Source: Flickr user Ali T.

Clinical stage biotech stocks can have nausea-inspiring pops-and-drops tied to news, and that makes them suitable for only the most risk-tolerant of investors. However, investors willing to accept the risk of loss can reap substantial rewards if promising pipeline drugs like Xoma Corp's (XOMA 2.37%) gevokizumab succeed in clinical trials. Since Xoma could begin reporting late stage trial data for gevokizumab this year, let's take a closer look and see if its shares might be worth buying.

First, a bit of background
Gevokizumab is a monoclonal antibody that is being developed by Xoma and the large French drugmaker Servier.

The companies are evaluating the drug across a variety of eye-related diseases, but the most advanced studies are being conducted in rare patient populations, such as those with Behcet's disease.

Behcet's disease is an immune disease characterized by inflammation of the blood vessels, resulting in painful ulcers of the eye. Left unchecked, the disease can cause permanent vision loss in up to 20% of people who suffer from eye ulcers. Usually, that vision loss is because of damage to the optic nerve.

Source: Xoma Corporation

Currently, there are no clear-cut treatments for Behcet's disease. Instead, patients' symptoms are treated with steroids and immunosuppressants. In severe cases, AbbVie's autoimmune drug Humira or Johnson & Johnson's Remicade may be given.

The disease is not common in the U.S.; Xoma estimates that the disease affects between 5,000 and 7,500 Americans. Behcet's disease is, however, more common in countries along the Silk Road, from the Middle East to Asia. As a result, until recently, most of the research for gevokizumab in Behcet's has been undertaken by Servier in overseas markets. Servier's trial enrolled its targeted number of patients last year; however, delays in achieving the appropriate number of exacerbations have pushed back the release of data to 2015 (hopefully!).

Investors should also know that Xoma kicked off its own Behcet's disease study in the U.S. last year in order to build up enough data to support a possible future FDA filing.

Up to that point, Xoma's efforts had focused on the drug's use in non-infectious uveitis, or inflammation of the uvea in the eye. The company has two ongoing phase 3 studies in this indication. The first is evaluating the drug in patients after 56 days, and the second is evaluating patients after 168 days. The 56-day study's estimated completion date is in September 2015. The 168 day study's estimated completion date is in March 2015. Assuming that enrollment is going as planned and that the data are being collected at the pace predicted, those trial completion dates suggest that investors will soon have much clearer insight into gevokizumab's commercial opportunity.

Source: Xoma Corporation

By the numbers
One reason that investors are eagerly awaiting those clinical updates is because Xoma's spending has soared over the past couple years.

In the first nine months of 2014, the company's operating expenses totaled $77.2 million, up from $65.5 million the year before. As a result, the company reported an operating loss of $62.7 million for the nine month period, up from a loss of $42.6 million in the comparable period of 2013.

The spending caused Xoma's cash and equivalents to tumble from $101.7 million exiting 2013 to $54 million coming out of September. As a result, the company tapped the equity markets for a net $37.7 million in December, when it offered over 8 million in shares and accompanying warrants at price of $4.94 per share. The warrants have a per share conversion price of $7.90 and can be exercised at any point until they expire in two years.

The issuance gives the company a bit more financial flexibility to continue its research efforts and, if trial results are solid, prepare a filing for approval and for potential commercialization.

Looking ahead
Xoma has a lot riding on gevokizumab. If the drug fails to deliver in its late stage trials, it will cast significant doubt on the company's future. That means that investors need to keep a close eye on Xoma's press releases for trial details over the coming quarters. Since the company's expenses are so high, there's also the risk of additional dilution. Overall, while Xoma's an intriguing story, I think it's best to wait on the sidelines until we get more insight into how well gevokizumab performed in its trials and are given details on Xoma's timeline for any potential filing.