On January 9, 2017 Exelixis, Inc. (Nasdaq:EXEL) reported that Genentech, Inc. has withdrawn its counterclaim against Exelixis in the ongoing JAMS arbitration concerning alleged breaches of the parties’ collaboration agreement (Press release, Exelixis, JAN 9, 2017, View Source [SID1234517332]). 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. Schedule your 30 min Free 1stOncology Demo! 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.
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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.