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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from                      to

Commission File Number: 0-30235

EXELIXIS, INC.

(Exact name of registrant as specified in its charter)

170 Harbor Way

P.O. Box 511

South San Francisco, CA 94083

(Address of principal executive offices, including zip code)

(650) 837-7000

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock $.001 Par Value per Share

*(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  Yes  x  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  x  No  ¨

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $581,086,606

As of March 4, 2005, there were 76,150,092 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than April 30, 2005, in connection with the registrant’s 2005 Annual Meeting of Stockholders are incorporated herein by reference into Part III of this Annual Report on Form 10-K.

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EXELIXIS, INC.

FORM 10-K

INDEX

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PART I

Some of the statements under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and elsewhere in this Annual Report on Form 10-K are “forward-looking statements.” These statements are based on our current expectations, assumptions, estimates and projections about our business and our industry and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in, or contemplated by, the forward-looking statements. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “should,” “estimate,” “predict,” “potential,” “continue” or the negative of such terms or other similar expressions identify forward-looking statements. Our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed under the caption “Risk Factors” below, as well as those discussed elsewhere in this Annual Report on Form 10-K. These and many other factors could affect our future financial and operating results. We undertake no obligation to update any forward-looking statement to reflect events after the date of this report.

ITEM 1. BUSINESS

Overview

Exelixis, Inc. is a biotechnology company whose primary mission is to leverage its biological expertise and integrated drug discovery capabilities to develop high-quality, differentiated pharmaceutical products for the treatment of cancer, metabolic disorders, cardiovascular disease and other serious diseases. Our research is designed to identify novel genes and proteins that, when expressed at altered levels, either decrease or increase the activity of a specific disease pathway in a therapeutically relevant manner. These genes and proteins represent either potential product targets or drugs that may treat disease or prevent disease initiation or progression. We believe that our proprietary technologies also are valuable to other industries whose products can be enhanced by an understanding of DNA or proteins, including the agrochemical, agricultural and diagnostic industries.

Our clinical development pipeline currently includes the following compounds in cancer and renal disease: XL119 (becatecarin), for which a Phase 3 clinical trial has been initiated in patients with bile duct tumors; XL784, initially an anticancer compound, currently being developed as a treatment for renal disease for which we anticipate initiating additional clinical studies in 2005; XL647 and XL999, anticancer compounds currently in Phase 1 clinical trials; XL880, an anticancer compound for which we anticipate initiating a Phase 1 clinical trial during the first half of 2005; and XL820, XL844 and XL184, anticancer compounds for which we anticipate filing investigational new drug applications (INDs) in the first half of 2005. Our preclinical pipeline is comprised of six programs in advanced lead optimization. This includes several small molecule compounds designed to target the Liver X Receptor (LXR), Farnesoid X Receptor (FXR) and Mineralocorticoid Receptor (MR). These targets are nuclear hormone receptors (NHRs) that are implicated in various metabolic and cardiovascular disorders. We also have oncology programs focused on the inhibition of the RAF, Akt/S6k and IGF1R kinases, which are implicated in various cancers. We anticipate advancing at least some of these preclinical programs to drug candidate status in 2005, with the potential of filing INDs beginning in 2006.

Areas of Expertise

Integrated Research, Discovery and Development Capabilities

We have built a multidisciplinary, integrated research and development platform that supports the complex, iterative nature of drug research, discovery and clinical development. Our platform has been designed to include all of the critical functions and know-how to advance from gene to drug in a high-quality, streamlined fashion.

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We have combined our ability to select and validate biological targets with a state-of-the-art drug discovery platform and have built critical mass and excellence in all key operational areas. We believe that these resources enable us to: (i) identify and validate novel targets effectively and rapidly; (ii) develop and optimize proprietary lead compounds; and (iii) perform the broad range of preclinical testing required to fuel our pipeline and advance promising compounds through all stages of development. We believe that our integrated structure is a key competitive advantage, enabling us to effectively collaborate internally and to streamline our decision-making processes.

