EXELIXIS, INC. Annual Report - A Comprehensive Investor Summary

---

Business Overview

EXELIXIS, INC. stands at the forefront of biopharmaceutical innovation, dedicated to discovering, developing, and bringing to market life-changing medicines, primarily for cancer patients. Its flagship products, Cabometyx (cabozantinib) and Cometriq (cabozantinib), treat various cancers, including renal cell carcinoma and hepatocellular carcinoma. EXELIXIS collaborates with major industry players like Ipsen, Takeda, Daiichi Sankyo, Genentech, GlaxoSmithKline, and Royalty Pharma. These partnerships expand its market reach and accelerate drug development.

Financial Performance

EXELIXIS delivered robust financial performance this fiscal year, driven by strong Cabometyx sales and strategic pipeline progress. Total revenue reached approximately $1.8 billion, a 15% increase from the previous year. Product revenue, primarily from Cabometyx, generated $1.5 billion, while collaboration revenue added $300 million. Net income grew to $350 million, or $1.05 per diluted share, marking a 20% increase year-over-year. This demonstrates efficient operations and strong product demand. The company invested $700 million in Research & Development (R&D) to advance its clinical pipeline and spent $450 million on Selling, General & Administrative (SG&A) expenses to support commercial expansion and operations.

Risk Factors

• Customer Concentration: Over 40% of gross product sales come from a few large customers and distributors, including affiliates of Cencora Inc., McKesson Corporation, CVS Health Corporation, Accredo Health Incorporated, Optum Specialty Pharmacy, Ipsen, and Cardinal Health. A significant drop in purchases from any of these key customers could materially impact our revenue and profitability.
• Clinical Development & Regulatory Risk: Our success depends heavily on successful clinical trials and regulatory approvals for new indications or pipeline candidates. Trial failures, unexpected safety concerns, or regulatory delays could significantly hinder future growth.
• Competition: The oncology market is highly competitive. Existing and emerging therapies, including those from larger pharmaceutical companies, could limit Cabometyx's market share or pricing power, as well as that of our pipeline assets. The potential for generic or biosimilar competition also poses a long-long-term risk.
• Restructuring Impact: While designed for efficiency, the "2024 Restructuring Plan" carries risks. These include operational disruption, potential impacts on employee morale, and the possibility that we may not fully realize anticipated cost savings or strategic benefits.
• Intellectual Property: Our success depends on our ability to protect our intellectual property. Challenges to patents or the expiration of key patents could increase competition and reduce profitability.

Management Discussion (MD&A highlights)

• Results of Operations and Key Drivers: Management highlights robust financial performance. Increased Cabometyx sales and strategic pipeline advancements drove significant revenue growth. The company notably increased net income, reflecting efficient operations and strong product demand. We strategically invested in Research & Development to advance our clinical pipeline, and Selling, General & Administrative expenses supported commercial expansion.
• Strategic Initiatives and Operational Changes: We implemented the "2024 Restructuring Plan," a significant strategic move initiated in late 2023 and largely completed in Q1 2024. This plan involved approximately $50 million in employee severance, contract terminations, and asset impairment charges. It aims to streamline operations, reduce costs, and reallocate resources to high-priority clinical programs. While it may cause short-term operational disruptions, we expect it to enhance long-term efficiency and focus.
  • Key achievements include:
    • Continued market share expansion for Cabometyx in its approved indications.
    • Positive clinical trial readouts for pipeline candidates.
    • Strategic collaborations, like the partnership with Takeda for oncology programs, advanced several early-stage assets. These partnerships demonstrate our commitment to diversifying the therapeutic portfolio and leveraging external expertise for global development and commercialization.
  • No significant executive leadership changes occurred during the period, indicating stability as we execute our strategic realignment.
• Known Trends and Uncertainties: We operate in a dynamic market. Key influences include increasing global demand for targeted cancer therapies, rapid advancements in precision medicine, and a highly competitive oncology drug landscape.
  • Management actively monitors:
    • Evolving regulatory requirements for drug approvals.
    • Increasing scrutiny on drug pricing from payers and government initiatives.
    • Potential shifts in healthcare legislation, which could impact our market access and profitability.
  • We adapt our strategies to navigate these complexities, focusing on demonstrating the value of our therapies to patients and healthcare systems.
• Critical Accounting Policies and Estimates: Preparing financial statements under U.S. GAAP requires management to make estimates and judgments. These affect reported amounts of assets, liabilities, revenue, and expenses. Key areas requiring significant judgment include revenue recognition, clinical trial accruals, and valuing intangible assets and stock-based compensation.
• Off-Balance Sheet Arrangements: We have no material off-balance sheet arrangements that currently affect, or are reasonably likely to affect, our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources.
• Contractual Obligations: We have various contractual obligations from our operations, including lease commitments, purchase obligations, and debt service requirements. We manage these obligations to ensure sufficient liquidity and financial flexibility.

Financial Health

EXELIXIS maintains a strong financial position. At year-end, our cash, cash equivalents, and marketable securities totaled approximately $2.2 billion. This robust liquidity provides significant flexibility for strategic investments, business development, and operational needs. Our total debt stood at $500 million, primarily from convertible notes, indicating a manageable leverage profile and a healthy balance sheet. Our diversified and conservative investment portfolio includes commercial paper, corporate bonds, U.S. Treasury bonds, municipal bonds, money market funds, and certificates of deposit.

Future Outlook

EXELIXIS projects continued revenue growth for Cabometyx. Anticipated label expansions and sustained market share gains in existing indications will drive this growth. We plan significant investment in our robust clinical pipeline, with several key clinical trial readouts expected in the next 12-18 months. These could serve as significant catalysts. Management aims to leverage our strong cash position for potential strategic acquisitions or in-licensing opportunities. This will further diversify our product portfolio and pipeline. We express confidence in our long-term growth trajectory, supported by our deep oncology expertise and strategic partnerships.

Competitive Position

EXELIXIS holds a strategic position in the competitive oncology biopharmaceutical space. Our differentiated product, Cabometyx, commands significant market share in its approved indications. Our strategy combines direct product sales with a robust network of collaborations. This allows us to share development risks, leverage partners' global commercial infrastructure, and accelerate market penetration. We focus on precision medicine and targeted therapies to address unmet medical needs in cancer. Our extensive R&D pipeline, supported by strategic partnerships, helps us maintain a competitive edge. We achieve this by bringing novel therapies to market and expanding existing product labels.