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Xoma Comes Alive! (With Help From Pfizer)

Tuesday, 28 Aug 2007 | 1:17 PM ET

Xoma Ltd., the subject of a prominent, front page New York Times Sunday Business section article earlier this year headlined, "It's Alive! One of Biotech's Zombies", is leaving the Zombies behind. The shares of the small cap are up more than 20% on heavy volume.

The Times piece described how the 26-year-old company had yet to turn a profit (the overwhelming majority of biotechs don't make money), had burned through nearly three-quarters of a billion dollars and was "a case study of unfulfilled promise in the biotech business."

Coincidentally, the next morning I was covering the Biotechnology Industry Organization's (BIO) CEO conference and was able to snag a live interview with Xoma's Chief Financial Officer who, as you might guess, strongly disagreed with the article's characterization.

Well, today the company is answering the critics again by announcing that it's hooking up with Pfizer on something called BCE (bacterial cell expression) technology. PFE is giving Xoma $30 million cash up front. That's chump change for the world's biggest drug company, but material to a tiny, cash-hungry biotech. Pfizer will also pay Xoma milestone, royalty and "other fees" on future sales of all products that might come to fruition using BCE. In the press release Xoma describes BCE as "a seminal enabling technology in antibody discovery and production."

In a research note to clients this morning, Rodman & Renshaw senior biotech analyst Mike King reiterates his market outperform rating on Xoma and his 12-month price target of $5. He also points out that, "The recent huge increase in short interest (investors betting the stock price will go down) should provide upward support to the stock as the short interest gets covered. We also believe today's announcement should help XOMA reach its previously stated goal of profitability by 2009."

R&R may make a market in the stock and people who work there may own it.

Questions? Comments? Pharma@cnbc.com

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