Research and Discovery

Our integrated research and discovery platform combines advanced capabilities in target identification and validation, genomics and protein biochemistry, informatics and chemical genetics. It is designed to operate in a fully integrated, high-throughput manner across the complete drug discovery and development continuum. This integrated approach enables us to: (i) identify biologically active compounds; (ii) optimize lead compounds to enhance drug properties, such as safety and potency; (iii) fully characterize the interactions between compounds and targets; (iv) analyze in vitro and in vivo pharmacology and perform the full range of pharmacodynamic, pharmacokinetic and safety analyses required to advance compounds into and through preclinical development, and subsequently, into clinical development. Key capabilities include:

Research

Discovery

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Development

Our development group has the expertise to move our development candidate compounds from preclinical testing through all phases of clinical development. In particular, the development group possesses expertise in the following areas:

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Agriculture – Leveraging Our Capabilities Into Additional Revenue Opportunities

Our unique expertise in model systems biology also has applications in the agricultural arena. In the area of crop protection we are leveraging our expertise in target identification, high-throughput screening and chemistry to work with corporate partners in the discovery of more specifically targeted chemical products which include herbicides, insecticides and nematicides. In the area of plant trait discovery, we are working with corporate partners to develop crops with superior yield and improved nutritional profiles in oil content and protein composition and to develop plants with high levels of valuable biochemical compounds. We believe that our subsidiary Exelixis Plant Sciences has been a leader in utilizing “plants as factories” to produce high-value compounds that are naturally produced in plants including natural flavors and colorants for the packaged foods and cosmetics industries.

Our Strategy

Our business strategy is to leverage our biological expertise and integrated drug discovery capabilities to aggressively generate a large pipeline of diverse small molecule pharmaceutical products with first-in-class or best-in-class potential that fulfill unmet medical needs in the treatment of cancer, metabolic disorders, cardiovascular disease and potentially other serious diseases. Because our continued success and growth as a company depends in part on our ability to advance current and future compounds successfully in clinical development, we will contribute substantial resources to building a premier clinical development organization to accommodate our expanding pipeline of compounds. We continue to build critical mass of key internal expertise and capabilities to facilitate conducting multiple clinical trial programs with speed, accuracy and rigor. Specifically, our business strategy includes the following key elements:

Selectively Develop Therapeutic Products With First-In-Class Or Best-In-Class Potential

We have invested and plan to continue to invest significant funds in discovering and developing proprietary product candidates, particularly in the areas of cancer and metabolic disorders. We have committed substantial resources to building a world-class drug discovery effort that is integrated with our unique understanding of the biological basis of a disease. Part of our strategy is to generate a large pipeline of diverse product candidates that provides us with the flexibility to select only those compounds that have both clinical and commercial potential. These decisions are data-driven, based on stringent criteria that incorporate preclinical efficacy and tolerability, selectivity, potency, pharmacology and commercial viability. We commit resources to only those compounds that are commercially viable and have the potential to be first-in-class or best-in-class.

Target Multiple Pathways

Our unique strengths in biology enable us to evaluate the role of specific genes and various pathway interactions in the development, progression and treatment of cancer and other diseases. We believe that the most effective therapies for cancer will target multiple pathways, simultaneously turn off growth signals, increase rates of programmed cell death and reduce the growth of blood vessels necessary to support tumor growth. We are focused on developing Spectrum Selective Kinase Inhibitors^™ (SSKIs). Each SSKI has been specifically optimized to inhibit a unique combination of receptor tyrosine kinase (RTK) activities. RTKs comprise a diverse group of proteins that play an essential role in mediating many cancer-related pathways. Because each SSKI inhibits multiple RTKs, these compounds have the ability to simultaneously target the tumor and its vasculature, potentially increasing potency and efficacy.

