Company Update (NASDAQ:EXEL): Exelixis, Inc. Announces Genentech Withdraws Counterclaim in Ongoing JAMS Arbitration


Exelixis, Inc. (NASDAQ: EXEL) announced that Genentech, Inc. has withdrawn its counterclaim against Exelixis in the ongoing JAMS arbitration concerning alleged breaches of the parties’ collaboration agreement.

Genentech had asserted a counterclaim for breach of contract, which sought monetary damages and interest related to cost allocations under the collaboration agreement. When notifying the arbitral panel, and Exelixis, of this unilateral action, Genentech further stated that it is changing the manner in which it allocates promotional expenses of the COTELLIC (cobimetinib) plus Zelboraf(vemurafenib) combination therapy.

As a result of Genentech’s decision to change its cost allocation approach, Exelixis is relieved of $18.7 million of disputed costs previously charged by Genentech. Exelixis has invoiced Genentech an additional $7.1 million with interest for expenses that Exelixis paid previously.

Genentech’s revised allocation applies retrospectively and prospectively and will substantially reduce Exelixis’ exposure to costs associated with promotion of the COTELLIC + Zelboraf combination in the United States. Exelixis and Genentech have shared promotional costs since commercial activities were initiated in early 2013. As detailed in previous regulatory filings, Exelixis charged its Profit and Loss Statement approximately $38 million for promotional costs through the third quarter of 2016. With the new approach that Genentech has adopted unilaterally, Exelixis’ liability for promotional costs will be reduced to approximately $15 million for the same period.

Other significant issues remain in dispute between the parties. Genentech’s action does not address the claims in Exelixis’ Demand for Arbitration related to Genentech’s clinical development, pricing and promotional costs for COTELLIC in the United States, nor does it fully resolve claims over revenue allocation. And, Genentech has not confirmed how it intends to allocate promotional costs incurred with respect to the collaboration’s promotion of other combination therapies that include cobimetinib for other indications that are in development and may be approved. Exelixis will continue to press its position before the arbitral panel to obtain a just resolution of these claims and the clarity it requires.

About the Dispute

On June 3, 2016, Exelixis filed a Demand for Arbitration before JAMS in San Francisco, California asserting claims against Genentech related to its clinical development, pricing and promotion of COTELLIC, and cost and revenue allocations in connection with COTELLIC’s promotion in the United States. The arbitration demand asserts that Genentech has breached the parties’ contract by, amongst other breaches, failing to meet its diligence and good faith obligations. The demand seeks various forms of declaratory, monetary, and equitable relief, including without limitation that the cost and revenue allocations for COTELLIC be shared equitably consistent with the collaboration agreement’s terms, along with attorneys’ fees and costs of the arbitration. Genentech had asserted a counterclaim for breach of contract, which sought monetary damages and interest related to the cost allocations under the collaboration agreement. (Original Source)

Shares of Exelixis closed last Friday at $15.32, up $0.33 or +2.20%. EXEL has a 1-year high of $18.29 and a 1-year low of $3.55. The stock’s 50-day moving average is $16.27 and its 200-day moving average is $12.46.

On the ratings front, Exelixis has been the subject of a number of recent research reports. In a report issued on January 3, Leerink Swann analyst Michael Schmidt reiterated a Buy rating on EXEL, with a price target of $20, which implies an upside of 31% from current levels. Separately, on November 4, Cowen’s Eric Schmidt reiterated a Buy rating on the stock .

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Michael Schmidt and Eric Schmidt have a yearly average return of 18.2% and 20.2% respectively. Schmidt has a success rate of 59% and is ranked #120 out of 4350 analysts, while Schmidt has a success rate of 59% and is ranked #74.

Sentiment on the street is mostly bullish on EXEL stock. Out of 5 analysts who cover the stock, 5 suggest a Buy rating . The 12-month average price target assigned to the stock is $18.50, which represents a potential upside of 21% from where the stock is currently trading.

Exelixis, Inc. is a biopharmaceutical company, which engages in the developing and commercializing small molecule therapies for the treatment of cancer. Its brands include COMETRIQ and cobimetinib. The company focuses on their proprietary resources and development and commercialization of cabozantinib.