Xoma is difficult.
As I don't hold a position and generally don't know much about the company it is relatively easy to form an opinion. Which is "Keep away for the time being".
Short-term I believe that today's news were good news for Xoma. One product candidate less to spend sparse monetary development resources on.
Xoma is looking somewhat overstretched financially. The development of Raptiva seems by and large to have been financed by Genentech. As evidenced by the long-term debt on Xoma's balance sheet. Recently Genentech and Xoma agreed on the terms for the settlement of this debt.
Berkeley, CA — April 10, 2003 — XOMA Ltd. (Nasdaq: XOMA) announced today that it has entered into amended and restated agreements relating to all aspects of its ongoing collaboration with Genentech, Inc. (NYSE: DNA) on Raptiva™ (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™. 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™ (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™ (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.
In my eyes things do look somewhat tight for Xoma. They had only about 38 mUSD in cash at year-end. And they seem to have a relatively high burn-rate. Over the course of 2002 they recorded an operating loss of a little bit more than 30 mUSD. They are releasing Q1 results on Thursday. Perhaps that will bring some clarification to their financial status.
As for potential Raptiva revenues, it is difficult to say. Most analysts that I have seen (not too many) seem to be of the opinion that there will be a little bit of the cake available for everyone. Cowan estimates the following net sales for Raptiva over coming years.
2004: 85
2005: 193
2006: 325
Of which then Xoma seems to collect 25 %. To their current running cost level sales and marketing costs for Raptiva should be added. If these figures are in the right ballpark it appears as if they might be able to show some profit in 2006. But hardly before then. And financially it will be tight unless they go for the dilution. Which you wouldn't like as a shareholder.
If FDA is not approving Raptiva or delays the product for some reason things might get difficult. I would also recommend to keep an eye on Icos/Biogen's small molecule drug IC747. This drug is supposed to have the same target as DNA/XOMA's humanized antibody. (Who likes humanized antibodies by the way? Does Xoma?). Anyhow, Phase IIa results for IC747 are expected by the summer promising a first peek at efficacy. If things look good for IC747 they will look less so for Xoma.
So, by and large there are perhaps too many questionmarks surrounding Xoma at present to make them an interesting buy even if they have undeservedly lost 10 or 15 % today.
Just my unfounded opinions of course. Others may see this in a completely different way.
Erik |
