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XOMA Ltd. (NASDAQ:XOMA)

Q2 2009 Earnings Call Transcript

August 6, 2009 4:30 am ET

Executives

Carol DeGuzman – IR

Steve Engle – Chairman and CEO

Fred Kurland – VP, Finance and CFO

Alan Solinger – VP, Clinical Immunology

Analysts

Liana Moussatos – Wedbush

Matt Kaplan – Ladenburg

Aaron Lindberg – William Smith & Company

Adnan [ph] – RBC Capital Markets

Operator

Good day, everyone, welcome to today's XOMA second quarter 2009 earnings conference call. Today's program is being recorded. At this time, I would like to turn things over to your host, Ms. Carol DeGuzman. Please go ahead ma'am.

Carol DeGuzman

Thank you, operator. Good afternoon and welcome to XOMA’s quarterly conference call. A short while ago, XOMA filed its quarterly report on Form 10-Q with the SEC for the quarter ended June 30, 2009, and issued a news release of the quarterly financials. Each document is available on our website, xoma.com. Today's webcast can be accessed via the website and will be available for replay until the close of business on November 6, 2009. A telephone replay will be available beginning later this afternoon until the close of business on August 13. Access numbers for the replay are listed in the news release we issued this afternoon. Leading today’s call will be Steven Engle, Chairman and Chief Executive Officer, and Fred Kurland, Chief Financial Officer. Also joining us today is Dr. Alan Solinger, our Vice President of Clinical Immunology.

We wish to remind all listeners that certain statements made on the call today will be forward-looking. We had based those statements on assumptions that may not prove to be accurate. XOMA’s actual results could differ materially from those we anticipate due to risks inherent in the biotechnology industry, as well as for companies engaged in product development in a regulated market. These risks, including the success of our existing collaborations, the marketing and sales efforts for LUCENTIS and CIMZIA, our ability to enter into additional arrangements, the size and timing of expenditures, our ability to remain in compliance with or renegotiate the requirements of our loan agreements, the timing of clinical trials and other events, changes in our collaborative relationships and actions by the Food and Drug Administration, international drug regulatory bodies and the U.S. Patent and Trademark Office, are discussed in XOMA’s Form 10-K for 2008 and in other SEC filings. Please consider such risks carefully before making any investment decisions.

I will now turn the call over to Steve Engle, XOMA's Chairman and CEO.

Steve Engle

Thank you, Carol. Good afternoon, everyone. Thank you for joining our call today. Earlier today we issued second quarter 2009 earnings press release reporting the progress we have made with our XOMA 052 program as well as our financial results. This afternoon I want to highlight our progress in achieving our corporate goals and the clinical progress we have made with our 052 program. I will also discuss our success in reducing costs earlier this year, which have reduced the cash burn rate and increased our corporate focus on XOMA 052. Fred Kurland, our Chief Financial Officer, will then detail second quarter 2009 financial results. Following that, Alan Solinger, our Vice President of Clinical Immunology, will discuss in more detail the XOMA 052 program, and afterwards we will open up the call for Q&A.

It was just last fall that we stood in front of a packed lecture hall in Rome and presented the first human results for an IL-1 beta antibody in type II diabetes. More recently, we have provided additional results from our phase 1 program and have expanded the scope of our program to include cardiovascular disease. We have been pleased with the results today. Rarely has a biotechnology gained as much illuminating biological data during a phase 1 trial. As you know, in June and July, we announced additional phase I results from our lead product candidate, XOMA 052, that continued to provide validation for targeting information as the cause of cardiometabolic diseases, including type II diabetes and cardiovascular diseases. Together, the preclinical data and clinical results we have reported from our phase I studies support one of the most potentially significant medical advances in diabetes and cardiovascular disease in decades, a treatment addressing the inflammatory cause of these diseases.

