Biotech Stock Mailbag: Xoma's Big Backers, FDA Approvals Contest

"Why is Xoma up 50% for the month?"

The spark that sent Xoma(XOMA) 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 Seattle Genetics(SGEN) , Incyte(INCY) and Viropharma(VPHM) .

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 MAP Pharmaceuticals(MAPP) , Affymax(AFFY) and Chelsea Therapeutics(CHTP) . And how do your predictions match up with investors you talk with on Wall Street?"