Exelixis, Inc. (“Exelixis,” “we,” “our”(Exelixis, we, our or “us”)us) is aan oncology-focused biotechnology company committedthat strives to accelerate the discovery, development and commercialization of new medicines for difficult-to-treat cancers. Our drug discovery and development capabilities and commercialization platform are the foundations upon which we intend to improve carebring to market novel, effective and outcomes for peopletolerable therapies to provide cancer patients with cancer. additional treatment options.

Since our foundingwe were founded in 1994, three4 products discovered at Exelixisresulting from our discovery efforts have progressed through clinical development, received regulatory approval and enteredestablished a commercial presence in various geographies around the marketplace. Twoworld. NaN are derived from cabozantinib, our flagship molecule, an inhibitor of multiple tyrosine kinases including VEGF, MET, AXL, VEGF receptors and RET receptors:RET. Our cabozantinib products are: CABOMETYX® (cabozantinib) tablets approved for previously treated advanced renal cell carcinoma (“RCC”)and previously treated hepatocellular carcinoma; and COMETRIQ® (cabozantinib) capsules approved for progressive, metastatic medullary thyroid cancer. For these types of cancer, cabozantinib has become or is becoming a standard of care. Beyond these approved indications, cabozantinib is currently the focus of a broad clinical development program and is being investigated both alone and in combination with other therapies in a wide variety of cancers.

The third product,other 2 products resulting from our discovery efforts are: COTELLIC® (cobimetinib) tablets, is a reversible, an inhibitor of MEK, marketed under a collaboration with Genentech (a member of the Roche Group), and is approved as part of a combination regimen to treat advanced melanoma.melanoma and marketed under a collaboration with Genentech, Inc. (a member of the Roche Group) (Genentech); and MINNEBRO® (esaxerenone), an oral, non-steroidal, selective blocker of the mineralocorticoid receptor, approved for the treatment of hypertension in Japan and licensed to Daiichi Sankyo Company, Limited (Daiichi Sankyo).

The condensed consolidated financial statementsaccompanying Condensed Consolidated Financial Statements include the accounts of Exelixis and those of our wholly-owned subsidiaries. These entities’ functional currency is the United States (“U.S.”) dollar. All intercompany balances and transactions have been eliminated.

Certain prior period amounts in the accompanying Condensed Consolidated Financial Statements have been reclassified to conform to the current period presentation. Such reclassifications did not impact previously reported total revenue, income from operations, net income, total assets, total liabilities or total stockholders’ equity.

We operate in 1 business segment that focuses on the discovery, development and commercialization of new medicines for anydifficult-to-treat cancers. Our Chief Executive Officer, as the chief operating decision-maker, manages and allocates resources to our operations on a total consolidated basis. Consistent with this decision-making process, our Chief Executive Officer uses consolidated, single-segment financial information for purposes of evaluating performance, forecasting future period. Theseperiod financial statementsresults, allocating resources and notes should be readsetting incentive targets.

All of our long-lived assets are located in conjunction with the consolidated financial statementsU.S. See “Note 2. Revenues” for enterprise-wide disclosures about product sales, revenues from major customers and notes thereto for the year ended December 31, 2016, included in our Annual Report on Form 10-K filed with the SEC on February 27, 2017.revenues by geographic region.

The preparation of our condensed consolidated financial statementsthe accompanying Condensed Consolidated Financial Statements conforms to accounting principles generally accepted in the U.S., which requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenueequity, revenues and expenses, and related disclosures. On an ongoing basis, management evaluates its estimates including, but not limited to, those related to revenue recognition, including deductions from revenues (such as rebates, chargebacks, sales returns and sales allowances), the period of performance, identification of deliverables and evaluation of milestones with respect to our collaborations, the amounts of revenues and expenses under our profit and loss sharing agreement, recoverability of inventory, certain accrued liabilities including accrued clinical trial liability, and stock-based compensation. We base our estimates on historical experience and on various other market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.

