XOMA’s Hijack Financing On News (XOMA)

XOMA Ltd. (NASDAQ: XOMA) has seen shares on a tear yesterday and then again this morning. It was late yesterday that the company said it would also be entitled to royalties from its partner’s approval for CIMZIA after an approval indication for rheumatoid arthritis.  And it was just this morning that the company announced a collaboration with Zymeworks for an antibody research program.  Now, the company announced that it is raising about $10 million, via a share sale.

The company has entered into a definitive agreement with an institutional investor to sell 11,764,706 units.  Each unit will consist of 1 share of common stock and 1 warrant to purchase a half-share (0.5 shares, or 5,882,353 common shares in total).  The gross proceeds will generate roughly $10 million before placement fees.  This was also listed as a ‘registered direct’ offering.

Xoma noted that the investor has agreed to purchase the units at a purchase price of $0.85 per unit. The warrants will be exercisable at any time on or after May 15, 2009 and prior to the fifth anniversary of the closing of the transaction at an exercise price of $1.02 per share.  That is listed as 120% of the closing price yesterday.  Canaccord Adams Inc. acted as placement agent for the offering.

The good news is that the company was able to raise cash.  The bad news is that did it within about 16 hours of two press releases that lured investors in.  There is always a risk that any financing in any small cap biotechs and molecule companies that this can occur.  It depends on which side of the fence you are on when determining if you support it or not, but this looks like a hijack financing where you get sucked in only for the benefit of others.

Despite the term “hijack financing,” not all of these end up being bad nor do they necessarily bring on adverse moves.  We have now seen 11.7 million shares trade hands between the first ten minutes and the pre-market session.  Shares are up 17% at $1.00, but shares were up much more than this before the news came out.

Jon C. Ogg
May 15, 2009