XOMA Stock Plunges 25% on Partner's Failed Drug Trial
Rezolute's clinical trial failure for diabetes drug ersodetug erases a potential key royalty stream for XOMA, highlighting the risks of its biotech financing model.
Shares of XOMA Corp. (NASDAQ: XOMA) cratered in Thursday trading, losing a quarter of their value after the company’s partner, Rezolute Inc. (NASDAQ: RZLT), announced a significant clinical trial failure.
XOMA’s stock fell by as much as 25%, closing down 24.9% at $25.79 after its partner’s lead drug candidate, ersodetug, failed to meet its primary endpoint in a pivotal Phase 3 study. Rezolute’s own shares were decimated, plummeting nearly 88% to $1.31 on the news. The dramatic sell-off underscores the inherent risks in XOMA’s business model, which is focused on acquiring royalty rights to experimental drugs.
The failed study, known as the RIZE trial, was evaluating ersodetug as a potential treatment for congenital hyperinsulinism, a rare pediatric disease that causes dangerously low blood sugar. The failure is a direct blow to XOMA, which holds a royalty interest in the drug’s future sales. The negative trial data effectively wipes out a promising, near-term revenue source for the royalty finance company.
According to a report from Benzinga, the market's reaction reflects the direct financial link between the two companies. XOMA operates as a biotech royalty aggregator, a specialized financing model where the company provides capital to drug developers in exchange for a percentage of future revenue from their medicines. When a partnered drug succeeds, XOMA stands to collect passive income for years. However, when a drug fails in late-stage development, as ersodetug did, the investment and its potential future value are lost.
The sharp decline in XOMA’s shares reflects the high-stakes nature of biotechnology investing, where fortunes can change overnight based on clinical data. For XOMA, today's event highlights the vulnerability of its portfolio to the binary outcomes of its partners' research and development efforts. While the company holds a diversified portfolio of dozens of other royalty assets, the size of the market reaction suggests that the ersodetug program was a significant and closely watched component for investors.
Before the precipitous drop, XOMA's market capitalization stood at over $500 million, which has now been revised to approximately $377 million. The company's strategy is designed to mitigate risk by spreading bets across many different assets and therapeutic areas. However, the severity of the stock's decline indicates that investors had priced in a significant probability of success for Rezolute's drug. Investors will now be closely scrutinizing the rest of XOMA's portfolio and its strategy for deploying capital in the wake of this major setback.