Xoma, Laboratoires Servier to Develop Diabetes Drug

Xoma Ltd., an unprofitable 30-year-old biotechnology company, will get an initial payment of $35 million and may earn as much as $800 million more from Les Laboratoires Servier to share development of a drug for diabetes and other disorders. Xoma rose 38 percent in Nasdaq trading.

Laboratoires Servier, France’s largest closely held drug company, will get worldwide rights to develop and market Xoma-052 for diabetes and cardiovascular disease, the companies said in a statement. Xoma, based in Berkeley, California, will retain rights for use in Behcet’s uveitis, a rare condition that inflames blood vessels in the eye and can cause blindness, and other inflammatory and oncology uses in the U.S. and Japan.

The deal gives Xoma an experienced partner that is able to fund development of the drug for multiple purposes, said Steven B. Engle, Xoma’s chairman and chief executive officer. Xoma also has the option to buy back rights to the drug for diabetes and cardiovascular disease. If those rights are bought back, the milestone payments could reach $470 million.

“We won’t have to spend our money,” Engle said in a telephone interview yesterday. “They’re spending their money and we can focus on what we want to focus on. We gain a seasoned partner to help ensure the success of the drug.”

The drug is designed to inhibit a protein, IL-1, which may play a role in triggering inflammation in diabetes, rheumatoid arthritis and other diseases that cause the body’s immune system to attack itself.

Xoma rose $2.01, or 38 percent, to $7.31 at 4 p.m. New York time in Nasdaq Stock Market composite trading. The shares declined 49 percent in the 12 months before today.

Under the terms of the agreement, Neuilly-sur-Seine-based Laboratoires Servier will pay for the first $50 million, and then half of additional development costs for Bechet’s uveitis, Engle said. Xoma has the right to market the drug for uveitis in the U.S. and Japan while Servier will be able to sell it for that condition in Europe and the rest of the world.