Xoma snags $505 million pact on its top drug prospect

Xoma announced its long-anticipated licensing pact on the promising anti-inflammatory drug 052 this morning, snagging a $505 million pact and fueling a further surge in its sizzling share price. But the struggling biotech failed to impress some analysts with a skimpy $15 million upfront payment.

Hailed as a potential blockbuster by TheStreet's Adam Feuerstein in a column out ahead of the deal, Berkeley, CA-based Xoma told its investors that it has nailed a $15 million upfront along with a $20 million loan from France's Les Laboratoires Servier, which gained the rights to a range of inflammatory and oncology conditions outside of the U.S. and Japan. Servier also will pay up to $470 million in milestones for the drug, which is preparing to enter Phase III this year.

Servier will also fund the first $50 million of Xoma 052 development expenses and half of the further expenses for its Behcet's uveitis work. Servier will fund development for diabetes and cardiovascular disease indications in exchange for worldwide rights, while Xoma will have an option to buy back U.S. and Japan rights and license them to other partners.

"This is an important collaboration for Xoma as we gain a seasoned partner in Servier and it allows us to accelerate XOMA 052 into Phase III development this year in Behcet's uveitis, an orphan indication for which we have reported positive proof-of-concept results. The agreement advances our strategy of focusing on opportunities in the U.S. where we can directly participate in the development and commercialization of our novel products," said Xoma CEO Steven B. Engle.

The one word Feuerstein chose to describe the deal was "ridiculous," which he tweeted once the pact was announced. Xoma's shares have increased sharply ahead of today's announcement for the drug, which has been lauded as a potential blockbuster capable of going on to become a first-line diabetes treatment. Its share price jumped 30 percent this morning. And some analysts lauded the move.

"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 told Reuters.

Xoma has had a tough time over the past two years. In 2009 it cut close to half of its workforce as it responded to declining royalty revenues and growing debt. The restructuring also triggered a delay in the development plan for 052 as it raised fresh doubts about its ability to deliver.

- here's the Xoma release
- here's the Reuters story

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