Stepping back from a joint venture for insecticides started in 2000, Exelixis Inc. has decided to hand over the reigns to its partner and focus on its oncology pipeline.

The South San Francisco-based company will grant its interest in GenOptera LLC to its collaborator, Bayer CropScience, a unit of Leverkusen, Germany-based Bayer AG. The companies formed the joint venture five years ago to discover new generations of insecticides and nematicides.

Although Bayer funded the research, for Exelixis, it's now about oncology.

"The reason is we obviously have evolved from a genomics company to having what we think is one of the most promising early stage pipelines," said Charles Butler, the company's associate director of corporate communications. "So we wanted to ensure that we had the things in place to create a clear focus on our pharmaceutical business."

Exelixis is no longer obligated to perform research for GenOptera, and Bayer CropScience will assume all of the interest in the joint venture within the next six months.

As a result, Exelixis will recognize $21.1 million in revenue in 2005, including a $10.9 million termination payment from Bayer and the accelerated recognition of deferred revenue. The joint venture was supposed to continue until 2008 and all payments to Exelixis were to be amortized over the life of the collaboration.

"Since it's been ended early, those revenues need to be brought in early this year," Butler told BioWorld Today.

Once the termination is complete, Bayer CropScience will have exclusive rights in the field of agriculture to assays, compounds and products developed under the collaboration, while Exelixis will have exclusive rights in every other field.

"There are royalty possibilities if they were to commercialize anything in the future," Butler said.

Likewise, if Exelixis commercializes anything that came out of the joint venture, it would pay Bayer a royalty.

The joint venture was formed as a continuation of a $30 million collaboration established in April 1998. By forming GenOptera, Exelixis limited its efforts in finding targets for new insecticides and nematicides to the joint venture. Under terms of that agreement, Bayer paid Exelixis $20 million up-front and was expected to provide a minimum of $80 million in research support for target discovery and validation in addition to funds provided under the original agreement. The joint venture deal quadrupled the annual research funding for the project, which was expected to continue until 2007. (See BioWorld Today, Jan. 12, 2000.)

Over the years, Exelixis has performed genetic modifier screens using fruit fly and roundworm models to identify key regulatory molecules. It used its PathFinder screening technology and its fruit fly expressed sequence tag database to identify and validate targets and develop assays for high-throughput screening.

But now Exelixis wants to focus more on projects such as XL119 (becatecarin), which is in a Phase III trial in patients with bile duct tumors. The company's pipeline also includes XL784, which is in Phase I for renal disease; XL647, XL999 and XL880, anticancer compounds in Phase I trials; XL820, XL844 and XL184, potential investigational new drug application candidates to treat cancer; and several compounds in preclinical development for cancer and metabolic and cardiovascular disorders.

London-based GlaxoSmithKline plc has the option to develop any of the above Exelixis compounds, except for XL119, once they have completed Phase IIa trials. An amended agreement entered earlier this year stipulated that GSK pay Exelixis up to about $275 million in proof-of-concept milestones for three compounds. Exelixis also is entitled to royalties and co-promotion rights. (See BioWorld Today, Jan. 12, 2005.)

The company's stock (NASDAQ:EXEL) dropped 8 cents on Friday, to close at $6.70.