Hedge Fund Wages Proxy Battle with Exelixis Over R&D


Pictured: Exelixis headquarters/Company courtesy

Farallon Capital Management is waging a proxy battle with Exelixis over R&D spending. The hedge fund issued a letter to the company’s board of directors on Wednesday.

Farallon has a 7.2% stake in the genomics-based drug discovery company, making it the largest active shareholder, according to the letter.

The biotech has three approved medicines on the market for kidney, liver and thyroid cancers and advanced melanoma. Despite generating over $2 billion a year in revenue from these, the hedge fund’s letter called the biotech a “disappointment for shareholders,” citing a shareholder return of less than 1% per year.

The letter authors outlined their plan to nominate three director candidates to the board: Tom Heyman, former president of J&J’s VC arm, Dave Johnson, biotech capital allocation expert and Bob Oliver, former CEO of Otsuka America Pharmaceutical.

The authors also asked Exelixis to focus on and communicate an extensive R&D strategy and return excess capital on the balance sheet.

In a press release, Exelixis stated its board and management team had had more than 50 meetings with Farallon and reiterated its R&D strategy with openness to evaluating suggestions from its shareholders.

Exelixis representatives also stated they reviewed the three proposed nominees and evaluated the candidates, reaching a “near-final agreement to avoid a proxy contest” by appointing Heyman and Oliver, retiring two of its long-standing directors and forming a new Capital Allocation Committee.

One of Farallon’s complaints is the board's stagnancy.

The letter authors wrote, “Most of you have been on this board long enough,” and stated the members' average tenure is 16 years.

“However, Farallon demanded a highly unusual breadth and depth of information access as a non-negotiable part of any settlement, including unprecedented access to Exelixis’ pipeline, people and clinical trial data,” Exelixis' press release stated. 

The biotech would not agree to the demands and stated it does not believe Farallon’s board changes are in the best interest of the company.

Exelixis has more than $1 billion slated for R&D in 2023. Farallon accused the biotech of “undisciplined spending” and being “unfocused,” and complained about the number of trials running simultaneously (80) and too many Phase III failures due to skipping Phase II.

The cancer company’s latest trial failure, a Phase III study of Cabometyx (cabozantinib) as a monotherapy for patients with locally advanced or metastatic renal cell carcinoma, was announced in March. The study failed to meet its primary endpoint of progression-free survival.

Under Pressure

Exelixis is not the only biotech under scrutiny from its shareholders. In the current economy, investors are highly attuned to how their dollars are being spent, Mike Rice, founding partner of LifeSci Advisors, told BioSpace in a previous interview. 

“There's more focus on capital allocation than I've seen in years,” Rice said.

Illumina is also engaged in a proxy fight with one of its stakeholders, Carl Icahn. Icahn, with a 1.4% stake in the DNA sequencing company, sent an open letter to fellow shareholders, stating Illumina was “reckless” in its $7.1 billion buy of cancer test developer Grail in 2021.

In October 2022, Mereo BioPharma entered a cooperation agreement with Rubric Capital to settle their proxy battle.

Neither company has returned BioSpace’s request for comment.

Kate Goodwin is a freelance life science writer based in Des Moines, Iowa. She can be reached at kate.goodwin@biospace.com and on LinkedIn.

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