XOMA Limited (NASDAQ:XOMA)

CAPS Rating: 2 out of 5

A biopharmaceutical company that discovers, develops and manufactures antibodies and other genetically-engineered protein products to treat immunological and inflammatory disorders, cancer and infectious diseases.

Recs

2
Player Avatar zzlangerhans (99.85) Submitted: 4/18/2011 12:06:30 PM : Outperform Start Price: $2.91 XOMA Score: -57.17

Did I get the thumb right this time? Hopefully I won't regret it.

Xoma's recent failure to demonstrate benefit of 052 in diabetes has set up an interesting situation. As of the end of 2010, the company had 37M in cash and in January they signed a development deal for 052 with Servier on what appear to be very favorable terms. The deal provides 15M upfront in cash as well as a 15M Euro loan, and provides extensive funding for a phase III trial of 052 in Behcet's uveitis. So as the share price drops, the market cap is rapidly approaching cash.

Here are the two major problems going forward. First is that Xoma has been burning cash like crazy over the past year to the tune of 15-20M per quarter. How much are the Servier funds going to lower the burn and lengthen the cash runway? If expenditures continue to outstrip funding, the share price will continue to sink until a new positive catalyst emerges. The second problem is that Xoma's hat may be out of rabbits. Xoma's pig lipstick is that 052 lowered CRP, even if it had no effect on HgbA1C in the diabetes trial. The implication is that 052 has some strong anti-inflammatory capability. But we were told that type II diabetes was inflammatory, yet lowering CRP didn't help. Why should Behcet's be any different?

I wouldn't green thumb Xoma at 3.2. And I may pay heavily in CAPS points for green thumbing them at 2.9. If they get the Behcet's trial up and running and drop the burn below 10M, I may get out of this pick intact. If not, I might wake up one day with a lot of snout-shaped lipstick marks.

Featured Broker Partners


Advertisement