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Xoma Shares Soaring on Hope for Experimental Drug


The market potential for gevokizumab, now being tested for inflammatory eye disease, may be worth $1 billion. But will the data hold up?

MINYANVILLE ORIGINAL The Xoma (XOMA) story has not been a happy one for investors in recent years.

A year ago, CEO Steven B. Engle stepped down just months after the company's lead drug failed in a study testing the medicine as a treatment for diabetes. Shares of the company dropped throughout 2011, trading as low as $1.10 in December.

There were concerns about whether the company has enough money, a worry that was addressed with a stock offering in March. A necessary restructuring was announced in January.

The stock has had a lot of momentum in the months since. Xoma shares traded Tuesday midday at around $4 a share, a remarkable turnaround since late last year.

The company is now led by CEO John Varian. With funding in place and help from partner Les Laboratoires Servier of France, Xoma is studying its top drug candidate, gevokizumab, for different inflammatory diseases. Servier and Xoma are testing the drug in the final phase of trials for a rare eye disease known as non-infectious uveitis and a subset known as Bechet's uveitis. This is the biggest near-term opportunity for the company's lead drug.

Xoma is testing the medicine in a mid-stage study to treat severe acne and is enrolling patients in another so-called proof-of-concept trial for osteoarthritis of the hand. Data from those trials may be available by the end of this year and middle of 2013.

Data from two late-stage studies of the eye disease, however, won't be released until the end of 2013, says Cowen & Co. analyst Simos Simeonidis.

Simeonidis recommends buying the stock because he sees a big sales potential for treating uveitis -- a market that may be worth $1 billion in yearly sales. If all goes well in the studies, the drug could be approved by 2015, he predicts.

Here's the caveat: The late-stage study, or phase III trial, of gevokizumab for the eye conditions were based on a very small study in Turkey -- not a location "most investors are very comfortable with in terms of clinical trial experience," Simeonidis says. It is "the obvious bear story and the biggest risk for investors," the analyst notes.

Xoma is not the new kid on the block, either. It was founded in 1980, the year Ronald Reagan defeated Jimmy Carter for the White House. The company went public six years later. Xoma has an accumulated loss of $886 million at the end of 2011. The shares traded above $400 each in 1991 but haven't traded anywhere near those lofty levels in decades.

Twitter: @brettchase

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