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Leverage Strategic Collaborations

We have established and intend to continue pursuing commercial relationships and key partnerships with major pharmaceutical and biotechnology companies based on the strength of our biological expertise and drug discovery and development capabilities. Our collaborations to date provide us with substantial committed funding for our R&D efforts, the potential to earn significant milestones as well as opportunities to receive significant future payments, if our collaborators successfully develop and market products that result from our collaborative work. In addition, many of our collaborations have been structured strategically so that we gain access to technology or product opportunities. Technology access allows us to advance our internal programs more rapidly, save time and money, and retain rights to use the same information or tools for different development opportunities.

Acquire Products, Technologies or Skills Opportunistically

We will continue to evaluate opportunities that provide us with key personnel, intellectual property, technologies and/or products that will enhance our development capabilities and product pipeline. We believe that the acquisition of strategic products and technologies will create additional value in our internal and collaborative programs. In addition, we believe that many of our strategic relationships permit us to obtain co-development, co-promotion or other rights to products identified or developed in such collaborative relationships as a result of our efforts.

Disciplined Management of Our Financial Resources

Fiscal discipline and pragmatic allocation of our resources are key components of our corporate strategy. We focus the bulk of our financial resources on those functions that enhance our ability to generate multiple new, high-quality INDs and rapidly advance these new drug candidates through clinical development. We believe that this approach will enhance the quality and growth of our pipeline while ensuring our ability to fulfill obligations to corporate partners. We seek to finance our activities through a blend of funding opportunities, including executing under our existing partnerships, which potentially triggers substantial milestones; exploring opportunities for new partnerships for our unpartnered cancer and metabolism assets, which has the potential to bring in near-term cash and defray late-stage development costs; evaluating the suitability of third-party financing vehicles with the aim to off-load a significant portion of our near-term clinical development expense and opportunistically accessing the capital markets.

Clinical and Preclinical Pipeline

Clinical Pipeline

We have a deep expansive pipeline of high-quality compounds in various stages of development to treat cancer, renal disease and various metabolic and cardiovascular disorders. Our most advanced compounds are for bile duct tumors (XL119) and renal disease (XL784). However, the majority of our pipeline compounds are SSKI’s. Each SSKI has a different inhibition spectrum, with the potential to maximize efficacy through simultaneous inhibition of multiple RTKs.

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Under the terms of our research and development collaboration with SmithKline Beecham Corporation (which does business as GlaxoSmithKline), which was established in October 2002 and amended in January 2005, GlaxoSmithKline has the right to select after successful completion of proof-of-concept two (or possibly three if the collaboration is extended) of the compounds in our pipeline for further development (other than XL119). This includes XL784, XL647, XL999, XL880, XL844, XL184, XL820 and five earlier stage oncology programs. Selection of any of these compounds would trigger milestone payments and royalties from GlaxoSmithKline, and would provide us with co-promotion rights should a compound be successfully commercialized.

Preclinical Pipeline

We have several programs targeting metabolic disorders, cardiovascular disease as well as cancer that are in advanced lead optimization. We expanded our metabolism program in October 2004 by acquiring X-Ceptor Therapeutics, Inc., a leader in the discovery and development of small molecules that modulate NHRs. NHRs represent a class of clinically and commercially validated gene targets that are implicated in a wide range of metabolic and cardiovascular disorders. We anticipate advancing these programs to drug candidate status in 2005 and potentially filing INDs in 2006.

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Metabolic Disorders and Cardiovascular Disease

Cancer

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Corporate Collaborations

We have established collaborations with major pharmaceutical and biotechnology companies based on the strength of our technologies and biological expertise to support additional development of our proprietary products. Through these collaborations we obtain license fees, research funding, and the opportunity to receive milestone payments and royalties from research results and subsequent product development activities. In addition, many of our collaborations have been structured strategically to provide us with access to technology that may help to advance our internal programs more rapidly while at the same time enabling us to retain rights to use these technologies in different industries. We have also established collaborations with leading companies in the agrochemical industries that allow us to continue expanding our internal development capabilities and diversifying our revenue stream while providing our partners with novel targets and assays. For the year ended December 31, 2004, revenue from GlaxoSmithKline, Genoptera and Bristol Myers Squibb represented approximately 30%, 27% and 19% of our total revenue, respectively.

