Xoma Drug Disappoints

Xoma Ltd. (XOMA - Snapshot Report) recently reported negative results from a mid-stage trial of type II diabetes treatment, XOMA 052. The phase IIb trial failed to meet the primary endpoint of reducing glycosylated hemoglobin (HbA1c) in type II diabetes patients after six months of treatment with XOMA 052, compared to placebo. In the trial, patients were given one of the four XOMA 052 doses or placebo subcutaneously, once a month over a period of six months.

However, it was observed that biological activity of XOMA 052 significantly supported the candidate’s potential in cardiovascular diseases like a decline in C-reactive protein (CRP), a biomarker for the risk of heart attack, stroke and other cardiovascular diseases, versus placebo. Moreover, considerable improvement was observed in high-density lipoprotein (good cholesterol) in two of four XOMA 052 dosage strengths versus placebo.

Xoma has a collaboration agreement with Servier for the development and commercialization of XOMA 052 in the US. Per the terms of the agreement, Xoma retained the US and Japanese commercial rights to the candidate for Behcet's uveitis and other inflammatory and oncology indications. Further, Servier has worldwide rights to XOMA 052 for diabetes and cardiovascular disease indications. Servier also has rights for other indications in territories excluding the US and Japan.

Servier is to bear 100% of the first $50 million and 50% of additional development expenses for the Behcet's uveitis indication and will fully fund the development expenses for the cardiovascular disease and diabetes indications. Xoma is responsible for the manufacturing and launch of XOMA 052. As part of the deal, Xoma is eligible to receive milestone payments of up to $470 million and tiered royalties up to the mid-teens percentage rate.

For the Behcet's uveitis indication, the company has successfully completed a mid-stage trial, where all seven patients displayed rapid reduction of intraocular inflammation and improvement in visual acuity or other ophthalmic measures after a single treatment with XOMA 052.

The drug has orphan drug status in the US and European Union for Behcet's uveitis and is scheduled to enter phase III clinical trials in 2011. The company also plans to move XOMA 052 into clinical development for cardiovascular disease in 2012.

Once XOMA 052 is approved, it will face competition from products of companies like Eli Lily and Co. (LLY - Analyst Report), Novartis AG (NVS - Snapshot Report), AstraZeneca plc (AZN - Analyst Report) and Regeneron Pharmaceuticals Inc. (REGN - Analyst Report).

We currently have a Neutral recommendation on Xoma.

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