Quarterly, we assess each of Cash Flows. Previously,our investments in available-for-sale debt securities whose fair value is below its cost basis to determine if the investment’s impairment is due to credit-related factors or noncredit-related factors. Factors considered in determining whether an impairment is credit-related include the extent to which the investment’s fair value is less than its cost basis, declines in published credit ratings, issuer default on interest or principal payments, and declines in the financial condition and near-term prospects of the issuer. If we classifieddetermine a credit-related impairment exists, we will measure the credit loss based on a discounted cash flows model. Credit-related impairments on available-for-sale debt securities are recognized as an allowance for credit losses with a corresponding adjustment to other income, net in the accompanying Condensed Consolidated Statements of Income. The portion of the impairment that is not credit-related is recorded, net of applicable taxes, as a reduction of other comprehensive income.

The core principlepercentage of ASU 2014-09total revenues by customer who individually accounted for 10% or more of our total revenues were as follows:

The allowance for chargebacks and discounts for prompt payment is that an entity should recognize revenue when it transfers promised goods or servicesrecorded as a reduction of trade receivables, net and the remaining reserves are recorded as rebates and fees due to customers in an amount that reflects the accompanying Condensed Consolidated Balance Sheets.

We receive payments from our collaboration partners based on billing schedules established in each contract. Amounts are recorded as accounts receivable when our right to consideration tois unconditional. We may also recognize revenue in advance of the contractual billing schedule and such amounts are recorded, net of any allowance for credit losses, as a contract asset when recognized. Contract assets, which are presented in prepaid expenses and other current assets in the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five step process to achieve this core principleaccompanying Condensed Consolidated Balance Sheets, were $0 and in doing so, has created the possibility that more judgment$1.1 million as of March 31, 2020 and estimatesDecember 31, 2019, respectively. We may be required within the revenue recognition process than required under existing U.S. generally accepted accounting pronouncements. We have substantially completed our analysis on the adoption of ASU 2014-09 and have determined the adoption will not have a material impact on the recognition of revenue from product sales. ASU 2014-09 will impact the timing ofto defer recognition of revenue for upfront and milestone payments until we perform our collaborationobligations under these arrangements, with Ipsen Pharma SAS (“Ipsen”) and such amounts are recorded as deferred revenue upon receipt or when due. Contract liabilities were $15.4 million and $6.6 million as of March 31, 2020 and December 31, 2019, respectively. The current portion of the contract liabilities, which are presented in other current liabilities in the accompanying Condensed Consolidated Balance Sheets, were $1.3 million and $0 as of March 31, 2020 and December 31, 2019, respectively. The remainder of the contract liabilities are presented in long-term portion of deferred revenue in the accompanying Condensed Consolidated Balance Sheets. For those contracts that have multiple performance obligations, contract assets and liabilities are reported on a net basis at the contract level.

Significant changes in contract assets during the three months ended March 31, 2020, as compared to December 31, 2019, include the impact of a $10.0 million milestone from Takeda Pharmaceutical Company Ltd. (“Takeda”). We expect to reclassifyLimited (Takeda) which was achieved, invoiced and collected during the period.

During the three months ended March 31, 2020 and 2019, we recognized $1.6 million and $1.3 million, respectively, in revenues that were included in the beginning deferred revenue balance for those years.

As of March 31, 2020, $65.1 million of the transaction price was allocated to performance obligations that had not yet been satisfied, which was considered in the first quarterdetermination of 2018, primarily duecontract assets and liabilities. See “Note 3. Collaboration Agreements - Cabozantinib Commercial Collaborations - Performance Obligations and Transaction Prices for our Ipsen and Takeda Collaborations” to the timing of recognition of revenue related to intellectual property licenses that we have transferred for development and commercialization of our products. Additionally, for all of our collaboration arrangements, the timing of recognition of certain of our development and regulatory milestones could change as a result of the variable consideration guidanceConsolidated Financial Statements included in ASU 2014-09. ASU 2014-09 will also require additional disclosures regarding our revenue transactions.Annual Report on Form 10-K for the year ended December 31, 2019 for information about the expected timing to satisfy these performance obligations.