Further XOMA 052 has the potential to be a first in class approach for type II diabetes and cardiovascular disease with monthly or less frequent dosing. Interleukin 1 beta, the target of the XOMA 052 is an extensively studied cytokine which has been shown in hundreds of human studies and thousands of animal studies to play an important role in both local and systemic information in a number of diseases, including diabetes and cardiovascular disease. IL-1 beta was first described back in 1977 and its role in the pathogenesis of type II diabetes was initially described in 1986, more than 20 years ago. The first commercially available IL-1 targeting agent Kineret developed by Amgen was approved in 2001 for the treatment of rheumatoid arthritis. Since then, two other IL-1 targeting agents have been approved, Arcalyst, the Regeneron IL-1 trap drug approved for a group of orphan indications known as CAPS, and Ilaris, an IL-1 beta targeting antibody from Novartis, which was just approved by the FDA for a similar indication.

Since the original Kineret approval, we estimate more than 100,000 patients have been treated with IL-1 targeting agents. We believe the approval of these three drugs that use the IL-1 targeting approach increases the probability that XOMA 052 may also be approved assuming additional testing in more patients over longer periods of time provides the necessary support. In 2007, Dr. Marc Donath and colleagues published a seminal paper in the New England Journal of Medicine demonstrating that Kineret improves several diabetes and inflammatory markers in type II diabetes patients. Just a couple months ago, he and his colleagues published a follow-up to the study, which reported that 39 weeks after patients had stopped Kineret treatment, many of these markers remain improved.

This study as well as a series of four studies or reports in an editorial on IL-1 appeared in the June 4 New England Journal of Medicine and all of the literature that has come before it clearly points to the unique role of IL-1 in information and in diabetes and its cardiovascular complications. It is with this as a background that we chose to focus XOMA's efforts on XOMA 052 and IL-1 beta targeting antibody developed here at XOMA, and for which we had US patent protection into 2027. Our initial focus has been on type II diabetes as the literature clearly shows that IL-1 beta acts directly on the beta cells in the pancreas to affect insulin production.

Further, it is well known that overproduction of IL-1 beta sets up an autocrine loop in which too much IL-1 beta is produced resulting in less insulin. This in turn leads to more IL-1 beta production, which ultimately affects the number and the viability of the beta cells. The impact of this autocrine loop is a reduction in glucose control in the body and the development of type II diabetes. The biological activities demonstrated so far with XOMA 052 in our phase 1 clinical trial and in animal testing supports the potential for XOMA 052 to break the vicious cycle of IL-1 beta overproduction and declining beta cell function. In the phase I results reported last month, we saw reductions in hemoglobin A1c, the standard diabetes measurement for glucose control over two to three months of up to 0.6% using a very low dose of XOMA 052 given three times over four weeks.

The A1c reduction persisted long after treatment had ended and was accompanied by clinically significant reductions in fasting blood glucose, which measures blood glucose at a single point in time. The 0.6% reduction in A1c is clinically meaningful and also relevant from a regulatory perspective because it is in that range that most new type II diabetes medications achieve after six months of drug exposure and which was the primary basis for their initial approval. In fact the newest approved diabetes drug saxagliptin from AstraZeneca and Bristol was approved last week for use as a single agent based in a 0.4% to 0.5% reduction in A1c.

We are of course very excited about the results we have seen in type II diabetes, which affects more than 23 million Americans and is growing at an alarming rate. We're equally excited about the potential for XOMA 052 to address the inflammatory caused cardiovascular disease, which is an even bigger problem that affects 80 million Americans and which is the leading cause of death in this country. It is well accepted the chronic inflammation plays a central role in the development and progression of cardiovascular disease. IL-1 beta is a key mediator of information and has been shown to play a direct role in arterial plaque initiation, progression, rupture and resulting thrombosis. It also has been implicated in a wide range of other cardiovascular conditions.

