-line guidance -- you mean the revenue guidance, I presume?

Yes.

What I can say is that our revenue guidance for the year is based on very conservative assumptions about revenue being booked from new business development activities, as well as from revenue that we expect to come in on our existing collaborations. What exactly the mix is there, we've not disclosed this in the past, and we're not disclosing now. But again we're very confident with where we stand in our business development discussions, and that's really a reflection of, one, the quality and the number of assets that we have available for partnering and, secondly, the quality of the discussions that we're having, and the level of interest that we're seeing from potential partners.

Okay. And then one clinical question for Mike, related to 184 for GBM. Would this 100 patient amendment to the Phase II study, if the data were compelling enough, and given the unmet need that GBM represents, could this potentially become a pivotal Phase II, or is it clearly going to Phase III before you even think about approval?

That is a scenario that is possible, based upon how the data comes up. So we're certainly opening up the -- I think, the door to be able to move in that direction with these extra patients, based upon how that data actually plays out, so --

Is that one of the reasons behind doing -- putting the additional patients in here, or is that additional dosing work and things like that?

No, that's one of the reasons.

Okay. Great. Thanks for taking the questions.

Your next question comes from the line of Joel Sendek with Lazard Capital Markets. Please proceed.

Hi, thanks. So when you say you're in advanced discussions and the interest rivals -- with regard to the partnering for the PI3 kinase, and the interest rivals what you saw in late '08, should we interpret that to mean that you could get deal terms that are in the same ballpark as the Bristol deal, and are you going to partner those drugs separately or together?

Yes. When we say that the interest rivals what we saw with 184, I think one of the reasons we were able to get attractive terms for 184 is not only the quality of the data set we have -- and remember, you've only seen part of the data, we have a lot more data -- but also the fact that there are multiple parties interested. We also have multiple parties interested in the -- each of the 184 compounds. We are, you know, actively pursuing a number of those discussions. Some of them are very late-stage, and I don't want to really speculate at this time as to what the exact terms will be, but we are expecting to get very attractive terms, as we have in the past.

Okay. So people are looking -- so potentially, people could -- you could partner up 147 to one partner and 765 to another?

In theory. You know, we would prefer not to do that, I think. On the other hand, that's certainly a possibility.

Okay. And just to be clear, there is multiple parties; you have competitive bidding going on with regard to that right now?

There are multiple parties to whom we are talking, yes.

Okay. And then just to follow up on the 184 amendment, so -- I'm kind of confused. Should we view this as an acceleration or a delay? I don't know how to characterize it?

I would like at it as a way to get more data quickly in the second-line population, as the primer driver for the amendment, and then to frame that relative to the data set that we'll talk about hopefully at ASCO in June, and how that then might play out relative to the initiation of a pivotal trial in the second-line setting, you know, later this year or early next year. And I'm being obviously vague on purpose to respect certainly our BMS relationship, but also because the data is still in progress, right? So this is all -- we're lining things up to be able to maximize success here, and we have to now do the experiment, and see how it all plays out.

Well, if I can ask it a different way, are you more or less excited on the program now versus, you know, three months ago or two months ago?

I would say we're extremely excited about the program, about the potential in GBM, based on our view of yet unpublished data, obviously. The feedback we're getting back from investigators and consultants and experts, we're very excited about where this could go.

Okay. Thanks.

(Operator Instructions). Your next question comes from the line of Jessica Li with Goldman Sachs. Please proceed.

Thank you for taking my question. Just quickly, when I look at your '09 guidance on top-line, bottom-line cash, I did a quick calculation, and it seems that you assume there will be about 100 --

Jessica, you're fading out. Can you get a little closer to the microphone?

Hello? Can you hear me?

Yes.

So basically, if I look at your '09 guidance for revenues, expenses, as well as cash, and your net cash -- I did a quick calculation -- it seems like you're assuming there would be about $100 million cash infusion, potentially from business development. Is that a correct calculation?

Jessica, I don't want really want to comment on that. I really have to leave that up to you, how you run your model. The guidance is the guidance; and as you know, we don't provide real guidance on -- on burn, but I did say that the net change in cash balance obviously applied in our guidance is less than $85 million, and that includes a $35 million cash repayment of the first tranche of the GSK loan.

Like just on your top-line or your revenue guidance, if you do include any revenue related to the [future] deals, would there be amortization of the cash that you received?

It's actually both, and I think it's important to note that a substantial portion of the revenue that we're guiding to for 2009 is already secure, because it relates to the revenue amortization based on the BMS deal that we signed in December. On top of that, as we said, we are due to receive $45 million from BMS in the first half of 2009, which is also fully committed and not at risk, and which will also go some part into our revenue recognition in 2009.

On top of that, we've also assumed a certain portion of our revenue to come from new business development-related activities; and as I said before, the assumptions we've made here are very conservative, and we are comfortable that we'll be able to meet our [BD] objectives. And again, it's a reflection of the quality and the number of the assets we have available and the quality of the discussions we're having at the moment, and the level of interest that we're seeing.

Okay. Thank you.

(Operator Instructions). I'll now turn the call over to Mr. George Scangos for closing remarks.

I guess if there are no more questions, let me thank everyone once again for your attention and your interest. We'll get back to work, and make sure we achieve all these goals we've just laid out.

Before we sign off, let me just again thank all of our employees, who worked very hard last year to accomplish everything we have, and who are continuing to work incredibly hard so we can meet this year's goals as well. So thanks to all of them, many of whom I know are listening right now. And thanks to all of you once again.

Thanks for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.