Shares of Xoma Corp. (NASDAQ:XOMA) leapt to life Thursday, climbing 43.7 percent to close at $1.08 after the company struck an exclusive licensing deal with Novartis AG that could carry up to $517 million in rewards, plus royalties. The agreement gives Novartis rights and full responsibility for development of Xoma's anti-transforming growth factor-beta antibody program with potential to address advanced metastatic cancer and fibrosis.

The arrangement secures fresh funding for the Berkeley, Calif.-based company's endocrine pipeline, its chief focus after setbacks with former lead candidate gevokizumab decimated company shares in July, eventually leading its Paris-based partner Les Laboratoires Servier SA to decide to return full rights to the program to Xoma. The partners said Thursday that they're working to close down all sites for their EYEGUARD-A and EYEGUARD-C trials early in as orderly a manner as possible while trying to protect data from the studies for future use, just in case something positive is found. Meanwhile, Xoma is also carrying on with its phase III studies of gevokizumab in pyoderma gangrenosum. (See BioWorld Today, July 23, 2015.)

The July day when Xoma shared data from the failed phase III trial of gevokizumab in the rare eye disease Behçet's uveitis, sending its shares down 77.3 percent, felt like a bit like the end of the world, Xoma CEO John Varian told BioWorld Today. But "underneath everything, there's always been really good science at Xoma," something that the company has constantly invested in during his tenure, he said. Because of that, the company was well positioned with licensable candidates capable of providing the capital to support its work in the endocrine space, he said.

Novartis paid Xoma $37 million up front for its new license to the TGF beta program, pledging another $480 million in potential payments should every development, regulatory and commercial milestone be met. Xoma is also eligible to receive tiered royalties on product sales that range from a mid-single digit percentage rate to up to a low-double digit rate. Furthermore, the arrangement reduced the royalty rates that Novartis would be obliged to pay Xoma if any of the anti-CD40 antibodies in the Basel, Switzerland-based company's pipeline come to market.

The royalties are tiered based on sales levels and now range from a mid-single digit percentage rate to up to a low-double digit percentage rate. Finally, the deal granted Xoma a five-year extension of an obligation to repay $13.5 million of long-standing debt owed Novartis.

Cowen & Co. analyst Phil Nadeau notes that the anti-TGF-beta antibody program has already produced a lead candidate, XOMA-089, a fully human, high-affinity monoclonal antibody that neutralizes TGF beta 1 and 2 while sparing TGF beta 3. "Thus far, the antibody has produced promising anti-tumor activity in preclinical models of head, neck and breast cancer. Moreover, the molecule has shown synergistic activity with PD1 inhibition, suggesting a role for '089 in the growing immuno-oncology market," he wrote Thursday.

The deal is part of an ongoing drive to focus Xoma's efforts wholly in endocrinology, an effort that put the oncology-focused TGF-beta into the category of assets that the company was looking to partner along with at least one more asset: its XmetA program, which the company would like to license in type 2 diabetes.

"There's a great benefit to having a therapeutic focus in the discovery phase and the development phase," Varian said. "Obviously, at the end, if you have several different products that you can sell to the endocrinologists, that puts you in a much stronger position."

The leading assets in the company's endocrinology portfolio are XOMA-358, a fully human monoclonal antibody with a long half-life that binds to the human insulin receptor and attenuates insulin action. It's being developed as a potential treatment for two rare conditions, congenital hyperinsulinism and post-bariatric surgery hyperinsulinism, and is due to enter phase II testing this quarter. The preclinical candidate XOMA-129, another top priority for the company, is a fragment of '358. It's a short-acting agent with the potential to be used for acute overdose of insulin or nocturnal hypoglycemia, which is coming to be thought of as a fairly big issue because it can lead to cardiovascular issues.

The company is advancing XOMA-213, another phase II-ready program, for the potential treatment of prolactinomas, benign tumors that can lead to excess lactation. Xoma discovered the first-in-class allosteric inhibitor of prolactin action (formerly LFA 102), a program it has explored with Novartis and eventually reclaimed from the company. XOMA-159, a product of the XmetA program that the company is looking to develop for inherited receptoropathies. Finally, Xoma has two earlier preclinical programs, Anti-PTHr and Anti-ACTH, aimed at therapies for the treatment of hyperparathyroidism and Cushing's disease.