By Mary Welch

Expecting its stock price to rise and intending to avoid further dilution of the shares, Xoma Corp. raised $12 million by selling 2 million shares of common stock to a pair of institutional investors.

"It's a little complicated," said Ellen Martin, spokeswoman for Berkeley, Calif.-based Xoma.

The price, just under $6, was fixed from a five-day average, and represents about a 60 percent premium over the current market price, Martin said.

Xoma's stock (NASDAQ:XOMA) closed Friday at $3.937, up $0.187.

Shares are being held in an escrow account until sold by the buyers, anytime within the next three years. The investors are also receiving five-year warrants to purchase up to 240,000 shares of Xoma common stock at the 60 percent premium.

"We are anticipating that, within the next six months, our stock price will rise significantly because we will have a string of - hopefully - good news that should affect the stock price," said Martin. "We and the investors felt there was a reasonable chance the price would go upward at least to that amount."

Deal Not Without Trade-Offs

Martin noted some trade-offs in the deal.

"We're in a position of needing cash to load up our treasure chest, and we also wanted to be in the position of possibly benefiting if the price does go up," she said. "But we also made arrangements if, down the road, the price doesn't go up."

Beginning Aug. 31, the number of shares remaining in the escrow account may be adjusted at 90-day intervals, based on an 11 percent discount from the prevailing market price at that time. In other words, if the price doesn't go up, investors can get more shares for their investment.

The decision to work with two institutional investors was intended to "keep the dilution to a minimum," Martin said. "Essentially, we're betting the price will go up. It's not an easy time to raise money, and we didn't want to have to offer significant discounts to get investors and dilute shares in an up-front deal."

The two investors are Advantage Fund II Ltd., of the British Virgin Islands, and Koche Investment Group Ltd., of Wilmington, Del. CIBC Oppenheimer of New York, served as an advisor to Xoma.

The financing will be used to fund development of Xoma's drug development platform based on the bactericidal/permeability-increasing protein (BPI), a human host-defense protein with multiple anti-infective properties. Xoma's lead BPI drug, Neuprex, is in Phase III trials for meningococcemia and hemorrhage/trauma. Neuprex kills bacteria, enhances antibiotics, and binds and neutralizes endotoxin, a poisonous molecule produced in the cell walls of Gram-negative bacteria.

The trials for Neuprex are testing it against meningococcemia, a rare but deadly blood-borne bacterial infection that strikes children. So far, 340 patients are enrolled and the company is in talks with the FDA's Data Safety Monitoring Board. Xoma expects the trial to end in a few weeks and expects to file for marketing clearance by the end of this year. (See BioWorld Today, Sept. 25, 1997, p. 1.)

Interim results from the second indication are expected by the second quarter, with an FDA filing "more or less around December," Martin said. The trauma trial, being conducted at more than 40 sites, will enroll 1,650 patients, who receive at least two units of blood as a result of blunt or penetrating trauma. (See BioWorld Today, Nov. 6, 1997, p. 1.)

The company's partnership with Genentech Inc., of South San Francisco, resulted in a $2 million milestone payment to Xoma earlier this month based on the successful completion of its Phase II study with hu1124 antibody product for psoriasis. Results from the study will be presented later in an appropriate scientific forum, Xoma said. The hu1124 product is a humanized antibody, engineered to block binding to the CD11a receptor on T cells, thus inhibiting their activation and migration.

In addition, Xoma has I-PREX, a topical BPI-derived product, in late preclinical trials, and the company is "pretty far down the talking road" with potential partners, Martin said. Xoma believes that I-PREX's antibacterial and anti-angiogenic properties may be useful in treating eye infections, while preventing the associated growth of new blood vessels into the cornea, which can impair vision.

Xoma and Vector Securities International Inc., of Deerfield, Ill., are on the road together, meeting with potential licensing partners for the Mycoprex antifungal peptide program. Mycoprex is a well-tolerated fungicidal compound for systemic fungicidal infections, Martin said, and the company is meeting with "a good response. It has a unique method of action and it's stirring a lot of interest." n

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