Exelixis is standing its ground in the face of a full-throated attack by an activist investor, defending its record in response to accusations that it has presided over an undisciplined and incoherent R&D model.
Farallon Capital Management, which owns a 7.2% stake in Exelixis, mounted the attack after finding fault with actions that it thinks are overshadowing the biotech’s strengths. As the investors see the situation, Exelixis is sitting on an asset, the cancer drug Cabometyx, that is worth in excess of $33 a share but is trading below $20 because it is frittering away money on an unfocused and undisciplined R&D strategy.
“With the cost of capital increasing and biotech companies of all sizes making hard investment choices regarding compounds to advance and trials to conduct, Exelixis stands out as a company with neither a coherent R&D strategy nor a disciplined approach to spending. Instead of becoming more focused and disciplined, Exelixis is doing precisely the opposite, sponsoring nearly 80 trials simultaneously. We fear the company is spread too thin and lacks expertise across its many different trials,” Farallon wrote.
Exelixis spent $892 million on R&D in 2022 and expects its budget will swell to $1 billion or more this year. According to Farallon, the biotech is allocating much of the money to “discovery and preclinical projects across a range of modalities and targets, many in scientific and clinical areas in which Exelixis lacks differentiation and a competitive advantage.”
Farallon took aim at Exelixis’ approach to clinical development, too, claiming it has “jumped too many times ... straight from phase 1 to phase 3, seemingly sacrificing discipline and prudence for speed.” After seeing the approach lead to late-phase flops, investors now expect Exelixis to fail, Farallon claims, citing the lack of share price action after a Cabometyx study flamed out last month to make its case.
Exelixis sees things differently. Responding to Farallon’s letter, the biotech said it is “executing a clear strategy to drive growth and to create meaningful value for our shareholders.” Far from having spread itself too thin, Exelixis, in its view, has “judiciously” built up its R&D operation and tapped into a network of collaborators to advance a broad portfolio that spans multiple modalities.
The two sides talked over their differences in private before the spat went public. In Exelixis’ telling of events, it reached a near-final agreement that would have seen two Farallon nominees appointed and a capital allocation committee set up. However, Farallon allegedly “demanded a highly unusual breadth and depth of information ... including unprecedented access to Exelixis’ pipeline, people and clinical trial data.” Farallon, in contrast, said Exelixis withdrew an offer to share data “summarily.”
Other investors will soon get a chance to have their say. Farallon plans to nominate three candidates for Exelixis’ board. If investors elect the nominees, members nominated by Farallon will occupy three of the 11 seats on the board.