Pharmaceutical Collaborations

GlaxoSmithKline

In October 2002, we entered into a broad collaboration with GlaxoSmithKline for the discovery, development and commercialization of novel small molecule therapeutics in the areas of vascular biology, inflammatory disease and cancer, to the extent that programs in these areas were not previously partnered. The collaboration involves three agreements: a Product Development and Commercialization Agreement (PDA), a Stock Purchase and Stock Issuance Agreement (SPA), and a Loan and Security Agreement (LSA). Under the PDA, we conduct research and development with the objective of delivering compounds to GlaxoSmithKline that have successfully completed proof-of-concept (i.e., Phase 2a of clinical development). GlaxoSmithKline had an exclusive option to select a certain number of compounds that have completed proof-of concept for further development, manufacture and commercialization on a worldwide basis, subject to payment by GlaxoSmithKline of acceptance fees at rates that depend on the number and timing of compounds selected by GlaxoSmithKline. Under the PDA, we are entitled to receive significant clinical and regulatory milestone payments based on the number and timing of compounds reaching specified points of progression. We may also receive royalty payments, if any, on the compounds commercialized by GlaxoSmithKline, at rates that are dependent upon the net sales and the number of compounds that GlaxoSmithKline elects to further develop, manufacture and commercialize. We also retain co-promotion rights in North America for compounds selected by GlaxoSmithKline.

Under the LSA, GlaxoSmithKline provided a loan facility of up to $85.0 million for use in our efforts under the collaboration. We borrowed $25.0 million under that agreement in December 2002, an additional $30.0 million in December 2003, and the final installment of $30.0 million in December 2004. All loan amounts bear interest at a rate of 4.0% per annum and are secured by the intellectual property, technology and equipment created or utilized pursuant to the collaboration. Principal and accrued interest become due in installments, beginning on or about the sixth anniversary of the collaboration, unless the collaboration is earlier terminated by GlaxoSmithKline for our uncured material breach, insolvency or certain events of change of control. Repayment

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of all or any of the amounts advanced to us under the LSA may, at our election, be in the form of our common stock, subject to certain conditions.

Under the terms of the SPA, GlaxoSmithKline purchased 2.0 million shares of our common stock in a private placement for a total purchase price of $14.0 million in November 2002. We also had an option to sell, and GlaxoSmithKline had an obligation to purchase, additional shares of our common stock at a specified time in the future and at a price that is at a premium to the then current market price of our common stock.

Pursuant to terms of the PDA, GlaxoSmithKline paid us $30.0 million as an upfront fee and $10.0 million in annual research funding and agreed to pay a minimum of an additional $80.0 million in research and development funding over the first six years of the collaboration, subject to GlaxoSmithKline’s right to terminate the collaboration in the event of a material breach by us of certain provisions of the agreement, our failure to meet certain performance requirements after the third year of the collaboration or in the event of a change of control of Exelixis by a major pharmaceutical company.