IL-1 beta is a key inducer of CRP, which is widely accepted as the primary marker of cardiovascular risk. The Jupiter study published not long ago involved nearly 18,000 subjects and demonstrated that reducing levels of CRP was associated with highly significant cardiovascular benefit. The results seen in our phase 1 trials, which Alan will discuss shortly, provide a strong national for further exploring the role of XOMA 052 in cardiovascular disease. We're planning more extensive assessments of cardiovascular outcomes in our phase II programs, which will include both type II diabetes and cardiovascular disease patients.

Treating type II diabetes and cardiovascular disease with a potentially disease modifying anti-inflammatory therapy represents a large opportunity for patients and for XOMA. With the results from our phase 1 trials in hand, we are continuing to discuss a corporate partnership with several major pharmaceutical companies that have the strength in worldwide development and in marketing to maximize the value of the significant and multiple potential indications for XOMA 052 around the world and to offset our development costs. We expect to enter into a partnership in 2009.

I would like to spend some time now highlighting the important results of our efforts to conserve – preserve cash. In late 2008, we decided to delay the clinical development of our other candidates and of several smaller indications of XOMA 052 in favor of focusing exclusively on type II diabetes and cardiovascular diseases. In January 2009, we implemented additional cost cutting measures including a reduction in expenditures, primarily in manufacturing and associated general and administrative support and multiple cost control initiatives. As evidenced by our results this quarter, these measures have been very effective. Our net loss was 10,200,000 or $0.07 per share compared to a net loss of 20,700,000 or $0.16 per share in the second quarter of 2008.

Our operating expenses have decreased from 29.9 million in the second quarter of 2008 to 19.5 million for 2Q09. These reductions are important for us as we work to weather the economic storm of the last several months and emerge at the other end and position to continue work on 052 and other programs. In addition to implementing programs designed to save money, we are also generating revenues and pursuing partnerships and collaborations from our intellectual property and antibody development and manufacturing capabilities. As reported, our multiple sources of revenue, collaborations, royalties and licensings continue to make XOMA fairly unique among smaller therapeutic biotechnology companies because they we can enable other companies and government agencies to develop their own antibody therapeutics.

As seen in the financial results, these collaborations provide us with non dilutive cash and are also a source of potential milestone and royalty payments and they remain an important part of our business. An example of the importance of our outstanding activities is UCB's CIMZIA. In May UCB announced that CIMZIA which uses bacterial cell expression technology licensed from XOMA was approved in the US to treat adult, moderate to severe rheumatoid arthritis. This new indication is much wider than Crohn's Disease, the original indication for which CIMZIA was approved. We received royalties from CIMZIA. Among other products in development to use our technology is tanezumab, a phase III drug candidate from Pfizer under development for the treatment of pain due to osteoarthritis.

In another example, last week we announced that we secured a $1.7 million government subcontract to produce novel antibody drugs against the virus that causes severe acute respiratory syndrome or SARS. The subcontract adds to our other contracts with the government, including our ongoing $65 million contract and project to develop anti-botulism antibodies with the goal of entering into a long-term manufacturing and stockpiling contract. For the remainder of 2009, our priorities are to establish a partnership agreement for the development and commercialization of XOMA 052, commence the phase II development program for XOMA 052 in type II diabetes, and cardiovascular disease in the third quarter, provide preliminary top line results from the phase 1 European trial of XOMA 052 this quarter, present XOMA 052 clinical and preclinical results at major medical conferences including the IDF meeting in September at the EASD medical meeting in October and pursue additional licenses and alliances utilizing XOMA's broad antibody technologies and expertise.

We look forward to keeping you abreast of our progress. I will now turn over the call to Fred Kurland, who will quickly recap financials and then Alan Solinger will detail XOMA 052 data. Fred?

Fred Kurland

Thanks Steve and welcome everybody to our conference call. We released XOMA second quarter 2009 financial results and filed the 10-q earlier today. Those are available to you on our website and on the SEC's website. On the call today, I will discuss what I think is most helpful in understanding our current status and future prospects including guidance for the remainder of 2009.

