Hedge fund slams Exelixis for R&D management, launches proxy fight for board seats

A hedge fund is looking to refresh Exelixis, proposing three board director nominees and launching a proxy battle that’s scrutinizing the biotech’s R&D blueprint.

San Francisco-based Farallon Capital Management, which owns about 7.2% of Exelixis’ outstanding shares, said “change is urgently needed” at the biotech’s boardroom in a Wednesday morning letter. An investor since 2018, the hedge fund said Exelixis “has been a disappointment for shareholders.”

It’s the latest proxy battle to eke into plain view in the life sciences world, with Sarissa reshaping Amarin and Carl Icahn calling for change at Illumina over its Grail deal.

Philip Dreyfuss

Farallon hadn’t planned to move forward with a proxy war at the time of a late-March SEC filing, in which it outlined ambitions to bring Tomas Heyman, David Johnson and Robert Oliver onto the Exelixis board, per reporting from The Wall Street Journal, citing unnamed sources. But in the Wednesday letter from partner Philip Dreyfuss, Farallon said Exelixis withdrew a proposal to let the hedge fund review data on R&D spend, leading to a wrench in the talks between the two parties.

The California drugmaker reported total revenues of $1.61 billion last year, during which it spent $891.8 million on research and development. The WSJ report cited an R&D budget of more than $1 billion slated for 2023.

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

Exelixis didn’t immediately respond to email and phone inquiries from Endpoints News.

Farallon’s proposed nominees include former pharma leaders and investors. Heyman is operating partner at Bioqube Ventures, board member of Akero Therapeutics and former president of Johnson & Johnson’s VC arm. Oliver was CEO of Otsuka America Pharmaceutical and sits on various biotech boards, and Johnson is a managing partner at investment firm Caligan Partners.

The hedge fund considers the board to be stale. By Farallon’s tally, eight of the 11 directors at Exelixis have been on the board for more than a decade and most of those for more than 15 years, with co-founder Stelios Papadopoulos chairing the company since January 1998. There have been a few boardroom seat changes since 2010.

Stelios Papadopoulos

Papadopoulos recently retired as chair of Biogen. While there have been a few adjustments in the upper echelons of Exelixis, the biotech has made some recent moves on the business development side, with more to come, as hinted by president and CEO Michael Morrissey during the full-year 2022 update in February.

Exelixis will “pursue additional in-licensing and strategic opportunities for near-clinical- and clinical-stage assets,” the CEO said in a statement outlining 2022 results. Recent tie-ups include Cybrexa Therapeutics, Sairopa and Catalent’s Redwood Bioscience, for which three ADC programs are on tap.

Farallon’s proxy war comes as Exelixis reads out more Phase III studies of its lead cancer drug Cabometyx, or cabozantinib, and brings another drug, zanzalintinib, into multiple late-stage trials. Cabozantinib failed two recent Phase III trials testing it in combination with Roche’s Tecentriq. Another study, CONTACT-02, focused on a form of prostate cancer, is expected to have data later this year.

The flops were not unexpected, Farallon wrote in its April 5 letter: “Most tellingly, Exelixis’ Phase 3 trial failures have become so expected by the equity research and investor community that the stock does not move anymore on such failures.”

The investor believes Exelixis is going after as many as 27 indications in nearly 80 trials, which is funded by more than $2 billion of cash and marketable securities.

Farallon was “pleased” with one recent update at Exelixis. The company’s board authorized a share repurchase of up to $550 million by the end of this year, Exelixis said on March 20. Farallon wants Exelixis to go even further and do an “ongoing return of capital as cabozantinib continues to generate cash flow.”

Farallon was founded in 1986 by Tom Steyer, a billionaire who ran for president in 2020 and has set up banks, nonprofits and climate organizations. He left Farallon in 2012.

Editor’s note: This story has been updated to remove a reference to Farallon as an activist hedge fund. While the fund has taken activist positions before, it says that is not its primary strategy. 

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