DNA and XOMA
A couple of days ago XOMA issued a PR detailing a "new" financial facility made available to them by Genentech - their Raptiva partner in crime.
XOMA and Genentech Expand Raptiva Collaboration
Thursday April 10, 5:01 pm ET
BERKELEY, Calif.--(BUSINESS WIRE)--April 10, 2003--XOMA Ltd. (Nasdaq:XOMA - News) announced today that it has entered into amended and restated agreements relating to all aspects of its ongoing collaboration with Genentech, Inc. (NYSE:DNA - News) on Raptiva(TM) (efalizumab) to reflect the current understanding between the companies. The agreements include cost sharing, profit sharing and royalty arrangements, as well as detailed terms relating to participation by Genentech, XOMA and Genentech's licensees outside the U.S. in the development of all indications for Raptiva(TM). The agreements also address the ongoing financing by Genentech of XOMA's share of development and commercialization costs. Key elements of the new financing arrangements include:
* A loan facility to fund XOMA's share of development costs up to $80 million outstanding at any one time;
* Repayment of the development loan, at XOMA's election, in cash, equity or through deferral of up to $40 million as an offset against XOMA's proceeds from its 25% profit share in the product;
* A period of up to 90 days after FDA approval of Raptiva(TM) for XOMA to make its election among the repayment options (unless earlier repayment is otherwise triggered);
* A $15 million loan facility to fund XOMA's share of U.S. marketing and sales costs to be repaid in cash within 90 days after FDA approval of Raptiva(TM) (unless earlier repayment is otherwise triggered); and
* The grant to Genentech of a security interest in XOMA's profit share as collateral against any unpaid past due amounts of the loans.
"Much of what is in these new agreements reflects the operating principles that we and Genentech have been applying for some time," said John L. Castello, XOMA's chairman, president and chief executive officer, "but we are particularly pleased to have gained additional flexibility in the financing arrangements. This is yet another example of the collaborative nature of our relationship with Genentech."
The terms for the repayment do look somewhat harsh as it is widely supposed that Raptiva might be approved by the FDA already this year. In a similar way Mr. Costello's reference to "operating principles which have been applying for some time" does look somewhat strange.
A glance through XOMA's recent annual report reveals that the above is for the most part not a question of a fresh funds being made available to XOMA by DNA, but rather a clarification of how an already existing loan from DNA to XOMA (for the funding of the development of Raptiva) shall be settled. At Dec. 31 they had already about 63 mUSD outstanding under this facility. And the granting of a further 15 mUSD seems to indicate, that the 80 mUSD limit will not be enough.
Evidently XOMA has been able to obtain some further concessions from DNA, but the immediate future for XOMA from a cash-flowing stand-point does not necessarily look very bright. Even if Raptiva is approved.
Repayment of the credit facility in cash seems to me to be out of the question. XOMA only held abt. 38 mUSD in cash at year-end. So, the most probable solution seems to be that XOMA will have to allow DNA to keep the first 40 mUSD in the profit-sharing scheme (note that it is not royalty leveraged on the income) which DNA was obliged to pay to XOMA. The rest will have to be settled by the issue of new shares. If the debt over the course of this year grows to 80 mUSD, it would at today's market cap. of XOMA indicate a further dilution of between 10 and 15 %. In addition the cash-flow benefits from Raptiva will take longer to materialise.
My interest in this matter? I hold some shares in Genentech and couldn't understand why they were about to lend so much money to XOMA. Looking into the matter, I do feel that the PR from XOMA was "slightly" misleading for those who don't have the full details on how XOMA have financed their Raptiva development.
Erik |
