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BOSTON ( TheStreet) -- This week's Biotech Stock Mailbag opens with a question from @Nixon786:
"Why is Xoma up 50% for the month?"
The spark that sent
Xoma(XOMA - Get Report) shares higher was the $40 million financing announced March 6. Normally, dilutive financings undertaken by money-losing biotech firms don't send stock prices higher. That's particularly true for companies like Xoma with a sad history of drug development futility.
What's different here is that Baker Bros., a well-respected and closely followed health-care hedge fund, bought half the Xoma deal. RA Capital, a Boston-based hedge fund, was also a buyer of Xoma shares in the offering, according to regulatory filings.
When Baker Bros. buys, other investors follow, especially when Baker Bros. buys big. The fund now owns about 20% of Xoma and I'm told will likely get a board seat. The fund tends to take large, long-term positions in drug and biotech companies it likes, including
The question you're probably asking now is, "Wait a second -- Xoma? What the hell can Baker Bros. see in Xoma?" [I wondered the same thing.]
Xoma is apparently getting a new lease on life, thanks to a top-to-bottom restructuring -- a new CEO and chief medical officer, cost cutting and a new business model. Xoma is still developing the same lead drug XOMA 052 (given a new name, gevokizumab) but money-wasting efforts in diabetes and cardiovascular indications have been shelved in favor of clinical trials for Behcets uveitis and non-infectious uveitis -- both diseases of the eye.
A phase III study of gevokizumab is expected to start this summer with data likely available by the end of 2013.
Whether Xoma succeeds with gevokizumab and breaks a three-decade-long streak of internal drug development failures is still an open question, but what's different today is that the company has some big-name investor support.
Owen S. asks: "What are your predictions for the FDA drug approvals next week involving
Chelsea Therapeutics(CHTP). And how do your predictions match up with investors you talk with on Wall Street?"