Why Exelixis, Inc. Stock Zoomed Higher Today

By Brian Orelli Markets Fool.com

Image source: Getty Images.

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What happened

Shares of Exelixis (NASDAQ: EXEL) ended the day up almost 15% after the company announced that its partner Genentech agreed to stop charging the biotech for some expenses under their collaboration agreement.

So what

The two companies co-market a skin cancer drug called Cotellic, but allocating expenses for the profit-sharing agreement is complicated because the drug is used in combination with Zelboraf, which is fully owned by the Roche Group, which Genentech is a member of. The duo was in arbitration because Exelixis claimed that it was being charged for marketing expenses for Cotellic plus Zelboraf that it thought Genentech should pay for.

Genentech disagreed and filed a counterclaim but has now decided that it really shouldn't have billed Exelixis for those expenses. Exelixis is off the hook for $18.7 million in disputed costs, and Genentech will pay Exelixis back $7.1 million for expenses Exelixis previously paid plus interest. Genentech also won't bill for those expenses in the future, saving Exelixis some money in future quarters and eventually putting more money in Exelixis' pocket when/if the profit-sharing agreement turns a profit.

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Now what

Unfortunately, this isn't the end of the dispute.

Exelixis still has some issues with billing for clinical development, pricing, and promotional costs as well as some complaints about revenue allocation through the agreement. The biotech is also worried about how Genentech will bill for other combinations with Cotellic that could be approved in the future. For instance, Genentech is testing Cotellic in combination with two of its drugs, Avastin and Tecentriq.

Exelixis plans to continue the arbitration until the additional issues are resolved.

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Brian Orelli has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Exelixis. The Motley Fool has a disclosure policy.