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By Michael Fitzhugh

Xoma (NASDAQ:XOMA) is gaining substantial new funds to advance its top diabetes drug candidate, XOMA 052, as part of a new pact with France’s largest private pharmaceutical company, Les Laboratoires Servier.

Servier will pay the Berkeley, California antibody developer $35 million upfront and up to $470 million in milestone payments to support the development of XOMA 052, an anti-inflammatory with potential to address several diseases. The French company will also pay tiered royalties if the drug is approved.

With the new money Xoma will more easily be able to foot the bill for the large and expensive clinical trials that the U.S. Food and Drug Administration has begun to require for proving the safety and efficacy of new diabetes drugs.

“This agreement substantially increases our cash resources while reducing future cash requirements, provides a pathway to commercialization of XOMA 052 in the near term, and supports development in diabetes and cardiovascular disease while maintaining our ability to participate in these programs,” says Xoma CEO Steven Engle.

In addition, Servier will shoulder a significant portion of Xoma’s development costs for XOMA 052. It will pay for half the remaining development costs associated with using the drug to treat the rare eye disease Behcet’s uveitis, an orphan disease for which it is in late stage trials. However, the biggest markets for the drug could prove to diabetes and cardiovascular disease. Under the agreement, Servier gets worldwide rights, but Xoma will be able to reacquire rights to the diabetes and cardiovascular programs in the United States and Japan.

Xoma has completed enrollment in two mid-stage clinical trials in patients with Type 2 diabetes and expects interim results of the studies during the first quarter of 2011.

Source: Xoma Lands Deep-Pocketed French Partner