What Is On The Horizon For XOMA?

| About: XOMA Corporation (XOMA)
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Over the past 30 years, monoclonal antibody ((mAb)) therapies have revolutionized medicine. mAb therapy uses mAbs to specifically bind to target cells or proteins to stimulate the immune system to attack diseased cells. About 30 therapeutic monoclonal antibodies are marketed in the United States and Europe for a variety of indications.. mAb therapy has shown great promise as a treatment for rheumatoid arthritis, multiple sclerosuis, Alzheimer's disease, and different types of cancers.

The marketing research firm, BCC Research, found that the global market for mAbs was estimated at $44.6 billion in 2011. With the rollout of at least eight new therapeutic mAb products and expanded indications for existing products expected during the forecast period, the global mAb market is expected to rise at a compound annual growth rate (OTCPK:CAGR) of 5.3% to nearly $58 billion in 2016. The United States is projected to be the largest single market for therapeutic mAbs from 2011 to 2016. This particular market was nearly $19.8 billion in 2010 and reached $20.1 billion by 2011. BCC projects this market will grow to $27.4 billion by 2016, a CAGR of 6.4%. Sales of mAbs in the rest of the world are expected to grow from $24.6 billion in 2011 to $30.3 billion in 2016 at a CAGR of 4.3%.

Berkeley, California-based XOMA Corporation (NASDAQ:XOMA) is a 300M market cap company that has pioneered the discovery and development of mAb therapeutics. XOMA combines a portfolio of innovative therapeutic antibodies, both in late-stage clinical development and in preclinical research, with its recently launched commercial operations.

XOMA focuses its antibody research and development on allosteric modulation, which offers opportunities for new classes of therapeutic antibodies to treat a wide range of human diseases.

XOMA is developing its lead product, gevokizumab (IL-1 beta modulating antibody), through a global Phase 3 program in non-infectious uveitis and ongoing proof-of-concept studies in other IL-1-mediated diseases. XOMA's scientific research also produced the XMet program, which consists of three classes of preclinical antibodies, including Selective Insulin Receptor Modulators ((SIRMs)) that could have a major effect on the treatment of diabetes.

Gevokizumab

The company's lead drug candidate, gevokizumab (IL-1 beta modulating antibody), also known as XOMA 052, is a potent humanized monoclonal antibody with unique allosteric modulating properties. Gevokizumab binds to the inflammatory cytokine interleukin-1 beta ((IL-1 beta)), which XOMA scientists believe is a primary trigger of pathologic inflammation in multiple diseases. Gevokizumab has been studied in over 500 patients, with approximately 300 patients on treatment for six months, and has been shown to be well-tolerated.

XOMA is enrolling patients in two global Phase 3 non-infectious uveitis (NIU) clinical trials in both active NIU disease and controlled NIU. The company is also conducting two Phase 2 proof-of-concept studies for moderate to severe inflammatory acne and erosive osteoarthritis of the hand. In addition, XOMA's partner, Les Laboratoires Servier. is conducting a global Phase 3 clinical trial evaluating gevokizumab in patients with Behcet's uveitis, and a proof of concept study in patients with a history of acute coronary syndrome.

On January 4, 2011, XOMA and Les Laboratoires Servier, France's largest privately-held pharmaceutical company, announced the signing of a regional agreement to jointly develop and commercialize XOMA 052 in multiple indications.

Under the agreement, XOMA received approximately $35 million upfront, consisting of $15 million and a 15 million euro loan, which does not have to be repaid until 2016. XOMA is eligible to receive up to approximately $470 million in milestone payments and tiered royalties up to a mid-teens percentage rate.

XOMA retained development and commercialization rights for Behcet's uveitis and other inflammatory and oncology indications in United States and Japan. Servier receives similar rights in the rest of the world.

Servier agreed to fund the first $50 million of gevokizumab development expenses and 50% of further expenses for the Behcet's uveitis indication. Servier also agreed to fund development for diabetes and cardiovascular disease indications in exchange for worldwide rights.

