Thursday’s news brought to mind our old friend, Xoma (XOMA), which, unlike Raymond, not everybody loves. Actually, many still love Xoma, but with reservation and resentment. Many times we questioned whether Xoma is addictive. For a couple of months, when we had nothing to write, good or bad, about Xoma, readers accused us of infidelity. It is important to mention that two decades ago, many investors highly treasured Xoma, viewing it as the personification of hope for breakthrough drugs the budding biotechnology industry was promising to get across to medical practice. In London, investors asked us if we know Xoma and the same came about in Paris, Milan, Rome, and Zurich. As a matter of fact, this firm was esteemed everywhere for its technologies, scientists, and pipeline products.
After Xoma was hit with a huge setback – a disappointment in late-phase trials of its first drug, which aimed at treating sepsis - management faltered. The failure was catastrophic because it was not expected. In clinical trials, the drug had saved lives, including those of children.
As great as this firm’s capability for generating new molecule therapeutics is, it failed to put any of its proprietary drugs on the market. The firm has done it for others, though. It generated money from fees for services and from technology licensing, but unfortunately the money never reached its programs. It evaporated. Xoma had no plans or strategies that outlined its priorities. Another product, Raptiva for psoriasis, caused Xoma a heart attack. The drug, which was partnered with Genentech, passed all clinical trials and hit the market. An unexpected slow market penetration devastated Xoma’s finances, leaving it with no option except giving away the partnership on the drug and accepting a small royalty. That’s not all. After cashing royalty payment for a few months, the drug was taken off the market as a result of many cases of PML associated with its use. This serious adverse effect is unacceptable for a drug that treats a skin disease that neither cripples nor threatens the lives of patients.
In the news, Xoma announced it signed another agreement with “Les Laboratoires Servier,” the firm’s partner on its lead drug gevokizumab. The agreement is about granting Xoma the U.S. representation right of the French firm’s perindopril franchise comprised of the angiotensin converting enzyme (ACE) inhibitor Aceon (perindopril erbumine) and three other fixed-dose combination candidates. ACE inhibitors are indicated for lowering blood pressure and reducing the risk of cardiovascular death in patients with stable coronary artery disease. XOMA intends to start the commercialization activities in the U.S. beginning January 2012.
Although the perindopril franchise generated around $1.2 billion in 2011 in Europe, many analysts do not believe the sales in the U.S. will reach that level and may even be much less. Generic versions of the drug and other ACE inhibitors are filling the place in the US, competing against the expensive brand names ACE inhibitors. Although the new agreement carries no minuses, it is not what those who still love Raymond – sorry, Xoma – want to see from the technological giant.
We still believe that the possible game changer in this firm’s life is its IL-1 β inhibitor (XOMA 052). It is true that this drug has failed to show efficacy in controlling diabetes. Nevertheless, it has demonstrated promising results in the treatment of inflammatory diseases and is in clinical trials for Behcet’s disease, a sight-threatening inflammatory disease.
About The Future
If destined to succeed after the catastrophic setbacks, inefficient past management and bad luck, Xoma’s bright future, if any, will come at the hands of scientists helped by an efficient management. The good news is that Xoma has seriously worked hard towards achieving this goal. Recently, the Board of Directors has appointed John Varian as Chief Executive Officer. Mr. Varian, who has been a member of the Board since December 2008, has been serving as the Interim Chief Executive since August 31, 2011. He has been capable of delineating the firm’s plans and strategy, beginning with identifying ways for increasing the value of gevokizumab. The efforts resulted in the development of a thoughtful plan grounded in the scientific evidence supporting the role IL-1 β plays across a broad range of inflammatory diseases.
The firm announced goals it decided upon for 2012. These goals are:
- The initiation of global gevokizumab Phase 3 program in the second quarter for non-infectious uveitis, including Behçet's uveitis.
- The completion of Phase 2 proof-of-concept trial of the same drug in moderate to severe acne as part of the plan to pinpoint additional indications that would expand the commercial opportunities for the drug.
- The completion of proof-of-concept Phase 2 program, which aims at evaluating gevokizumab’s therapeutic potential in various inflammatory diseases where IL-1β is involved.
It is obvious that Xoma’s priority at this time is reaching the furthest they can get out of Gevokizumab's therapeutic capability. Gevokizumab has already demonstrated potential in the management of non-anterior, non-infectious forms of uveitis. These types of uveitis affect vision, cause pain, light sensitivity and floaters. Severe forms of uveitis can cause recurrent acute exacerbations. If not immediately treated, the disease would progress to cause retinal detachment, vitreous hemorrhage, glaucoma and eventual blindness. Current Behçet’s uveitis treatments are limited to corticosteroids and immunosuppressive medicines such as cyclosporine and azathioprine - all with tremendous side effects.
Expected and possible catalysts in 2012
- Advancing Gevokizumab into Phase III trials in 2012 for Behçet's uveitis;
- Good news from other Gevokizumab Phase trials;
- Moving any of the preclinical programs into clinical trials.
- More licensing agreements, especially if accompanied by upfront payments;
- Adding more customers for services and licensing of technologies and;
- Exceeding the market’s expectation in Aceon sales.
Bringing in more money from its services and by licensing its technology would comfort investors.
Yet, we should not forget that, at this stage, Xoma is a patient recovering from a stroke in a rehab center. It will take time for the recovery to complete. The good news is that all requirements for the success of Gevokizumab are put in place. Plans are also designed for the advancement of the firm’s early investigational products. In six months, we will know more, which would enable us to judge the management, make sure that the plans were executed as promised, evaluate the firm, and then decide whether it is worth investing in. Xoma is trading at $1.66 with a market cap of around $58 million.
Currently, we are neutral at this stage.