XOMA - Credit Suisse Investment Thesis - November 2012
In the past 12 months, Xoma has made several positive strategic changes that have
positioned it well with upcoming data flow, higher probability of clinical/regulatory success,
multiple shots on goal, cost cutting and refocusing, commercial infrastructure, and an
improved capital structure.
Our investment thesis is based on expectation of positive clinical data in its lead uveitis
Phase III trials in 2013-14 and multiple opportunities for positive incremental data flow
from three proof-of-concept Phase II trials. The primary risks are clinical trial failure,
competition, and potential future dilution.
-Phase III Ongoing: Xoma’s primary value driver is gevokizumab, its IL-1ß antibody, in
Phase III development for a form of sight-threatening eye inflammation called
noninfectious uveitis. Phase II results are positive and the ongoing Phase III program
is broad, global, well designed, and partially funded by its ex-U.S. partner Servier. We
assign a high probability of success in this indication, valued at $4 per share if
successful.
-Multiple Shots on Goal with Gevokizumab: Three Phase II trials are ongoing or
planned. Each trial will provide a definitive readout versus placebo in a new indication.
These proof of concept trials will generate data in Q412 for acne vulgaris, mid-2013 for
osteoarthritis of the hand, and a third also in mid-2013. We currently assign a low 5%
probability of success to the first two indications, providing significant upside if data
are positive. Of the two disclosed indications, we have greater confidence in the
osteoarthritis indication, and see this as a substantial new market opportunity.
-Aceon Program Is an Underappreciated Asset: Xoma licensed U.S. commercial
rights to Servier’s proprietary ACE inhibitor called Aceon. Xoma recently reported that
it met the primary endpoint in its 816 patient Phase III trial of a fixed dose combination
of Aceon and a generic calcium channel blocker. While we do not see Xoma launching
this product, we believe it is substantially derisked and could generate a licensing deal
in 2013.
-Ultra-Orphan Opportunities: Xoma has identified several ultra-orphan indications for
gevokizumab and for its earlier stage candidate xMetD. The indications that have been
disclosed are readily addressable by small, relatively low cost trials, which should
provide definitive efficacy and a potentially rapid path to approval. This new strategy is
not fully understood by the Street.
Significant Clinical Newsflow in 2012-13
Timing Expected News Flow Program
Q4:12 Initiate 3rd POC Phase II trial Gevokizumab
Q4:12 Servier to initiate Phase II trial (CV disease) Gevokizumab
Q1:13 Phase 2 POC readout for moderate/severe acne vulgaris Gevokizumab
H1:13 Partnership for ACEON
Mid-2013 Phase 2 POC data readout for erosive osteoarthritis Gevokizumab
Mid-2013 Data read-out from 3rd POC Phase II study Gevokizumab
Q4:13 Results from EYEGUARD A (Active NIU trial) Gevokizumab
Q1:14 Results from EYEGUARD B (Behcet's trial) Gevokizumab
Mid-2014 Results from EYEGUARD C (Controlled NIU trial) Gevokizumab
Source: Company data, Credit Suisse estimates