XOMA retained an option to reacquire the development and commercialization rights to the diabetes and cardiovascular indications in the United States and Japan by paying an option fee and partial reimbursement of incurred development expenses. If XOMA reacquires these rights, it has the ability to license them to one or more third parties. If XOMA does not reacquire these rights, then the milestone payments could be up to $800 million. XOMA will be responsible for gevokizumab manufacturing throughout clinical development and launch and anticipates being a long-term manufacturer. This adds to the company's potential profit participation during the life of the commercial product.

In November 2011, XOMA and Servier initiated an expanded gevokizumab clinical development plan that includes two global Phase 3 trials in active and controlled NIU involving the intermediate and/or posterior segments of the eye and a Phase 3 trial outside the United States in a subset of NIU patients who suffer from Behçet's uveitis. The active NIU trial, EYEGUARD-A, was initiated in June 2012. The EYEGUARD-B trial for Behçet's uveitis began in September 2012, and the EYEGUARD-C trial for controlled NIU trial in October 2012. This expanded program increases the potential U.S. patient population from the estimated 7,500 Behçet's uveitis patients to an estimated 150,000 patients with NIU.

In addition to establishing efficacy, these trials have been designed to meet the FDA safety requirement for ophthalmic indications. At least 300 patients must be treated for at least six months and 100 patients for one year at the to-be-marketed dose. XOMA anticipates that the company will have preliminary top-line results from EYEGUARD-A at year-end 2013; EYEGUARD-B during the first half of 2014; and EYEGUARD-C during the first quarter of 2014.

XOMA also announced the initiation of a proof-of-concept program that was designed to evaluate gevokizumab's therapeutic potential in additional inflammatory diseases with documented IL-1 beta involvement.

On August 22, 2012, XOMA, announced that gevokizumab was granted orphan drug designation by the U.S. Food & Drug Administration (FDA) for the treatment of non-infectious intermediate, posterior, or pan-uveitis, or chronic non-infectious anterior uveitis.

Uveitis broadly refers to the inflammatory diseases that affect the portion of the eye known as the uvea, which is the middle of three layers that surround the eye. People with uveitis may experience decreased vision, pain, light sensitivity, and floaters. Uveitis may be caused by an infection that is commonly treated with an antimicrobial agent, or by an unknown pathogen triggering inflammation, called non-infectious uveitis.

The most common form of uveitis affects the front of the uvea and is known as anterior uveitis. Other forms include intermediate uveitis, posterior uveitis, and pan uveitis. These types differ in that they all include involvement of the back portions of the uvea. Posterior uveitis refers to inflammation in the retina and the choroid, and it may result from a different immune response trigger. Pan-uveitis refers to inflammation of all three major parts of the eye. Behcet's uveitis is a well-known form of pan-uveitis. Due to the swelling of tissues critical to vision, intermediate, posterior, and pan-uveitis (which collectively make up NIU) can lead to blindness if not treated.

XOMA also launched a Phase 2 proof-of-concept program for gevokizumab to evaluate additional indications for further development, including a clinical trial in moderate-to-severe inflammatory acne, for which XOMA reported encouraging top line results in January 2013. XOMA also announced the top-line results from the study, which demonstrated gevokizumab has a dose-dependent benefit on moderate to severe acne lesions. This study also identified a non-effective dose. XOMA scientists believe that the information generated with this study should allow the company to conduct a Phase 3 study should it choose moderate to severe acne as its next Phase 3 indication.

On April 10, 2013, XOMA announced the National Eye Institute (NASDAQ:NEI), one of the U.S. National Institutes of Health, opened its non-infectious, active, anterior scleritis trial for patient enrollment. The open-label single-arm Phase 1/2 study is designed to assess the safety and potential efficacy of gevokizumab in patients experiencing non-infectious, active, anterior scleritis, which is the inflammation of the sclera (the fibrous white membrane surrounding the eyeball excluding the cornea). This was XOMA's third indication in a program of three proof-of-concept studies for gevokizumab.

On June 27, 2012, XOMA announced it opened enrollment in two clinical trials to determine gevokizumab's potential to treat interleukin-1 beta-mediated inflammatory diseases. The first trial was a global Phase 3 study investigating the ability of gevokizumab to reduce the signs and symptoms, including vitreous haze, in patients with non-infectious uveitis (NIU) involving the intermediate and/or posterior segment of the eye. The second trial is a Phase 2 study to evaluate the potential for gevokizumab to improve pain symptoms, physical function and structural abnormalities in patients with erosive osteoarthritis of the hand. Patients currently are being screened in both trials.

