XOMA Corporation (NASDAQ:XOMA) investors are having quite the exciting day, between the biotech firm gaining another bull and shares subsequently gliding up 8%. What’s all the buzz about that has analysts left and right seeing new reason to upgrade this drug maker?
As of August 25th, the firm revealed a positive update: XOMA now has transformational license agreements in the works for gevokizumab, a novel anti-IL-1 beta allosteric monoclonal antibody, as well as its IL-1 Beta Intellectual Property Portfolio targeting antibodies in the treatment of cardiovascular disease.
After shaking hands with Novartis, Xoma’s prospects suddenly look more compelling in the light of the deal, and Wedbush analyst Liana Moussatos is out today cheering, “Ka-ching! IL-1beta licenses validate XOMA2.0,” the firm’s lean operating expense and licensing revenue business model.
In reaction, the analyst upgrades from a Neutral to an Outperform rating on XOMA stock while boosting the price target from $9 to $19, which implies a close to 70% upside from current levels. (To watch Moussatos’s track record, click here)
The terms of the deal and equity sale are as follows- the firm collects $16 million in cash upfront for its anti-inflammatory drug gevokizumab while being eligible to amass up to $438 million in milestones coupled with high single digit to mid-double-digit percentage tiered royalties on gevokizumab’s sales. Additionally, Xoma will gain another $10 million in upfront cash for its IL-1β intellectual property, with eligibility to garner a low single-digit percentage royalty on canakinumab’s sales in cardiovascular conditions. Novartis also opted to buy $5 million in Xoma common stock at $9.2742 per share, or 539,131 shares.
Moussatos provides some context for her new surge in conviction for the firm: “We drew a line in the sand requiring a deal to validate the new business model of lean operating expenses and licensing revenues and Xoma delivered. So we are upgrading to OUTPERFORM and increasing our price target to include potential royalties on gevokizumab and canakinumab for cardiovascular disease sales.”
Overall, “Monetization of anti-IL-1β validates XOMA2.0 business model in our view,” contends the analyst, underscoring a positive shift for Xoma on back of its new licenses: “Due to clinical failures, we thought gevokizumab was shelved but recent cardiovascular clinical success with Novartis’ canakinumab apparently created strategic value to have more than one anti-IL-1β treatment–prompting Novartis to license gevokizumab and anti-IL-1β.”
Looking ahead, the analyst anticipates cash runway through the next three years.
TipRanks analytics exhibit XOMA as a Buy. Based on 2 analysts polled by TipRanks in the last 3 months, 1 rates a Buy on Xoma stock while 1 maintains a Hold. The 12-month average price target stands at $15.00, marking a 34% upside from where the stock is currently trading.