Exelixis: The Importance of the Public Offering. Xoma: What Should We Do Now?

Why the financing through a secondary public offering was a must for Exelixis.

The outcome of the public offering is putting in Exelixis’ (EXEL) coffers around $128 million, which we know the firm will definitely need for the development of its programs, but more important, is for the firm to be able to meet its obligations in case the FDA approves its drug cobimetinib combination with Roche’s drug vemurafenib for patients with unresectable or metastatic melanoma harboring a BRAF V600 mutation. The combination might be approved in early 2016.

In November 2013, Exelixis exercised its option to co-promote cobimetinib if approved in the United States. Upon the agreement, Exelixis will equally share in the U.S. marketing and commercialization costs. Outside the United States, Exelixis will receive royalties on the sales.

Exelixis lack of sufficient cash was a reason behind many investors’ decline to buy the firm’s shares in spite of the good news from the clinical trial results of its drug cabozantinib in renal cell carcinoma and the combination cobimetinib with Roche’s drug vemurafenib in melanoma.

Will the $128 million generated from the secondary offering convince reluctant investors to buy into EXEL?

We don’t know about others. What we are sure of though, is that the firm has enough money for the next year, which is the year expected to be the turning point in the life of this great scientific biotech.

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The XOMA Surprising Setback

When it comes to biotech firms’ drugs’ trial results, surprises exist but this one was the mother of surprises. We are referring to the setback in the EYEGUARD™ B clinical trials of Xoma’s (XOMA) drug gevokizumab for non-infectious uveitis. The results seem not to meet the trial’s primary endpoint when unveiled by Servier, Xoma’s French partner on the drug.

The results as announced were surprising for us as it was for many analysts we duly respect, including Piper analysts who said they are confident in a positive read-out and that the risk/reward ratio is favorable, reiterating its “overweight” rating and $8 price target. Also, RBC Capital Markets, which issued an “outperform” rating and also an $8 price target.

Why the surprise?

One reason is the drug’s mode of action and target. Gevokizumab is a potent monoclonal antibody that binds strongly to interleukin-1 beta (IL-1 beta); a well recognized and validated pro-inflammatory cytokine. IL-1 beta. IL-1 has been shown to be involved in diverse inflammatory diseases of the eye, including, non-infectious uveitis (Behçet’s disease uveitis), cardiovascular disease, and various autoimmune inflammatory diseases.

As a matter of fact, the drug has demonstrated clinical activity in a pilot study of Eyeguard B uveitis (BDU) as presented at the 2010 Annual Congress of the European League Against Rheumatism (EULAR), the 2010 International Congress on Behçet’s Disease and the 2010 American College of Rheumatology Annual Scientific Meeting.

Additionally, Xoma and Servier initiated a global gevokizumab Phase 3 clinical program named EYEGUARD B to encompass multiple diseases categorized clinically as forms of non-infectious, non-anterior uveitis (NIU) based on positive results from two Phase 2 clinical studies in Behçet’s disease uveitis (BDU).

What about now?

Recognizing the fact that selling XOMA at its current ridiculous price does not make sense, we keep the stock for the following reasons:

Gevokizumab is still in clinical for the following indications:

– Non-infective uveitis (NIU) EYEGUARDTM -A & C with results that might be different;  

– Behçet’s disease uveitis (BDU) EYEGUARDTM US; 

– Pyoderma gangrenosum (“PG”);

– Erosive osteoarthritis of the hand; 

– Moderate to severe acne; 

– Non-infective scleritis and;

– Autoimmune inner ear disease.

– Diabetic nephropathy


– Schnitzler syndrome

– Giant cell arteritis (GCA)

It does not make sense that all these programs would fail because of yesterday’s announced setback. This is true, unless all the analysts and we are missing something important facts that neither Xoma, nor Servier have made us aware of.  

We must also consider the following statement made by Paul Rubin MD, Senior Vice President of Research and Development and Chief Medical Officer in the same press release, “Although the study did not achieve its main objective, we did see signals of drug activity such as preserved visual acuity, less severe ocular exacerbations and a reduced incidence of reported macular edema in patients treated with gevokizumab. We will continue to work closely with our partner, Servier, and uveitis experts to conduct a thorough analysis of the data to fully understand gevokizumab’s impact on several clinically relevant endpoints.” 

Is there value in the following programs?

Four years ago, XOMA for the first time presented its discovery of new classes of fully human monoclonal antibodies that activate, sensitize or deactivate the insulin receptor in vivo, each representing a distinct new therapeutic approach to the treatment of patients with abnormal metabolic states. These programs are highly novel as the antibodies bind to different sites on the insulin receptor than do currently marketed drugs.

XMetA are insulin receptor-activating antibodies that provide long-acting insulin-like activity to diabetic patients who cannot make sufficient insulin.

The aim: Potentially reducing the number of insulin injections needed to control blood glucose levels. 

XMetS — insulin receptor-sensitizing antibodies reduce insulin resistance and could enable diabetic patients to more effectively use their own insulin to control blood glucose levels.

XMetD antibodies deactivate the insulin receptor, hence preventing a tremendous drop in blood sugar (hypoglycemia)

XOMA 358 is the XMetD lead program. The antibody binds to insulin receptors and attenuates insulin action. XOMA 358 is being investigated as a novel treatment for non-drug-induced, endogenous hyperinsulinemic hypoglycemia (low blood glucose caused by excessive insulin production) and other related disorders.

XOMA is advancing clinical studies with XOMA 358 and is pursuing licensing and collaboration discussions XMetA and XMetS.

Prohost Final Observations

As we said before, the news as announced was unexpected and investors’ reaction this time was fathomable in view of their suffering with this firm since its inception. Maybe the selloff reaction was a bit exaggerated the stock’s huge decline might be viewed by many as an investment opportunity.

Our decision is to hold the stock and maybe add some more. This decision might be wiser than selling at this low price, which  does not consider anything inside this firm as valuable, including its science, technologies and various programs.

That is our sincere opinion.

Prohost Forward-Looking: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

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