XOMA's Phase 2 proof-of-concept study of gevokizumab in active inflammatory, erosive osteoarthritis of the hand is designed to enroll approximately 90 patients who will be randomized to receive gevokizumab or placebo. The study is designed and powered to detect a significant improvement from baseline versus placebo in the mean Australian/Canadian Hand Osteoarthritis Index ((AUSCAN)) pain score in the target hand at three months. The study also will capture multiple outcome measures including pain, stiffness, physical function, radiographic and MRI changes, as well as changes in C-reactive protein and concomitant acetaminophen use. The company anticipates that it will have results from this study in the third quarter of 2013

In November 2012, Servier began a Phase 2 study to determine gevokizumab's potential to treat patients who have experienced a recent Acute Coronary Syndrome.

In December 2012, XOMA announced the third clinical study in this program, which will study gevokizumab in patients with active non-infectious anterior scleritis. This study will be conducted by the NEI. XOMA anticipates it will have data from this study in late 2013.

On June 13, 2013, XOMA announced it has opened enrollment in a pilot study to determine gevokizumab's potential to treat acute inflammatory pyoderma gangrenosum. Pyoderma gangrenosum (NYSE:PG) is one of several rare diseases that are classified under the broader cluster of neutrophilic dermatoses. XOMA's pilot study is designed to enroll up to eight patients who are experiencing acute inflammatory PG. An inflammatory episode of PG is characterized by recently developed active ulcers and ulcer-related pain.

XOMA management believes neutrophilic dermatoses and Schnitzler syndrome represent an attractive market because each may be eligible for accelerated approval pathways with the FDA, increasing the potential for shorter development timelines and faster paths to commercialization.

Aceon

On January 17, 2012, XOMA announced it had acquired U.S. rights to the perindopril franchise from Les Laboratoires Servier, XOMA's partner for its lead product candidate, gevokizumab. Servier had previously licensed Aceon to Abbott Laboratories (NYSE:ABT). XOMA paid $1.5 million for the perindopril license.

The agreement included the branded product, Aceon (perindopril erbumine), which had U.S. sales of $2.8 million in 2011. Aceon is an angiotensin converting enzyme (NYSE:ACE) inhibitor. Under the agreement, XOMA can select a portfolio of three fixed-dose combination product candidates where perindopril is combined with other active ingredient(s), such as a calcium channel blocker.

The first product candidate XOMA elected to develop is a fixed-dose combination of perindopril arginine and amlodipine besylate. The proprietary form of perindopril in each of the combination products provides patent protection until 2023.

Aceon is indicated for the treatment of patients with essential hypertension. Aceonmay be used alone or given with other classes of antihypertensives, especially thiazide diuretics. In clinical studies, the most common adverse events (incidence greater than or equal to 5%) were cough, dizziness and back pain.

Aceon is indicated for treatment of patients with stable coronary artery disease to reduce the risk of cardiovascular mortality or nonfatal myocardial infarction. Aceon can be used with conventional treatment for management of coronary artery disease, such as antiplatelet, antihypertensive or lipid-lowering therapy. In clinical studies, the most common adverse events leading to discontinuation were cough, drug intolerance, and hypotension.

Perindopril erbumine has been available as a generic product in the United States since November 2009.

"We have been consistent in articulating our commitment to establishing a commercial capability in order to derive appropriate value from XOMA's products. By acquiring the U.S. rights to Aceon, we meet that objective immediately, and we further deepen our relationship with Servier. The capabilities and components required to sell $2 to $3 million worth of Aceon currently are not significantly different than what is required to sell a substantially greater volume of product(s)," stated John Varian, Chief Executive Officer of XOMA. "We have the commercial infrastructure in place that allows us to continue to deliver Aceon to patients, with a margin to XOMA. We do not intend to actively promote Aceon.".

