Why XOMA Shares Tanked

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of XOMA Corp. (NASDAQ: XOMA  ) , a biopharmaceutical company that develops antibody-based therapeutics, dove as much as 16% following the release of its second-quarter earnings results last night.

So what: For the quarter, XOMA reported total revenue of $7.2 million, which is a 23% reduction from the year-ago period because of lower licensing and collaborative revenue. Loss per share rose slightly from last year because of its ongoing clinical work to an adjusted $0.19, right in line with the Street's expectations. What really appears to be getting under shareholders' skin today is a comment made by XOMA CEO John Varian, who said that the pace of enrollment in the company's Eyeguard A and C trials is slower than anticipated. These two trials are for its lead compound, gevokizumab -- with Eyeguard A designed to treat active non-infectious, non-anterior uveitis, and Eyeguard C being a control trial to see if gevokizumab can allow physicians to reduce their reliance on corticosteroid usage when treating non-infectious, non-anterior uveitis.

Now what: I feel what we have here is an overreaction on two fronts. Shareholders have probably been a bit giddy sending shares of XOMA higher in recent months despite not having a single product approved by the Food and Drug Administration. Conversely, shareholders are likely overreacting to Varian's comments about the slow enrollment as gevokizumab is being evaluated in more than a dozen clinical trials -- not just Eyeguard A and C. There are certainly plenty of catalysts in the near future capable of moving this stock impressively in each direction, but with so many of the company's trials still early in their development, I'd rather be on the sidelines waiting for that study data than be caught in front of a runaway bus.

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  • Report this Comment On August 09, 2013, at 12:15 PM, profitalert wrote:

    The management is subpar. After burning through a bunch of cash, the CEO in a press release said something to the effect that it didn't matter that they lost money or were concerned about revenue because it was replenished with extra financing from investors. This was about a year ago or so.

  • Report this Comment On August 09, 2013, at 12:17 PM, profitalert wrote:

    I listened to their most recent webcast in its entirety. When someone says we're not going to panic, something is seriously wrong. One of the executives said that statement on the call. What would you think if your pilot said that on a flight.

  • Report this Comment On August 09, 2013, at 12:27 PM, profitalert wrote:

    Here's the problem. They need to get testing clinics set up and then find patients for one of their key trials. When management was when they knew this problem and what indicators would have alerted them, they deflected the question. You either have management that isn't trustworthy or incompetence. Sounds like a lot of work and time delay if the testing clinics need to start from scratch. Analysts are now forecasting a 6-9 month delay. Should be longer. The entire month of August is lost as Europe is on vacation. When the Servier executives come back from Holiday, they will try to catch up with issues with their main business before they look at trying to establish brand new clinics. Xoma also alluded to tough negotiations for setting up clinics as they will be responsible for life in providing treatment drugs and liability if something adversely affects the patients in the trial. Sounds like a long time before a clinic can be built from scratch.

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