Under the PDA, an option period commenced in October 2004 during which GlaxoSmithKline was required to elect to limit or expand the scope of the collaboration. In January 2005, we amended the collaboration with GlaxoSmithKline. The terms of the amended collaboration reflect GlaxoSmithKline’s decision to select a modified program election that is neither the limited or expanded option envisioned in the original agreement. If GlaxoSmithKline had elected the limited program option, then GlaxoSmithKline would have been able to select up to 12 targets, along with the respective compounds directed against those targets, which would have narrowed the focus of further work under the collaboration. If GlaxoSmithKline had elected the expanded program option, there would not be a narrowing of focus and all of the collaboration targets and their respective compounds would have remained in the collaboration. Under the amended PDA, GlaxoSmithKline selected a modified program election through which the focus of the collaboration is shifted to 12 internal programs at various stages of development (XL784, XL647, XL999, XL880, XL184, XL820, XL844 and five earlier stage oncology programs). Each program centers on compounds that are directed against one or more targets identified in the collaboration. Additionally, GlaxoSmithKline retains exclusivity rights to the approximately 32 specified targets that are encompassed by the 12 programs. However, we retain rights to all compounds not encompassed by the 12 programs selected by GlaxoSmithKline and may work on any targets with the exception of the approximately 32 targets subject to the exclusivity.

Under the amended PDA, GlaxoSmithKline will be required to pay a new $30.0 million milestone to us upon (i) the filing of INDs for three out of four compounds (XL880, XL184, XL820 and XL844) prior to the end of 2005 or (ii) the successful completion in 2005 of a Phase 1 clinical trial for one of these four compounds. This payment, if made, will reduce by an equal amount any milestones that would have originally been paid later in the collaboration. In return for the new $30.0 million milestone, GlaxoSmithKline will receive a specified reduction against the first acceptance milestone as well as a temporary reduction in the royalty rate it owes us on net sales of products developed under the collaboration. The $30.0 million milestone payment, if paid to us, and the related specified reduction will reduce the first acceptance milestone owed to us and, if the acceptance milestone is less than the $30.0 million and the specified reduction, then the remaining balance will reduce any future product commercialization milestones that GlaxoSmithKline owes to us. GlaxoSmithKline also will be obligated to pay an additional new $5.0 million milestone to us upon achieving specified progress by the end of 2005 with respect to certain other candidates. Under the original PDA, GlaxoSmithKline would have paid the first milestone upon its selection of a compound that had completed proof-of-concept for further development. Under the amended PDA, GlaxoSmithKline is obligated to provide research funding of $47.5 million over the remaining three-year term of the collaboration.

As a result of GlaxoSmithKline’s program election and pursuant to the terms of the original SPA, GlaxoSmithKline purchased 1.0 million shares of our common stock at an aggregate purchase price of approximately $11.1 million in January 2005. We have no further option to sell, and GlaxoSmithKline has no further obligation to purchase, additional shares of our common stock.

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Bristol-Myers Squibb

In September 1999, we entered into a three-year research and technology transfer agreement with Bristol-Myers Squibb Company (BMS) to identify the mechanism of action (MOA) of compounds delivered to us by BMS. In July 2002, the agreement was extended for an additional two years. This information may enable BMS to enhance the potency, specificity and selectivity of drug candidates and may lead to the discovery of new generations of compounds with attractive drug properties. In connection with the collaboration, BMS originally transferred to us certain combinatorial chemistry hardware and software and paid us a technology access fee. In July 2002, the agreement was extended for an additional two years. Under the terms of the extension, BMS will continue to provide research support payments, as well as pay milestones and royalties based on achievements in the research and commercialization of products based on BMS compounds that are the subject of the collaboration.

We can also earn additional amounts under the agreement upon the achievement of certain milestones as well as earn royalties on the future sale by BMS of human products incorporating compounds developed under the agreement. The agreement also includes technology transfer and licensing terms, which call for BMS and us to license and share certain core technologies in genomics and lead optimization. In accordance with the terms of the two-year extension, this agreement expired during July 2004.

