Farallon Capital to Wage Proxy Battle at Biotech Firm

Hedge fund Farallon Capital Management is planning to wage a proxy battle at biotech company

according to people familiar with the matter.

Farallon has nominated three director candidates that it flagged in a late-March securities filing, the people said. At the time, the firm hadn’t decided to move forward with a proxy fight and was still trying to work with the company. The window to nominate directors ran from Feb. 24 to March 26, according to proxy materials.

Farallon has a roughly 7.2% stake in Alameda, Calif.-based Exelixis, which develops cancer-fighting drugs, according to the filing. It has been an investor in the business since 2018.

Exelixis shares have fallen by more than a third since early 2018, though they are up about 20% so far this year. The stock closed Tuesday at $19.55, giving the company a market capitalization of roughly $6.3 billion.

Farallon has been in talks with Exelixis over the fund’s main issue, research and development spending, but the discussions recently fell apart, the people said. Farallon thinks Exelixis lacks focus in how it spends its R&D budget, which is expected to top $1 billion in 2023, the people said.

Farallon is typically not an activist investor. The San Francisco firm, with nearly $40 billion in assets under management, tends to keep its engagements with companies private.

Farallon previously pushed, along with other funds, for change at

Toshiba Corp.

A member of the firm ended up joining the Japanese industrial company’s board last June. (Toshiba just agreed to a $15 billion-plus private-equity buyout offer.)

Farallon argues that Exelixis has been unable to translate its library of cancer treatments into value for shareholders, delivering returns of less than 1% annually in the more than two decades since its initial public offering, according to the people.

Farallon wants the board to communicate a plan to deliver cash flows from its flagship product, known as cabozantinib, back to shareholders. It estimates the value of cabozantinib’s cash flow is more than $33 per share alone. (Exelixis in late March said it authorized the repurchase of up to $550 million of its common stock before the end of 2023.)

Farallon’s three nominees are Tom Heyman, formerly of

Johnson & Johnson

; Dave Johnson, a managing partner at health-care-focused activist fund Caligan Partners LP; and Bob Oliver, the former chief executive of Otsuka America Pharmaceutical Inc.

There have been a number of proxy fights launched lately, but few have gone the distance.

Third Point LLC pulled plans to wage one at

Bath & Body Works Inc.

;

Nelson Peltz

called off a proxy battle at

Walt Disney Co.

; and Elliott Investment Management LP decided not to nominate directors at

Salesforce Inc.

after preparing to do so.

Carl Icahn

is in the midst of a proxy fight at biotech