Strike 3: Struggling Xoma jettisons its lead drug after (another) PhIII failure

Xoma CEO John Varian

Xoma ($XOMA) investors can finally bid adieu to its lead drug gevokizumab. The Berkeley, CA-based biotech says that the antibody was a bust in early rounds of a Phase III study for pyoderma gangrenosum, and execs now plan to stop all work on the drug and sell it to any willing buyer.

What's the drug and the data worth? Not much, judging by its history in the clinic. Last summer the Servier-partnered drug failed a Phase III for Behçet's disease uveitis, and that's after it flunked a Phase II program for erosive osteoarthritis of the hand, ending any shot it had at a broad pivotal study in that indication.

The first Phase III crushed the biotech's stock price. But the latest failure, and its decision to finally dump it, was good enough to help push the share price up 16%--good enough to move out of penny stock territory as the company declared a success with its reorganization plan.

Xoma recently has axed about 90 staffers, cutting its workforce in half. It gained a $37 million upfront from Novartis in a $517 million deal, licensed out a diabetes program to Novo for $5 million in cash and $290 million in milestones, and sold off a manufacturing center to Agenus ($AGEN).

Xoma says it has enough cash on hand--$65.8 million as of the end of 2015--to make it into the first quarter of next year.

Its new lead drug is XOMA 358, which is now in Phase II for congenital hyperinsulinism, a rare genetic disorder in which the insulin cells of the pancreas "secrete inappropriate and excessive insulin."

"The transformation we initiated in the third quarter of last year--and now have completed in less than six months--was considerable in its scale and complexity, but essential to position Xoma to deliver our promising portfolio of endocrine assets," said Xoma CEO John Varian in a statement. "Novel antibodies and technologies created by XOMA scientists to target diseases such as cancer, diabetes and botulism will be advanced in the capable hands of Novartis, Novo Nordisk, Nanotherapeutics and Agenus, with XOMA sharing in potential successes in certain cases."

- here's the release