"With our partner, we will evaluate the best plan forward for the development of the fixed-dose combination products in the U.S., including financial arrangements to support such development," Varian added. "Servier's clinical and commercial expertise has made perindopril a highly successful franchise outside the U.S. with sales of over $1.2 billion in 2011".

On November 20, 2012, XOMA announced its 837-patient Phase 3 PATH trial (Perindopril Amlodipine for the Treatment of Hypertension) demonstrated that the fixed-dose combination (NYSE:FDC) of perindopril arginine combined with amlodipine besylate is statistically significantly superior to either compound alone in reducing both sitting diastolic and sitting systolic blood pressure after six weeks of treatment. This FDC, containing a patent-protected proprietary form of perindopril, was licensed by XOMA as part of a U.S. commercial and development rights agreement signed with Servier for their perindopril franchise. Servier markets the fixed-dose combination product, Coveram (perindopril/amlodipine), in 91 countries outside the United States.

XOMA does not intend to directly market this FDC, but rather intends to sublicense this product to a company that is dedicated to commercializing products for the cardiovascular marketplace.

The FDC appeared to be well tolerated in the trial, and there were no unexpected serious adverse events reported. The most common adverse events included mild to moderate edema, cough and headache, which are known side effects of the individual components of the FDC.

Perindopril is an ACE that has been studied in seven landmark clinical trials involving more than 54,000 patients. Amlodipine, a CCB, is the most-prescribed antihypertensive in the United States. Because ACE inhibitors and CCBs target different cardiovascular functions, physicians often use them in combination to treat their hypertensive patients.

Biodefense

In November 2011, XOMA was awarded four contracts, totaling approximately $120 million, from the National Institute of Allergy and Infectious Diseases (NIAID) to support development of XOMA 3AB and several product candidates for the treatment of botulism poisoning. These biodefense programs included two subcontracts from SRI International totaling $4.3 million, funded through NIAID, for the development of antibodies to neutralize H1N1 and H5N1 influenza viruses and the virus that causes severe acute respiratory syndrome (SARS).

XOMA 3AB is a multi-antibody product designed to neutralize the most potent of the botulinum toxins, Type A, which causes paralysis and is a bioterrorism threat. XOMA's anti-botulism program also includes additional product candidates and is the first of its kind to combine multiple human antibodies in each product candidate to target a broad spectrum of the most toxic botulinum toxins, including the three most toxic serotypes, types A, B and E. The antibodies are designed to bind to each toxin and enhance the clearance of the toxin from the body. The use of multiple antibodies increases the likelihood of clearing the harmful toxins by providing specific protection against each toxin type. In contrast to existing agents that treat botulism, XOMA uses advanced human monoclonal antibody technologies in an effort to achieve superior safety, potency and efficacy and avoid life-threatening immune reactions associated with animal-derived products.

NIAID is conducting a Phase 1 trial of XOMA 3AB, a novel formulation of three antibodies designed to prevent and treat botulism poisoning. This double-blind, dose-escalation study in approximately 24 healthy volunteers is designed to assess the safety and tolerability and determine the pharmacokinetic profile of XOMA 3AB.

In January 2012, XOMA announced it would complete NIAID biodefense contracts in place, but would not actively pursue future contracts. Should the government choose to acquire XOMA 3AB or other biodefense products in the future, the company expects to be able to produce these antibodies through an outside manufacturer.

XOMA's biodefense initiatives include XOMA 3AB, a biodefense anti-botulism product candidate comprised of a combination of three antibodies. XOMA 3AB is directed against botulinum toxin serotype A and has been developed through funding from the National Institute of Allergy and Infectious Diseases (NIAID), a part of the NIH. All volunteers have been enrolled and dosed with XOMA 3AB in a Phase 1 clinical trial sponsored by NIAID.

In January 2012, XOMA announced the company will complete NIAID biodefense contracts currently in place but will not actively pursue future contracts. Should the government choose to acquire XOMA 3AB or other biodefense products in the future, XOMA expects to be able to produce these antibodies through an outside manufacturer.

Preclinical Pipeline

XOMA's preclinical pipeline includes XMet, which incorporates classes of antibodies that activate ((XMetA)), sensitize ((XMetS)), or deactivate ((XMetD)) the insulin receptor in vivo. This portfolio of antibodies represents potential new therapeutic approaches to the treatment of diabetes and several diseases that involve insulin, which XOMA management believes may be orphan drug opportunities.

