Collaborations Are Attractive
The potential of similar license agreements, product collaborations, and biologic manufacturing services is one reason Napodano rates the company as a Buy. In fact, in the second quarter of this year, Xoma reported that 69.5% of its $14.1 million in revenues came from such alliances.
Manufacturing deals reaped $9.7 million in the Q2 ’07, compared with $4.7 million for the same period of 2006. The growth is largely due to increased activities in contracts with Aveo Pharmaceuticals, Schering-Plough Research Institute, and Takeda Pharmaceutical, according to Xoma.
Revenues from technology licenses and product partnerships, however, did not fair as well. The company received $0.1M during this quarter, down $0.6M from Q2 ’06. Technology has been licensed thus far to more than 40 companies, Xoma reports.
Xoma has eight commercial antibody phage display libraries in addition to related antibody optimization and expression technologies. The company’s second platform is Human Engineering™ (HE™), a clinically validated humanization technology. Finally, Xoma’s microbial expression technology provides high-level expression of recombinant proteins in E. coli.
Xoma’s final revenue stream comes from a prior collaborative product development relationship with Genentech. Royalties on worldwide sales of psoriasis drug Raptiva and macular degeneration drug Lucentis totaled $4.3 million for Q2 ’07, more than double the $2.1 million it received in Q2 ’06.
Though Xoma reported positive growth in revenues quarter-over-quarter, it suffered an overall loss reportedly due to a hike in R&D expenses. These costs rose to $17.3 million from $12.1 million. Net loss was thus $8.3 million, a $2.4 million increase.
Even though Xoma, founded over 25 years ago, hasn’t posted any profits, Napodano still believes in its early-stage pipeline. This includes Neuprex in three Phase I trials in pediatric open heart surgery and cardiopulmonary bypass, stem cell transplantation, and burn injury. The candidate is an injectable formulation of rBPI21, a modified recombinant fragment of BPI (bactericidal/permeability-increasing protein). BPI is a human host-defense protein made by PMN (polymorphonuclear) leukocytes. The company also has plans to investigate another compound, XOMA 052, in type 2 diabetes and has future expectations to expand the drug into the autoimmune and inflammatory settings.
The partnership with Novartis yielded a Phase I candidate for the treatment of chronic lymphocytic leukemia and multiple myeloma. The company has a license arrangement with UCB that has given rise to a compound in late-stage development for rheumatoid arthritis and Crohn’s disease.
Napodano believes that Xoma will continue to be active in partnering and finetuning its pipeline. “We look forward to several positive catalysts over the next few months to help drive the shares higher and see fair value at the $5.00 level.”