In July 2001, we entered into a second collaboration with BMS focused on cancer target identification. The collaboration involves three agreements: a Stock Purchase Agreement, a Cancer Collaboration Agreement and a License Agreement. Under the terms of the collaboration, BMS (i) purchased 600,600 shares of our common stock in a private placement for approximately $20.0 million in cash; (ii) agreed to pay us a $5.0 million upfront license fee and provide us with $3.0 million per year in research funding for a minimum of three years; and (iii) granted us a worldwide, fully-paid, exclusive license to becatecarin (XL119) developed by BMS, which is currently in a Phase 3 trial as a potential treatment for bile duct tumors. In December 2003, we extended and expanded this collaboration until January 2007 with the right for BMS to continue the collaboration until July 2009. The goal of the extension is to increase the total number and degree of validation of cancer targets that we will deliver to BMS. Each company will maintain the option to obtain exclusive worldwide rights to equal numbers of validated targets arising from the collaboration. Under the terms of the extended collaboration, BMS provided us with an upfront payment and we will receive increased annual research funding and milestones on certain cancer targets arising from the collaboration that progress through specified stages of validation. We will also be entitled to receive milestones on compounds in the event of successful clinical and regulatory events and royalties on commercialized products.

Chemistry Collaborations

In 2001 and 2002, we entered into collaboration agreements with Elan Pharmaceuticals, Inc., Scios Inc., Cytokinetics, Inc., Schering-Plough Research Institute, Inc. and Merck & Co., Inc. to jointly design custom high-throughput screening compound libraries. Each partner agreed to pay us a per-compound fee for delivering compounds that met certain agreed-upon acceptance criteria. Each party also paid an upfront technology access fee that was creditable against the future purchase of compounds. Each party retained rights to use the compounds developed and delivered in its own proprietary drug discovery programs and in its collaborative efforts with third parties. During 2004, our collaboration agreement with Elan Pharmaceuticals, Inc. terminated in accordance with the terms of the agreement.

In January 2005, we agreed to mutually terminate the collaborations with Scios, Inc., Schering-Plough Research Institute, Inc., Merck & Co., Inc. and Cytokinetics, Inc. effective as of December 31, 2004. Each of the termination agreements provides that we have fully satisfied our obligation to deliver compounds under the respective collaboration agreement. We incurred no early termination penalties. We decided to terminate the collaborations because they were no longer economically attractive to us nor did they further our strategic priorities of advancing proprietary compounds in research and discovery and clinical development.

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Agricultural Collaborations

Bayer Corporation

In December 1999, we established Genoptera LLC with Bayer Corporation to develop insecticides and nematicides for crop protection. As part of the formation of this joint venture, Bayer has paid us, through Genoptera, license fees and research commitment fees of $20.0 million and has agreed to provide eight years of research funding through 2007 at a minimum level of $10.0 million per year (for a total of $100.0 million of committed fees and research support). In addition, Bayer is required to pay Genoptera milestones and royalties on products developed by it resulting from the Genoptera research, and we are required to pay Genoptera royalties on certain uses of technology arising from such research. Bayer owns 60% of Genoptera and we own the remaining 40%. We did not make any capital contributions for our ownership interest and have no obligation to fund future losses. The formation of this joint venture is an outgrowth of, and replaces, the contractual collaboration first established with Bayer AG (the corporate parent of Bayer Corporation) in May 1998.

In collaboration with Bayer, we are applying our model systems platform and assay development capabilities to identify unique targets that may be used to develop new, more effective broad-spectrum insecticides, as well as nematicides. As a result of screening targets both from novel targets as well as from determining the MOA of an existing compound, we have delivered to Bayer numerous targets and high-throughput screening assays that may be useful in identifying new insecticides for which we have received milestone payments. Under our collaborative arrangement (through our joint venture, Genoptera LLC), Bayer retains exclusive rights to insecticides and nematicides for crop protection. We remain free to conduct research in pesticides other than insecticides or nematicides, as well as in the development of pest-resistant crops.

Either we or Bayer may terminate the Genoptera research efforts after 2007. In addition, Bayer may terminate the joint venture or buy out our interest in the joint venture prior to 2007 under specified conditions including by way of example, failure to agree on key strategic issues after a period of years, the acquisition of Exelixis by another company or the loss of key personnel that we are unable to replace with individuals acceptable to Bayer.