Insulin receptor-activating antibodies, such as XMetA, are designed to provide long-acting insulin-like activity to diabetic patients who cannot make sufficient insulin, potentially reducing the number of insulin injections needed to control their blood glucose levels. Insulin receptor-sensitizing antibodies, such as XMetS, are designed to reduce insulin resistance and could enable diabetic patients to use their own insulin more effectively to control blood glucose levels. Insulin receptor-antagonizing/ deactivating antibodies, such as XMetD, are designed to treat several diseases that result from the continuous overproduction of or inappropriate reaction to insulin. There are three orphan indications that may benefit from XMetD that are of greatest interest to XOMA: insulinomas, congenital hyperinsulinism, and hyperinsulinemic hypoglycemia post-gastric bypass surgery.

Studies of XMetA found it reduced fasting blood glucose levels and improved glucose tolerance in a mouse model of diabetes. After six weeks of treatment, mice treated with XMetA had a statistically significant reduction in HbA1c levels, a standard measure of average blood glucose levels over time, compared to the control mice. In addition, there was a statistically significant reduction in elevated non-HDL cholesterol levels.

XOMA studied XMetS in a mouse model of obesity-induced insulin resistance. In mice treated with XMetS, researchers saw enhanced insulin sensitivity and statistically significant improvements in fasting blood glucose levels and glucose tolerance as compared to the control mice. In addition, there was a statistically significant reduction in elevated non-HDL cholesterol levels.

Separate preclinical studies of XMetA and XMetS have demonstrated reduced fasting blood glucose levels and improved glucose tolerance in mouse models of diabetes. To increase the value of these assets, XOMA will continue developing both antibodies internally, which should allow the company to negotiate a more substantial return to XOMA on any sales that XMetA and XMetS may generate. Ultimately, XOMA expects to seek a partner for development and commercialization of these assets. XOMA plans to develop XmetD internally, as it has potential as a treatment for as many as three rare life-threatening or severely debilitating diseases: insulinomas, congenital hyperinsulinism and hyperinsulinemic hypoglycemia in post-gastric bypass surgery patients.

Partnership Products

Historically, XOMA has established technology collaborations with several companies to provide access to XOMA's proprietary antibody discovery and optimization technologies. XOMA has also licensed its bacterial cell expression (NYSE:BCE) technology to more than 60 companies in exchange for license, milestone and other fees, royalties and complementary technologies.

The company developed these product candidates and other antibodies using some or all of its ADAPT antibody discovery and development platform, its ModulXTM technologies for generating allosterically modulating antibodies, and its OptimXTM technologies for optimizing biophysical properties of antibodies, including affinity, immunogenicity, stability and manufacturability.

XOMA has also developed antibody product candidates with premier pharmaceutical companies including Novartis AG (NYSE:NVS) and Takeda Pharmaceutical Company. Two antibodies developed with Novartis are in clinical development. HCD122 is in Phase 1 clinical trials for the potential treatment of breast or prostate cancer and LFA102 (lucatumumab) is in Phase 2 clinical development and hematological malignancies.

Since 2006, Takeda has been a collaboration partner for therapeutic monoclonal antibody discovery and development against multiple targets selected by them. Under the agreement, Takeda agreed to make up-front and milestone payments to XOMA, fund XOMA's R&D activities including manufacturing of the antibodies for preclinical and early clinical supplies, and pay royalties to XOMA on sales of products resulting from the collaboration. Payments to XOMA could exceed $100 million before royalties over the life of the collaboration.

In February 2009, XOMA expanded its collaboration to provide Takeda with access to multiple antibody technologies, including a suite of research and development technologies and integrated information and data management systems. Takeda agreed to pay a $29 million expansion fee. XOMA may receive potential milestones and royalties on sales of antibody products in the future.

