XOMA Suffers Big Setback

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While many biotechnology stocks have been generating impressive returns of late, one stock suffered a major setback on Tuesday evening. That company is XOMA Corporation (NASDAQ:XOMA).

XOMA Corporation is a biotechnology company focused on the discovery and development of monoclonal antibody-based therapeutics. The company 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.

Over the past couple of years, XOMA has put together a deep pipeline of trials and indications for its flagship drug, gevokizumab.  The potential indications for commercialization in the United States include:

  • Non-infectious uveitis — Phase 3 Trial
  • Pyoderma gangrenosum — Phase 2 Trial
  • Erosive osteoarthritis of the hand — Phase 2 Trial
  • Moderate-to-severe acne — Phase 2 Trial
  • Non-infectious scleritis — Phase 2 Trial
  • Autoimmune inner ear disease — Phase 2 Trial

Unfortunately, on Tuesday evening, XOMA announced that it was discontinuing its development program for erosive osteoarthritis of the hand. The company acknowledged that data from its mid-stage trials indicated that gevokizumab did not benefit these particular patients. The company plans to continue analyzing data to determine if there were any subsets of patients that did benefit from the drug.

This is a significant blow for XOMA as this particular indication affects several million patients across the United States. Additionally, there are no other approved therapies for the indication other than analgesia/NSAIDs. It would have been a big win for XOMA and investors if the company would have been successful. The negative news is also slightly surprising given the recent momentum that shares of XOMA have had.

Since early November, shares of XOMA have rallied from about $4 per share to a 52-week high of $9.57. In fact, the 52-week high was established in Tuesday’s trading session. Unfortunately, some unlucky investors are likely to feel the brunt of today’s news during the rest of the week.

The program’s discontinuation is also a big defeat for the Baker Brothers. As many investors are aware, the Baker Brothers have taken on an almost cult following over the past couple of years as the biotech focused investment fund has demonstrated an innate ability to continually pick huge winners in the biotech space such as ACADIA Pharmaceuticals, Pharmacyclics, Seattle Genetics, and ViroPharma. As of the end of the fourth-quarter 2013, the Baker Brothers held more than 23 million shares of XOMA. At Tuesday’s closing price of $9.44, that position was worth than $217 million. Unfortunately, that position is now worth significantly less. In Tuesday’s after hours trading session, XOMA finished at $7.35, which means the Baker Brothers lost more than $48 million on the news.

Long-term investors will suffer a short-term trading setback but the future could still end up being positive. As mentioned earlier, XOMA is pursuing many more indications, which could still result in significant revenue generation in the future if the company can navigate its way towards a few FDA approvals. Whether that happens is another story, but this is certainly not the end for XOMA.

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