Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Down 30%, Worth a Look

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

It's never a good sign when the first paragraph of a press release announcing clinical trial results for one disease starts talking about the other trials where the drug is being tested. Investors didn't buy the smokescreen XOMA (NASDAQ: XOMA  ) put up on Tuesday when it announced the results of the phase 2 trials testing gevokizumab in patients with erosive osteoarthritis of the hand, or EOA. Shares ended Wednesday down 28% and it's fell a little more today.

While XOMA is still testing gevokizumab in multiple indications, the loss of EOA is a big blow given the market potential for the disease. The failure could also be a sign that gevokizumab isn't as active as XOMA and investors have hoped, although I think that negative view might be a bit of a stretch.

In one of the phase 2 studies, gevokizumab seemed to be performing well after 84 days of treatment, but then, in the latter half of the trial, the placebo group improved, negating the difference seen in the first half. By day 168, the difference wasn't statistically significant.

This type of placebo effect -- patients getting placebo shouldn't improve -- is all too common for diseases where patients report how they're feeling. For example, in one of Pfizer's (NYSE: PFE  ) trials of Xeljanz, its rheumatoid arthritis drug, 27% of patients reported a 20% improvement in their symptoms despite having taken nothing that should help their disease. Pfizer was still able to show statistical significance because Xeljanz works so well, but not every rheumatoid arthritis drug has been so lucky.

Glimmer of hope
When XOMA looked at patients with more severe disease, the placebo group didn't fair nearly as well, which supports the placebo effect hypothesis; it's harder to trick your mind into thinking you've improved when you're in severe pain.

Fortunately, the company doesn't seem to be latching onto the subset of data. XOMA has decided not to move gevokizumab into a phase 3 program in a broad EOA indication, and seems to be downplaying the potential in severe EOA in the press release: "It is possible these observations, as well as further analyses, could provide a reasonable group to study in future trials but it is too early to tell at this point."

"Possible," "could," "too early," all sound good to me, given that XOMA is older than dirt (in biotech years), having produced failed idea after failed idea and a few not-so-profitable successes. XOMA doesn't need to be taking any long shots at this point.

Other opportunities
While the decline in XOMA's stock price is deserved given the decrease in sales potential if the company isn't going to pursue EOA, gevokizumab is far from dead. It's shown pretty good phase 2 results in two different indications.

Phase 3 trials in two related eye diseases, Behcet's uveitis and non-infectious uveitis, have already begun. The trial for Behcet's uveitis, run by XOMA's partner Servier, should read out in the middle of this year. Enrollment in the two trials for non-infectious uveitis has been slower than expected, but XOMA will have data eventually.

For pyoderma gangrenosum, a rare inflammatory skin disease, XOMA is scheduled to have an end-of-phase-2 meeting with the FDA to help design a pivotal trial. Given the unmet need, a single phase 3 trial should be sufficient to gain approval. And there's potential for gevokizumab to work in other inflammatory diseases, such as severe acne, autoimmune inner ear disease, and other diseases that are mediated by interleukin-1 beta, which gevokizumab inhibits.

At a market cap of $600 million, XOMA looks like a decent orphan drug company investment for investors willing to hold for a few years.

Growth beyond biotech
Finding hyper-growth is a matter of identifying trends before they happen. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play," and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2867637, ~/Articles/ArticleHandler.aspx, 8/30/2015 10:18:45 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Brian Orelli

Dr. Orelli is a Senior Biotech Specialist. He has written about biotech, pharmaceutical, and medical device companies for The Motley Fool since 2007.

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 3:59 PM
XOMA $0.86 Up +0.04 +4.70%
XOMA Limited CAPS Rating: ***
PFE $32.66 Down -0.60 -1.80%
Pfizer CAPS Rating: ****