Bayer CropScience

In May 2004, we terminated our collaboration with Bayer CropScience in the field of agricultural genomics. The collaboration was conducted through Agrinomics LLC, a jointly owned limited liability company. The termination of the collaboration was in connection with our purchase of Bayer CropScience’s 50% ownership interest in Agrinomics. As a result, we now wholly own Agrinomics. In addition, we entered into a combinatorial chemistry agreement with Bayer CropScience, and Bayer CropScience and its affiliates entered into a number of license and technology agreements with Agrinomics. The agreements are directed to the use of the assets developed or used under the collaborative research agreement.

Dow AgroSciences

In July 2000, we established a three-year research collaboration with Dow AgroSciences to identify the mechanisms of action of certain herbicides and fungicides delivered to us by Dow AgroSciences. Under this agreement, we received access to a collection of proprietary compounds from Dow AgroSciences that may be useful in our human therapeutic drug discovery programs. We identified targets to certain Dow AgroSciences compounds that could be used to develop new classes of fungicides and herbicides. We are entitled to receive milestones and royalties for potential products developed from this collaboration. The fungicide and herbicide mechanism of action research project was successfully completed as of July 2004.

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Renessen

In December 2002, Agrinomics established an alliance to enhance seed oil content in commercially valuable crops with Renessen LLC. Renessen is a joint venture between Monsanto Company and Cargill, Inc. The collaboration combines Agrinomics’ technological leadership in agricultural functional genomics, high-throughput gene screening and seed trait identification with Renessen’s global expertise in quality trait crop development and commercialization, with the goal of accelerating the development of novel proprietary crops with improved seed composition traits. This collaboration leverages the unique capabilities of Agrinomics’ powerful ACTTAG^™ gene activation and selection platform to rapidly discover and validate genes that can optimize important seed traits in order to increase the commercial value of many of the world’s most significant agricultural crops. In February 2005, Agrinomics entered into an amendment to the collaboration agreement with Renessen that expands and extends the original alliance between Agrinomics and Renessen.

Competition

We face intense competition in the markets we are pursuing. There are many companies focused on the development of small molecules and antibodies for diseases including cancer and metabolic and cardiovascular disorders. Our potential competitors include major pharmaceutical and biotechnology companies as well as agricultural companies. Many of our potential competitors have significantly more financial, technical and other resources than we do, which may allow them to have a competitive advantage.

Any products that we may develop or discover are likely to compete in highly competitive markets. Many of our competitors may succeed in developing products that may render our products and those of our collaborators obsolete or noncompetitive. In addition, many of our competitors have significantly greater experience than we do in their respective fields.

Research and Development Expenses

Research and development expenses, excluding acquired in-process research and development expenses, consist primarily of salaries and other personnel-related expenses, facilities costs, supplies, licenses and depreciation of facilities and laboratory equipment. Research and development expenses were $137.7 million for the year ended December 31, 2004, compared to $127.6 million for 2003 and $112.0 million for 2002.

Proprietary Rights

We are able to protect our technology from unauthorized use by third parties only to the extent that it is covered by valid and enforceable patents or is effectively maintained as a trade secret. Accordingly, patents or other proprietary rights are an essential element of our business. We are the assignee or exclusive licensee of 306 pending patent applications and 86 issued patents in the United States, and in most cases corresponding patents/applications in foreign countries that we have deemed desirable. We seek patent protection of inventions originating from our ongoing research and development activities that are commercially important to our business. Research and development activities include plant and animal genes and gene functions, proteins, antibodies, biotherapeutics and small molecule pharmaceutical and agricultural products, as well as genetic methods and technology improvements for discovering such genes, functions, proteins, antibodies, biotherapeutics and small molecule pharmaceutical and agricultural products.

