Exelixis gives more details behind Farallon proxy fight

Oncology biotech Exelixis is defending its business amid a proxy fight with a hedge fund that has criticized the company’s R&D strategy and spending.

In a letter to shareholders dated May 1, Exelixis said it is trying to avoid an “unnecessary proxy contest” with Farallon. It urged shareholders to vote for the company’s 11 nominees for the board — and to specifically not vote for one candidate nominated by Farallon — at an upcoming shareholder meeting on May 31.

That candidate is Dave Johnson, a co-founder of Caligan Partners, a New York-based investment firm and minority shareholder in Exelixis. The biotech said Farallon and Caligan are attempting to oust Lance Willsey, who has been on the Exelixis board since 1997.

Farallon’s “agenda, which calls for Exelixis to largely eliminate R&D spending in favor of near-term capital return to shareholders, is short-sighted and value destructive,” the company wrote in the letter, which was included in a press release on Monday evening.

The spat between Exelixis and Farallon started last month when the hedge fund, which owns 7.2% of Exelixis’ outstanding shares, called Exelixis a “disappointment for shareholders” and proposed three candidates to the Exelixis board. The board has accepted two of those candidates: Interlaken Therapeutics CEO Tomas Heyman and ex-Otsuka America Pharmaceutical CEO Robert Oliver.

Farallon has also claimed that Exelixis “essentially [made] no money for investors,” amid Exelixis’ R&D budget increase to more than $1 billion for 2023. The company spent $891 million on R&D in 2022.

“This episode has only added to our conviction that your spending and budgeting cannot stand up to scrutiny,” Farallon wrote then.

Farallon declined to comment at this time.

Stelios Papadopoulos

In the letter this week, Exelixis said it moved forward with several of Farallon’s recommendations. It interviewed all five of Farallon’s board nominations, it will ban chairman Stelios Papadopoulos from trading Exelixis stock for two years as a “show of good faith,” and agreed to share proprietary R&D information with Farallon through a non-disclosure agreement.

However, the oncology biotech said there were requests from Farallon that it deemed “unreasonable.” This includes providing full access to R&D and capital allocation information, plus the ability to share without restriction “sensitive information” about Exelixis’ R&D processes after a two-year period and publishing all non-public material information shared with Farallon before Jan. 1.

Michael Morrissey

Additionally, Farallon wanted the option to meet with CEO Michael Morrissey once a week through Oct. 1, if desired — on two business days’ notice — to discuss R&D policies and practices.

The letter specifically called out Johnson’s nomination to the board, saying he isn’t qualified and his views are aligned with Farallon, and describing Caligan and Farallon as a combined activist group.

“The activist group’s candidate, Mr. Johnson, made it clear throughout the interview process that his motivations are fully aligned with those of the activist group,” the biotech said, saying it was the company’s “strong belief” that Johnson would not act independently as a board member.

Exelixis slammed Johnson for being unable to discuss fundamentals of the business, such as the biotech’s R&D strategy or capital plan. They said he has no “significant operational scientific or biotech expertise” and no scientific training.

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