In 2004, XOMA and Novartis (then Chiron Corporation) began a collaboration with the signing of an exclusive, worldwide, multi-product agreement to develop and commercialize multiple antibody products for the treatment of cancer. The companies shared expenses and revenues, generally on a 70-30 basis, with XOMA's share being 30%. Financial terms included initial payments to XOMA in 2004 totaling $10 million and a note agreement, secured by XOMA's interest in the collaboration, to fund up to 75% of the company's share of expenses beginning in 2005. In the first quarter of 2007, the mutual obligations of XOMA and Novartis to work together on an exclusive basis in oncology expired, except with respect to existing collaborative product development projects.

In November 2008, XOMA restructured its product development collaboration with Novartis, which involved six development programs including the ongoing HCD122 program. Under the restructured agreement, Novartis made an upfront payment to XOMA of $6.2 million, agreed to fully fund all future R&D expenses, reduce existing debt by $7.5 million. pay potential milestones of up to $14 million and double-digit royalty rates for two ongoing product programs including HCD122. The agreement also provided XOMA with options to develop or receive royalties on four additional programs. In exchange, Novartis would have control over the HCD122 program and the additional ongoing program, as well as the right to expand the development of these programs into additional indications outside of oncology. As part of the agreement, NVS will pay XOMA for all project costs incurred after July 1.

Technologies

XOMA has an impressive set of antibody discovery, optimization and development technologies, including:

• ADAPT (Antibody Discovery Advanced Platform Technologies): proprietary phage display libraries integrated with yeast and mammalian display to enable antibody discovery;

• ModulX: technology that enables positive and negative modulation of biological pathways using allosterically modulating antibodies; and

• OptimX: technologies used for optimizing biophysical properties of antibodies, including affinity, immunogenicity, stability and manufacturability.

XOMA uses human antibody phage display libraries, integrated with yeast and mammalian display (ADAPT Integrated Display), in its discovery of therapeutic candidates, and offers access to this platform, including novel phage libraries developed internally, as part of its collaboration business. ADAPT Integrated Display enables XOMA to combine the diversity of phage libraries with accelerated discovery due to rapid IgG reformatting and FACS-based screening using yeast and mammalian display. This increases the probability of technical and business success in finding rare and unique functional antibodies directed to targets of interest.

ModulX technology allows modulation of biological pathways using monoclonal antibodies and offers insights into regulation of signaling pathways, homeostatic control, and disease biology. Using ModulX XOMA is generating product candidates with novel mechanisms of action that specifically alter the kinetics of interaction between molecular constituents, such as receptor-ligand. ModulX technology enables expanded target and therapeutic options and offers a unique approach in the treatment of disease.

OptimX technologies includes human engineering (HETM) technology. HETM is a proprietary humanization technology that allows modification of non-human monoclonal antibodies to reduce or eliminate detectable immunogenicity and make them suitable for medical purposes in humans. The technology uses a unique method developed by us, based on analysis of the conserved structure-function relationships among antibodies. The method defines which residues in a non-human variable region are candidates to be modified. The result is an HETM antibody with preserved antigen binding, structure and function that has eliminated or greatly reduced immunogenicity. HETM technology was used in development of gevokizumab and is used in the development of certain other antibody products.

Another OptimX technology, targeted affinity enhancement technology (TAETM), involves the assessment and guided substitution of amino acids in antibody variable regions, enabling efficient optimization of antibody binding affinity and selectivity modulation. TAETM generates a comprehensive map of the effects of amino acid mutations in the CDR region likely to impact binding. The technology is utilized by XOMA scientists and has been licensed to a number of the company's collaborators.

The company also offers bacterial cell expression technology. The production or expression of antibodies using bacteria is an enabling technology for the discovery and selection, as well as the development and manufacture, of recombinant protein pharmaceuticals, including diagnostic and therapeutic antibodies.

Genetically engineered bacteria are used in the recombinant expression of target proteins for biopharmaceutical research and development, primarily due to the relative simplicity of gene expression in bacteria, as well as many years of experience culturing species, including E. coli, in laboratories and manufacturing facilities. XOMA scientists have developed bacterial expression technologies to produce antibodies and other recombinant protein products.

XOMA has issued more than 60 licenses to biotechnology and pharmaceutical companies to use its technologies relating to bacterial expression of recombinant pharmaceutical products.