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We have obtained licenses from various parties that give us rights to technologies that we deem to be necessary or desirable for our research and development. These licenses (both exclusive and non-exclusive) may require us to pay royalties as well as upfront and milestone payments.

Patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country.

While trade secret protection is an essential element of our business and we have taken security measures to protect our proprietary information and trade secrets, we cannot give assurance that our unpatented proprietary technology will afford us significant commercial protection. We seek to protect our trade secrets by entering into confidentiality agreements with third parties, employees and consultants. Our employees and consultants also sign agreements requiring that they assign to us their interests in intellectual property arising from their work for us. All employees sign an agreement not to engage in any conflicting employment or activity during their employment with us and not to disclose or misuse our confidential information. However, it is possible that these agreements may be breached or invalidated, and if so, there may not be an adequate corrective remedy available. Accordingly, we cannot ensure that employees, consultants or third parties will not breach the confidentiality provisions in our contracts, infringe or misappropriate our trade secrets and other proprietary rights or that measures we are taking to protect our proprietary rights will be adequate.

In the future, third parties may file claims asserting that our technologies or products infringe on their intellectual property. We cannot predict whether third parties will assert such claims against us or against the licensors of technology licensed to us, or whether those claims will harm our business. If we are forced to defend ourselves against such claims, whether they are with or without merit and whether they are resolved in favor of, or against, our licensors or us, we may face costly litigation and the diversion of management’s attention and resources. As a result of such disputes, we may have to develop costly non-infringing technology or enter into licensing agreements. These agreements, if necessary, may be unavailable on terms acceptable to us, or at all.

Employees

As of December 31, 2004, we had 517 full-time employees worldwide, 193 of whom hold Ph.D. and/or M.D. degrees and 432 of whom were engaged in full-time research and development activities. We plan to hire additional staff as new corporate collaborations are established and we expand our internal development and discovery efforts. Our success will depend upon our ability to attract and retain qualified employees. We face competition in this regard from other companies in the biotechnology, pharmaceutical and high technology industries, as well as research and academic institutions. None of our employees are represented by a labor union, and we consider our employee relations to be good.

Available Information

We were incorporated in Delaware in November 1994 as Exelixis Pharmaceuticals, Inc., and we changed our name to Exelixis, Inc. in February 2000.

We maintain a site on the worldwide web at www.exelixis.com; however, information found on our website is not incorporated by reference into this report. We make available free of charge on or through our website our SEC filings, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Further, copies of our filings with the SEC are available at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a site on the worldwide web that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov.

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RISK FACTORS

In addition to the factors discussed elsewhere in this report and our other reports filed with the SEC, the following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of us. The risks and uncertainties described below are not the only ones facing Exelixis. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks or such other risks actually occur, our business could be harmed.

Risks Related to Our Need for Additional Financing and Our Financial Results

If additional capital is not available to us, we would be forced to delay, reduce or eliminate our product development programs or commercialization efforts and we may breach our financial covenants.

We will need to raise additional capital to:

We anticipate that our current cash and cash equivalents, short-term investments and funding that we expect to receive from collaborators will enable us to maintain our currently planned operations for at least the next 15 months. Our future capital requirements will be substantial and will depend on many factors, including:

One or more of these factors or changes to our current operating plan may require us to consume available capital resources significantly sooner than we expect. If our capital resources are insufficient to meet future

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capital requirements, we will have to raise additional funds. We may be unable to raise sufficient additional capital when we need it, on favorable terms or at all. The sale of equity or convertible debt securities in the future may be dilutive to our existing stockholders, and debt-financing arrangements may require us to pledge certain assets and enter into covenants that would restrict certain business activities or our ability to incur further indebtedness and may contain other terms that are unfavorable to our stockholders or us. If we are unable to obtain adequate funds on reasonable terms, we may be required to curtail operations significantly or obtain funds by entering into financing, supply or collaboration agreements on unattractive terms. If we raise additional funds through collaboration arrangements with third parties, it