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Xoma to stop testing drug as arthritis treatment; shares plunge

By Vrinda Manocha

(Reuters) - United States drug developer Xoma Corp said it would not proceed with late-stage studies of its lead drug, an antibody called gevokizumab, as a treatment for a form of arthritis of the hand after two mid-stage studies showed the drug was not effective enough.

With one estimate of potential lost sales running to $1 billion, the company's shares slid about 22 percent to $7.34 after the bell on Tuesday. Xoma also reported a larger-than-expected loss in the fourth quarter, citing higher research and development expenses.

The study results are a blow to California-based Xoma, founded in 2011, as it seeks to brings its first drug to market.

Speaking to analysts in a conference call, chief executive John Varian also said Xoma is no longer pursuing the study of the drug as a broad treatment for acne. Instead, the company would focus on treating a smaller group of skin disorders which had acne as a symptom, Varian said.

The disorders, known as neutrophilic dermatoses, would command similar pricing as the other conditions gevokizumab was being tested for, Xoma's CEO said, as opposed to the broader treatment for acne, which would not generate enough revenue.

Gevokizumab is an antibody which binds to a protein that causes inflammation, and modulates the signaling between cells that causes inflammation. Potential sales of the compound to treat arthritis would have been significant.

MLV & Co analyst Graig Suvannavejh said treatment of erosive osteoarthritis (EOA) of the hand would have been the largest revenue opportunity for gevokizumab. "The failure to work in EOA is a big disappointment," he said. "I had forecast sales at about $1 billion."

SKIN DISEASE POTENTIAL

Xoma said it would now focus on starting late-stage development of the drug to treat pyoderma gangrenosum (PG), a rare skin disease, and on completing late-stage studies of the drug as a treatment for an eye disease known as non-infectious uveitis.

Wedbush analyst Liana Moussatos said the market opportunity for gevokizumab remained intact, even after removing acne and arthritis from its potential uses.

"The company said there were 100,000 patients in the United States for neutrophilic dermatoses, and with premium orphan drug pricing, they could make up for the loss of acne and EOA," she said.

The mid-stage studies in EOA patients compared gevokizumab with a placebo and assessed whether the drug improved pain, stiffness and physical function in the hand when injected once a month.

The company said patients given the placebo showed a greater improvement than patients treated with the drug in the final three months of one of the studies. Xoma said its analyses of the study did not show a significant drug-related benefit even after six months.

Data from a second study showed weaker results than the first study after 84 days of treatment.

The company said the drug was well-tolerated and there were no serious side-effects. Common side-effects, including headache, pain and urinary tract infections, were comparable between patients who used gevokizumab and those on placebo.

The company said it would review data from the mid-stage studies to determine if there were some patients who responded to the drug, before it starts additional studies in patients with erosive osteoarthritis of the hand.

The company's shares closed at $9.44 on Tuesday on the Nasdaq.

(Reporting By Vrinda Manocha in Bangalore; Editing by Saumyadeb Chakrabarty and Kenneth Maxwell)

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