Many licensees of XOMA bacterial cell expression technology have developed, or are in the process of developing, antibodies for which XOMA may be entitled to future milestone payments and royalties on product sales. Under the terms of our license agreement with Pfizer Inc. (PFE) signed in 2007, XOMA received an up-front cash payment of $30 million and from 2010 through 2012. XOMA also received milestone payments relating to six undisclosed product candidates. The company may also be eligible for additional milestone payments aggregating up to $8.3 million relating to these six product candidates and low single-digit royalties on future sales of all products subject to this license. XOMA may also receive potential milestone payments aggregating up to $1.7 million for each additional qualifying product candidate.

Current licensees of XOMA technologies include:

Active Biotech AB

Affimed Therapeutics AG

Affitech AS

Applied Molecular Evolution, Inc., now a subsidiary of Eli Lilly (NYSE:LLY)

Bayer Healthcare AG (OTCPK:BAYRY)

BioInvent International AB

Centocor Ortho Biotech, (now a part of Johnson & Johnson (NYSE:JNJ)

Crucell Holland B.V. ,now a member of Johnson & Johnson)

Dompe, s.p.a.

Dyax Corp. (DYAX)

Eli Lilly and Company

Genentech, Inc. (now a member of the Roche Group (OTCQX:RHHBY))

Invitrogen Corporation

MedImmune Ltd., now AstraZeneca (NYSE:AZN)

Merck & Co., Inc. (NYSE:MRK)

Mitsubishi Tanabe Pharma Corporation

MorphoSys AG

Novartis AG

Pfizer Inc. (NYSE:PFE)

Takeda Pharmaceutical Company Ltd.

The Medical Research Council UCB S.A.

Verenium Corporation

Wyeth Pharmaceuticals Division, now a part of Pfizer

ZymoGenetics, Inc. , now a Bristol-Myers Squibb (NYSE:BMY) subsidiary

Finances

On May 8, 2013, XOMA reported its operational highlights and financial results for the quarter ended March 31, 2013.

XOMA reported total revenues of $9.5 million in the first quarter of 2013, compared with $9.9 million in the corresponding period of 2012. The small decrease in 2013 revenues was due primarily to a reduction in contract and other revenue associated with NIAID contracts. For the quarter ended March 31, 2013, XOMA had a net loss of $24.9 million (or $0.30 per share), compared with a net loss of $30.4 million, or $0.69 per share, for the quarter ended March 31, 2012. The net loss for the first quarters of 2013 and 2012 included a non-cash charge of $12.8 million (or $0.16 per share) and $14.4 million (or $0.33 per share), respectively, both of which were related to the revaluation of contingent warrant liabilities, which resulted primarily from the appreciation of XOMA's stock price. Excluding these non-cash charges, net loss in the first quarters of 2013 and 2012 was $12.0 million (or $0.15 per share) and $16.0 million (or $0.36 per share), respectively.

Research and development expenses for the first quarter of 2013 were $16.6 million, compared with $15.8 million in the corresponding period of 2012. General and administrative expenses were $4.1 million in the first quarter of 2013, a 12% reduction from the $4.7 million incurred in the first quarter of 2012. As a result of the company's streamlining activities announced in January 2012, XOMA recorded a charge of $3.8 million during the first quarter of 2012.

On March 31, 2013, XOMA had cash, cash equivalents, and short-term investments of $70.4 million. The Company ended December 31, 2012, with cash, cash equivalents, and short-term investments of $85.3 million.

The company reconfirmed its anticipated cash used in ongoing operating activities during 2013 will be approximately $50 million, primarily reflecting the costs associated with conducting the EYEGUARD-A, EYEGUARD-B and EYEGUARD-C Phase 3 clinical trials. This guidance initially was provided on March 12, 2013.

