By Frances Bishopp

Xoma Corp. has reported a $12.5 million private financing in the form of 5 percent convertible preferred stock and, as part of the deal, another $12.5 million in the form of a commitment by investors, which can be drawn down at Xoma's option, subject to certain conditions.

The principal investors include: Southbrook International Investments Ltd., HBK Investments L.P., of Dallas, the Brown Simpson Strategic Growth Fund L.P., of New York, and an affiliate of Credit Suisse First Boston, New York.

Brown Simpson Asset Management L.L.C. served as advisor to the investors in connection with the transaction. Shipley Raidy Capital Partners L.P. acted as the placement agent on behalf of Xoma.

Conversions to common stock will be based on the price of Xoma common stock at the time of conversion. There will be no discount on the initial price, but a discount of 2 percent will be added for each month the preferred stock is held, up to a maximum discount of 12 percent, Peter Davis, chief financial officer at Xoma, told BioWorld Today.

No conversions will be permitted below a price of $7.80 for the first 60 days. The maximum conversion price for the first six months is $9.10.

There are certain restrictions on the volume of sales of underlying common stock by the investors, who also received three-year warrants to purchase up to a total of 432,000 shares at a price of $10.

The additional funding commitment also provides for limits on conversion price and trading and additional warrants, all based on the market price of Xoma common stock at the time the funding is provided.

Xoma's stock (NASDA:XOMA) closed Tuesday at $6.5625, down $.0625.

The structure of the deal, Davis said, is based on a future conversion price rather the current conversion price, which enables the company to capture some benefit in the event of favorable future clinical or other developments.

Davis said Xoma set a floor for the first 60 days in case of a negative reaction to the financing, which would eliminate the risk that the financing itself could drive down the stock price. Davis indicated Xoma's last financing in September 1996, which raised $15 million, had been negatively impacted in such a manner.

"Prior to that financing, our experiences had all been good, so you never know. But we have some good developments coming in the next several months, and if those happen, we would be able to take advantage of that with the conversion price," Davis said.

Xoma, of Berkeley, Calif., focuses on development of pharmaceutical products derived from bactericidal/permeability-increasing protein (BPI). BPI is a host-defense protein that kills bacteria, binds to, neutralizes and accelerates clearance of endotoxin (a poisonous component of gram-negative bacteria), enhances the effectiveness of many antibiotics and inhibits angiogenesis.

BPI appears to act by punching holes in bacterial cell walls, then binding and neutralizing endotoxin.

Xoma's lead product, Neuprex (rBPI), is currently in Phase III clinical trials for children with severe meningococcemia, a potentially deadly infection. The drug is used in association with antibiotics to treat the infection. Davis said the company hopes to begin a second Phase III trial of Neuprex for hemorrhagic trauma in the fall of this year.

In April 1997, Xoma and its partner Pfizer Inc., of New York, reported they would discontinue development of their E5 monoclonal antibody product as treatment for gram-negative sepsis when Phase III trial results did not meet predetermined efficacy criteria.

Xoma also has two other BPI-derived products, I-Prex, a topical ophthalmic formulation of rBPI, and Mycoprex, a BPI peptide antifungal product, both of which are in preclinical studies.

Xoma is also developing a humanized monoclonal antibody product, hu1124, with Genentech Inc., of South San Francisco, as a treatment for psoriasis and organ transplant rejection.

Xoma's burn rate is approximately $30 million per year, Davis said. The company's cash on hand currently is approximately $40 million. *