UPDATE 2-Xoma in French tie-up for inflammatory drug, shrs soar
BANGALORE, Jan 4 (Reuters) - Xoma Ltd said it partnered with French drugmaker Les Laboratoires Servier to develop and market its anti-inflammatory drug for multiple indications, boosting the company's cash resources.
The company's shares, which have more than doubled in the past one month in anticipation of the drug's interim trial data, jumped as much as 30 percent to a high of $6.88 on Tuesday morning, making it the biggest gainer on Nasdaq.
As per the agreement, Xoma will get about $35 million in upfront payment and up to $470 million in milestone payments and tiered royalties for the drug XOMA 052.
'The XOMA 052 deal is not a blockbuster marquis deal with a huge upfront payment, but it is timely, retains significant commercial rights for XOMA, brings in needed cash, and substantially reduces burn in 2011 and 2012,' RBC Capital Markets analyst Jason Kantor said.
The company estimated cash and cash equivalents of $36-$38 million as of Dec. 31.
The company's auditors had expressed doubts in March 2009 about the drugmaker's ability to function as a going concern.
While the going concern doubts were mostly removed in December 2009, this deal removes substantial financial risk.
However, Kantor said the company will still require additional capital, but other sources such as antibody technology licensing deals and biodefense contracts are likely in 2011-2012.
In June, the company reported promising results from a study of the drug to treat an eye condition related to Behcet's disease, or inflammation of blood vessels. The company now plans to advance the drug for this indication to the late stage this year.
DEAL DYNAMICS
As per the agreement, Xoma retains rights for Behcet's and other inflammatory and oncology indications in the United States and Japan, while Servier will acquire the rights in the rest of the world.
'The largely funded Behcet's disease opportunity is the quickest path to market for XOMA 052 and supports Xoma's valuation,' Kantor who upgraded the stock to 'outperform' from 'sector perform' said in a note.
The drug is also in mid-stage trials for type 2 diabetes, the results of which are expected in the first quarter.
Xoma said Servier will fund development of the drug for diabetes and cardiovascular diseases in exchange for worldwide rights.
The deal also provides Xoma the option to reacquire U.S. and Japan rights to the diabetes and cardiovascular indications.
(Reporting by Krishnakali Sengupta in Bangalore; Editing by Vinu Pilakkott, Roshni Menon) Keywords: XOMA/
(krishnakali.sengupta@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging:krishnakali.sengupta.reuters.com@reuters.)
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