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XOMA: Was the Rally really A surprise?

Prohost Biotech - Wednesday, December 22, 2010

Xoma (XOMA) soared yesterday on no news from the company. Early afternoon, Reuters put out a press release stating that the rally occurred on high expectations of the mid-stage results of XOMA 052 in the treatment of diabetes. To read the article, please click or copy and paste the link:

Surprised by XOMA’s rally, many asked if we heard news that could be behind XOMA’s rally. We were surprised by their surprise more than by the stock’s move. The reasons for XOMA’s soaring at this stage could only one of the following; Good news emanating, or expected to come from the firm’s drug XOMA 052’s clinical trials; the appearance of a prospective deep-pocketed drug company that seeks partnership on XOMA 052, offering Xoma multimillion dollars in upfront payment; or an upgrade coming from a heavy weight analyst.

Investors know that XOMA 052, a monoclonal antibody inhibitor of interleukin-1 (IL-1), is in various phase trials for Type 1 and Type 2 diabetes and for many other diseases of inflammatory origin. They know that phase I trial results on diabetes were better than endocrinologists expected and that the drug is safe. More important is that they know that proof of concept has been already offered in studies conducted on the impact inhibiting IL-1 on diabetes and other diseases. So the rally in the stock should not surprise anybody.

After years of disappointments, seeing their money evaporate, Xoma’s shareholders developed a hard to reverse distrust in the firm’s management. They reached a stage of disappointment with the firm that led them to be convinced that no matter how good XOMA 052 it could be, the drug will never see the light of day to benefit Xoma’s shareholders. Isn’t Xoma known to contribute its technologies and expertise to benefit other firms with almost no benefit to itself.

This skepticism, we believe, is not realistic. First of all, the current management is not the past managements that made the mistake, but inherited them. Secondly, the drug is very promising and the data from experimentation by Xoma and others confirm that efficient inhibition of IL-1 could be a unique tretment for diabetes and chronic inflammatory diseases that affect various systems, cells and organs. Xoma is almost finishing Phase II trials and a successful outcome would easily bring a partner ready to pay a huge upfront payment that can change the firm’s life from that time on.

A proof of concept for Xoma 052 came at the hands of scientists who hypothesized that diabetes, like autoimmune diseases, starts with inflammation that causes destruction of the beta cells of the pancreas. In a study, patients with type 2 diabetes, patients given Anakinra, an IL-1 blocker developed by Amgen and approved for rheumatoid arthritis had improved glycated hemoglobin (HbA1c) levels, insulin production, blood sugar control, and pancreatic beta cell function. A second follow-up study demonstrated that nine months after final treatment with anakinra, insulin usage was reduced by 67 percent among patients who had responded to the drug during the initial 13-week dosing study.

The results of the study suggest that the IL-1 antagonist has the potential to modify type 2 diabetes by preserving insulin-producing cells, not just control the disease symptoms. On the other hand, most current medications used in type 2 diabetes work through either boosting insulin secretion by the pancreas, increasing the cells’ sensitivity to insulin, or using of insulin as replacement therapy. They do not go to the root-cause of the disease like IL-1 blockers, especially Xoma 052, which has several advantages over other available IL-1 antagonists.

If these test results and the results of Phase 1 trials on XOMA 052 are confirmed in the current trials’ results, the drug will be the first cytokine inhibitor to be used in the treatment of Type 1 and Type 2 diabetes.

XOMA 052 is also in trials for cardiovascular disease, rheumatoid arthritis, acute gout, systemic juvenile idiopathic arthritis (sJIA) and Behcet’s uveitis. Recently, positive results came from an open-label pilot study of XOMA 052 in patients with Behcet’s uveitis who were suffering from vision-threatening exacerbations after receiving maximal doses of immunosuppressive medicines. All the patients (seven) experienced rapid reduction of intraocular inflammation and improvement in visual acuity and other ophthalmic measures following a single treatment. New results demonstrate that each of five patients re-treated with XOMA 052 due to recurrent uveitis exacerbation responded again to XOMA 052 treatment and maintained their response for several months. A cytokine study results showed a reduction in the levels of IL-1 beta, IL-1 alpha and IL-6 and increased levels of interferon gamma. The increase in interferon gamma is considered favorable, as it protects from infection. The FDA has granted XOMA 052, an orphan drug for Behcet's disease and so did the European Medicinal Agency

Behcet's disease causes vasculitis (chronic inflammation of the blood vessels) and major symptoms affecting the neurological, pulmonary, gastrointestinal and cardiovascular systems. Complications include painful ulcers in the mouth and on the genitals. The disease is most common among people from countries along this ancient trade route, the Silk Road, including Turkey, eastern Mediterranean countries, Japan and Korea. That’s why it is referred to as the “Silk Road diseae”

Uveitis is an inflammation of the intraocular tissues of the eye. Uveitis complicating Behcet’s Disease, also called Behcet’s uveitisis a very severe form of uveitis. It affects half of Behcet's disease patients. Unlike many forms of chronic uveitis, Behcet's uveitis is characterized by frequent recurrence of acute attacks or exacerbations. Without immediate treatment, major exacerbations of Behcet's uveitis may lead to retinal detachment, vitreous hemorrhage, glaucoma and blindness. Accumulation of vitreous haze can block the vision or cause the loss of visual acuity. Patients can go from 20/20 eyesight to blindness during one course of exacerbation.

Treatments for Behcet's uveitis are currently limited to corticosteroids and off-label use of immunosuppressive chemotherapeutic drugs, which have significant side effects when used for long.

Why Xoma 052?

XOMA 052 is a Human Engineered™ IgG2 antibody with a half-life of 22 days. It has an ultra high binding affinity for IL-1? - a pro-inflammatory cytokine believed to be a leading cause of inflammation. By binding IL-1?, XOMA 052 modulates the activation of the IL-1 receptor, thus interferes with the cellular signaling that instigate the inflammatory responses. Based on its combined pharmacokinetic and binding properties, XOMA 052 may provide dosing of once per one month or longer. This is an important advantage over other drugs that target IL-1. Anakinra, for example, requires daily injections that frequently involve mild but painful injection site reactions.

Xoma has a great technology that can breed many effective products for diseases with unmet medical needs. The scientists have done a great job, creating a technology that develops competitive products. Through these technologies, Xoma has contributed to the successful development of many important products, but for other companies. It has attracted many firms, including several large pharmaceutical companies to license Xoma’s technologies. The only problem was past inefficient managements, which committed many mistakes that devastated Xoma and its shareholders for years.

We hope that the current management would be successful this time in signing agreements favorable to Xoma. We believe it will and as a result, we see a real chance for Xoma to turn from a loser to one of the most successful biotech firms worth its scientists efforts and advanced technologies. Are we optimistic? The answer is Yes.

1. Larsen, C. M., M. Faulenbach, A. Vaag, A. Vølund, J. A. Ehses, B. Seifert, Mandrup-Poulsen, and M. Y. Donath. 2007. Interleukin-1–Receptor Antagonist in Type 2 Diabetes Mellitus. New Engl J Med 356:1517.

Disclosure: We have position in Xoma.

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