Exelixis and Glaxo Begin Their Goodbyes

Not all relationships last for eternity. Last week, Exelixis (Nasdaq: EXEL  ) and GlaxoSmithKline announced that they will be winding down part of their mutually beneficial six-year collaboration, with an end date set for October.

Exelixis and Glaxo have been partners since 2002 in developing targeted drugs relating to small-molecule oncology and inflammatory disease. As part of this long-standing partnership, Exelixis used its specialized drug discovery and other preclinical-stage development skills to sniff out drug candidates to bring into human clinical trials. After that, Glaxo got to cherry-pick up to three compounds and take over development, after initial phase 2 proof-of-concept efficacy testing was concluded.

Glaxo can still pick and develop one more compound from the remaining basket of five that are still part of the partnership agreement. Its first opportunity will come with potential thyroid-cancer treatment XL184 in the fall.

The relationship between the drugmakers won't completely end, though. The two will continue to share their custody rights to the Exelixis oncology compound XL880, which Glaxo has already chosen to continue developing, and potentially to one future drug that Glaxo may choose.

Exelixis has similar discovery and development partnership deals in place with drugmakers such as Bristol-Myers Squibb (NYSE: BMY  ) and Genentech (NYSE: DNA  ) . Other drug-discovery specialists, including fellow Rule Breakers pick Array BioPharma (Nasdaq: ARRY  ) and Pharmacopeia (Nasdaq: PCOP  ) , also have been able to make similar deals, because sometimes it can be easier for a large drugmaker to outsource its discovery-stage drug-development work to companies like these.

Had Glaxo chosen to extend its Exelixis collaboration past the end date, it would have been able to cherry-pick a potential third compound from Exelixis, and the latter would have presumably received another dollop of cash for its early stage drug-development work. That's the downside to last week's announcement, although it means that Exelixis retains the rights to develop another drug -- assuming it has the cash to do so.

Exelixis and Array are active picks of our Rule Breakers newsletter service. You can check out all of our other recommendations as well as get access to our message boards and exclusive content with a 30-day free trial.

GlaxoSmithKline is an active Income Investor pick.

 Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has an A-plus disclosure policy.


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