In consideration for the exclusive license and other rights contained in the Ipsen Collaboration Agreement, Ipsen paid us an upfront nonrefundable payment of $200.0 million in March 2016. Additionally, as a result of the Amendment, we received a $10.0 million upfront nonrefundable payment from Ipsen in December 2016 and, as a result of the approval of cabozantinib in second-line RCC by the European Commission (“EC”) in September 2016, we received a $60.0 million milestone in November 2016. We are receiving a 2% royalty on the initial $50.0 million of net sales by Ipsen, and are entitled to receive a 12% royalty on the next $100.0 million of net sales by Ipsen. After the initial $150.0 million of sales, we are entitled to receive a tiered royalty of 22% to 26% on annual net sales by Ipsen; these tiers will reset each calendar year. We are primarily responsible for funding cabozantinib-related development costs for those trials in existence at the time we entered into the Ipsen Collaboration Agreement; global development costs for additional trials are shared between the parties, with Ipsen reimbursing us for 35% of such costs, provided Ipsen opts in to participate in such additional trials. Pursuant to the terms of the Ipsen Collaboration Agreement, we will remain responsible for the manufacture and supply of cabozantinib for all development and commercialization activities. As part ofRevenues under the collaboration agreement we entered into a supply agreement pursuant to which we will supply finished, labeled drug product towith Ipsen for distribution in the Ipsen Territories at our cost, as defined in the agreement, which excludes the 3% royalty we are required to pay GlaxoSmithKline (“GSK”) on Ipsen’s Net Sales of any product incorporating cabozantinib.

As of September 30, 2017, short-term and long-term deferred revenue relating to the Ipsen Collaboration Agreement was $19.0March 31, 2020, $46.6 million and $215.0 million, respectively.

OnIn January 30, 2017, we entered into a collaboration and license agreement (the “Takeda Collaboration Agreement”) with Takeda, which was subsequently amended effective March 2018 and May 2019, to, among other things, modify the amount of reimbursements we receive for the commercializationcosts associated with our required pharmacovigilance activities and further clinical development of cabozantinib in Japan. Pursuantmilestones we are eligible to the terms of thereceive. Under this collaboration agreement, Takeda Collaboration Agreement, Takeda will havehas exclusive commercialization rights for current and potential future cabozantinib indications in Japan. The companiesJapan, and the parties have also agreed to collaborate on the clinical

Takeda will be responsible for 20% of the costs associated with the global cabozantinib development plan’s current and future trials, provided Takeda opts to participate in such future trials, and 100% of costs associated with cabozantinib development activities that are exclusively for the benefit of Japan. Pursuant to the terms of the Takeda Collaboration Agreement, we will remain responsible for the manufacture and supply of cabozantinib for all development and commercialization activitiesRevenues under the collaboration. As part of the collaboration the parties will enter into appropriate supply agreements for the manufacture and supply of cabozantinib for Takeda’s territory.

In October 2002, we established a collaboration with GSK to discover and develop novel therapeutics in the areas of vascular biology, inflammatory disease and oncology. Under the terms of the product development and commercialization collaboration agreement GSK had the rightwith GSK. We are required to choose cabozantinib for further development and commercialization, but notified us in October 2008 that it had waived its right to select the compound for such activities. As a result, we retained the rights to develop, commercialize, and license cabozantinib, subject to payment to GSK ofpay a 3% royalty to GSK on the net sales of any product incorporating cabozantinib. The product development and commercialization agreement was terminated during 2014, although GSK will continue to be entitled to a 3% royalty on net salescabozantinib by us orand our collaboration partners of any product incorporating cabozantinib, including COMETRIQ and CABOMETYX.

In December 2006, we out-licensed the development and commercialization of cobimetinib to Genentech under a worldwide collaboration agreement. In November 2015, the U.S. Food and Drug Administration approved cobimetinib, under the brand name COTELLIC, in combination with Genentech’s Zelboraf (vemurafenib) as a treatment for patients with BRAF V600E or V600K mutation-positive advanced melanoma. COTELLIC in combination with Zelboraf has also been approved in the accompanying Condensed Consolidated Statements of Operations.European Union and multiple additional countries for use in the same indication. License revenues under the collaboration agreement with Genentech were as follows (in thousands):