Streamlining and Restructuring Plan

In January 2012, XOMA implemented a streamlining and restructuring plan "designed to sharpen our focus on value-creating opportunities, particularly gevokizumab and our antibody discovery and development capabilities." The plan included a personnel reduction of 84 positions, representing 34% of the company's staff. These staff reductions resulted primarily from XOMA management's decisions to utilize a contract manufacturing organization for Phase 3 and commercial antibody production and to eliminate internal research functions that were "non-differentiating" or that could be obtained cost-effectively by contract service providers. In August 2012, XOMA and Servier announced XOMA had entered into an agreement with Boehringer Ingelheim to transfer its technology and processes for the validation of the company's technology and processes in preparation for the commercial manufacture of gevokizumab. XOMA intends to have Boehringer Ingelheim produce gevokizumab at its facility in Biberach, Germany for XOMA's commercial use.

Conclusion

Although most analysts covering XOMA are positive about the company, The Street gave the stock a D- or Sell rating, and Motley Fool readers gave XOMA a one star rating. As of June 28, 2013, Zacks had a 3 or Hold rating for the stock.

On June 13, 2013, Wedbush Securities raised its price target for XOMA from $5 to $6. The firm has an Outperform rating for XOMA.

On May 21, 2013, RBC Capital raised its price target for XOMA from $4 to $7. RBC has an Outperform rating for XOMA.

On May 10, 2013, Credit Suisse raised its price target for XOMA stock from $4 to $5. The firm has an Outperform rating for XOMA.

On May 9, 2013, Canaccord Genuity upgraded the rating on XOMA from Hold to Buy and raised the price target from $3.00 to $8.00 based on Phase 2 data of gevokizumab success in non-infectious uveitis.

On May 9, 2013, Landenberg Thalmann raised its rating of XOMA from Hold to Buy and its price target from $5 to $6.

On June 28, 2012, Roth Capital initiated coverage of XOMA with a Buy rating and $6 price target.

On May 14, 2012, Cowen and Company initiated coverage of XOMA with an Outperform rating.

Over the past 52 weeks, XOMA stock has traded from a high of $4.40 on May 14, 2013 to a low of $2.37 on December 28, 2012.

Approximately 70% of XOMA stock is owned by institutions and mutual funds and 8% by insiders. Major institutional holders include Baker Brothers Advisors (24.6% of the company's stock. RA Capital Management (8.08%), LLC, FMR LLC (7.37%) .

XOMA has experienced significant losses. As of December 31, 2012, the company had an accumulated deficit of $957.1 million. For the year ended December 31, 2012, XOMA had a net loss of approximately $71.1 million, or $1.10 per share of common stock. For the year ended December 31, 2011, the company had a net loss of approximately $32.7 million, or $1.04 per share of common stock.

Investors had hoped that XOMA's lead drug candidate, gevokizumab, would prove to be an effective treatment for diabetes, representing a potential market worth billions of dollars. Those hopes were dashed in 2011 when the drug candidate failed in Phase 2 clinical trials. Now gevokizumab is in Phase 3 trials for Behcet's uveitis. Although trial data looks positive, this orphan indication will not produce the level of sales that a blockbuster diabetes drug could generate. There is still hope that gevokizumab may be an effective agent for several inflammatory diseases.

XOMA has licensed its technologies to more than 60 companies. Although the company's monoclonal antibody technologies have contributed to the development of marketed biologics with more than $1 billion in annual sales for which the company received royalties.

When XOMA was a start-up in the early 1980's, the company was years ahead of its time. Far-sided investors saw the potential for monoclonal antibodies or "magic bullets" that could target and kill disease causing molecules in the human body. Many speculated that XOMA would become the next Amgen (AMGN) or Genentech. XOMA has licensed its technologies to more than 60 companies. The company's monoclonal antibody technologies have contributed to the development of marketed biologics with more than $1 billion in annual sales for which the company receives royalties, although XOMA has never successfully developed and commercialized a drug on its own.

XOMA is transitioning from a discovery and development-focused company to one with a commercial capability. The company's stock is currently being traded under $4 per share. I think the XOMA's stock price will increase as gevokizumab clinical data readouts are announced throughout the year. In January, the company released positive results from its moderate-to-severe acne study. XOMA's erosive osteoarthritis of the hand proof of concept (POC) trial is on track for top-line data in the third quarter, and the scleritis study is anticipated to produce data in the fourth quarter. Ultimately, with the data from the three POC trials, XOMA expects to select its next Phase 3 indication by year end. I think there is upside potential here.

Disclosure: I am long AMGN, MRK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.