After XBiotech (XBIT 1.70%) announced that investors tendering shares as part of its buyback will be able to tender only 30.9 shares for every 100 desired, shares are down 23.4% as of 11:30 a.m. EST on Thursday.
In December, XBiotech completed the sale of its only clinical-stage drug, bermekimab, to Johnson & Johnson (JNJ -0.78%) for $750 million.
After reviewing options on how to deploy its windfall, management decided to return $420 million to investors through a modified Dutch auction. The company agreed to pay no less than $30 per share for up to 14 million shares. Apparently investors liked the price because shareholders tendered 41,164,725 common shares for payment.
Since the number of shares tendered far exceeded the company's plan, the deal is being prorated, with a preliminary proration factor of 30.9%. This means the company is accepting 30.9 shares for every 100 shares tendered.
Proration allows every investor to receive something, but it also means that many investors hoping to unwind their entire position in XBiotech won't be able to through this buyback. Since the company had no other clinical-stage assets beyond bermekimab and thus is starting over from scratch, investors appear to be moving on to focus on other biotech stocks.
XBiotech still has plenty of money left over to restart research, and bermekimab's success could indicate that its approach can pay off again in the future. An anti-IL-1a antibody, bermekimab is under development for dermatology indications, including eczema. At the time of its purchase, J&J justified its decision, saying, "It [bermekimab] is the only antibody targeting IL-1a currently in clinical development and has the potential for superior efficacy and safety compared to the current standard of care." Clearly J&J thinks this drug could be a blockbuster someday.
XBiotech can't pursue dermatology indications because of its J&J deal, but it can still develop drugs targeting other blockbuster indications, such as cancers and heart diseases. It can receive up to $600 million in future milestones if J&J expands bermekimab beyond dermatology, too.
Nevertheless, the potential for IL-1a targeting in other indications is unproven in clinical studies, so all but the most aggressive investors might want to sit on the sidelines on XBiotech until there's more insight into its R&D pipeline, including trial data.