By Lisa Seachrist

Washington Editor

With the release of pivotal trial data for its lead product imminent, Xoma Ltd. raised $17.4 million dollars in a private placement of common shares of stock.

The Berkeley, Calif.-based company is expecting to release results from its pivotal Phase III study of Neuprex in the next several weeks. Faced with news that can cause a company's stock to either soar or plummet, the company decided to raise cash in a more stable environment.

"Our policy has been to keep about a year's worth of cash on hand," said Peter Davis, Xoma's chief financial officer. "Releasing the results of a clinical trial is basically a binary event - it's either good news or it's bad news - and we didn't want to find ourselves short of cash."

Xoma ended the second quarter with approximately $20 million in cash. Davis estimated the company currently is burning about $40 million a year. With a half year's cash on hand, the company decided to seek financing.

Xoma sold 3 million shares to more than 20 institutional investors, including both new and previous investors. The shares sold at discounted price of $5.80 a share. Xoma now has about 54 million shares outstanding. Sutro & Co., of Los Angeles, and Arnhold & S. Bleichroeder served as placement agents for this transaction.

The company's stock (NASDAQ:XOMA) closed Thursday at $6.875, down 3.13 cents per share.

"We were very happy to do [this financing] under the terms that we did," Davis said. "It's a straight common stock transaction - no convertible preferred stock, no warrants or price adjustments."

The company plans to use the funds to further the development of products from its BPI (bacterial/permeability-increasing protein) drug development platform. BPI is a human host-defense protein with multiple anti-infective properties. Xoma's lead BPI drug is Neuprex. Neuprex is designed to kill bacteria, enhance antibiotics, and bind and neutralizes endotoxin, a poisonous molecule produced in the cell walls of gram-negative bacteria.

The company is expected to announce in August results of the pivotal trial testing Neuprex as a treatment for meningococcemia, a rare but deadly blood-borne bacterial infection that strikes children. Neuprex also is in a Phase III trial testing it as a means of preventing pneumonia and acute respiratory distress syndrome in trauma patients.

In June, Xoma signed a licensing deal worth up to $11 million with Allergan Inc., of Irvine, Calif., to develop BPI for ophthalmic infections. In addition to BPI technology, Xoma has a partnership with Genentech Inc., of South San Francisco, to develop the hu1124 antibody as a treatment for moderate to severe psoriasis. The product has successfully completed Phase II clinical trials and is expected to enter Phase III by the end of this year.