XOMA's revenues for the second quarter of this year were 9.7 million with a loss of 10.2 million or $0.07 per share compared with 11.1 million in revenues and a net loss of 20.7 million or $0.16 a share in last year's second quarter. The decrease in revenue is due to decrease in royalty revenue associated with Raptiva sales, partially offset by a higher contract revenue and higher royalties from LUCENTIS sales.

Royalty revenue decreased to $2 million in the 2009 second quarter compared with 5.3 million in the second quarter of 2008, as a result once again of reduced Raptiva sales. Our expenses in the 2009 second quarter, research and development expenses were 13.5 million, a reduction of 10 million compared to the 2008 second quarter, which reflects our restructuring to focus on the development of XOMA 052 in type II diabetes and cardiovascular disease, and deferral of certain other research activities, including a $3.6 million decrease in compensation expenses. In the 2009 second quarter, general and administrative expenses were 5.7 million compared to last year's second quarter of 6.4 million. Interest expense was $1.7 million in this year's second quarter compared with last year's of 2.2 million. Other income was $1.1 million in the second quarter of this year compared to a negligible amount last year.

In this most recent quarter, second quarter of 2009, the warrants we issued in connection with two registered direct equity sales were recorded as a liability at fair market value at their issuance dates. The subsequent $1 million increase in the fair value of this liability was recorded as other income. I mentioned this specifically to make you aware that the warranty liability will be revalued each quarter. At June 30 of 2009, XOMA had a $42 million outstanding balance and principal due on its loan from Goldman Sachs. I would also like to point out that we have a restricted cash account dedicated to the payment of interest and principal of this loan, which had a balance of 6.1 million at June 30 of 2009.

XOMA also has a $13.1 million long-term debt in the form of a loan from Novartis that is due in a lump sum in the year 2015. Although the current economic environment is challenging for everyone, it would have been a bit more manageable for us had we had not to deal with the unexpected voluntary withdrawal of Raptiva from the US market. As a result of this action, the outstanding principal balance of the Goldman loan is classified as a current obligation as of June 30 of this year. And as previously disclosed, XOMA is in discussions with Goldman Sachs to restructure the long terms. We're pleased with the progress in our discussions so far and continue to believe that both sides remain incentivized to arrive at a resolution that is satisfactory to all. The process has taken longer than we would have liked but it is not impeding our corporate progress. We feel the extra time is necessary to make sure that the documentation of the agreement is complete and accurate. We wish we could say more about this but cannot until an agreement is completed.

And some indication however that we are making progress, I note that none of the proceeds of our two recent equity financing totaling $22 million have gone to pay down the Goldman loan. Cash, cash equivalents and short-term investments at June 30, 2009 were 27.6 million compared with 10.8 million at the end of 2008. For the first half of 2009, net cash provided by operating activities was 1.4 million, primarily reflecting the 23.2 million cash inflow from Takeda in the first quarter on a technology license. We compare this to net cash used in operating activities of 26.4 million in the first half of 2008. As previously stated, we are not providing guidance on revenues or cash receipts for 2009 so as to best manage our ongoing negotiations for XOMA 052 and technology licensing in the light of general economic and market conditions. We do expect that cash used in operating activities may range from a low of 15 million cash used to cash neutral and positive. This guidance is unchanged from the last time we spoke with you which was a quarter ago and does not include cash from royalty payments.

I will now turn the call over to Alan Solinger to discuss more detail about the XOMA 052 program. Alan?

Alan Solinger

Thanks Fred. I would like to begin by touching on the take-home messages from the successful XOMA 052 clinical program so far. The program includes two trials, one in the US, and another in Switzerland. We enrolled 98 patients, including 81 on active drugs, 17 on placebo. Of the programs to date, we have gained an enormous amount of information over and above the expected pharmacokinetic and safety data usually seen in an initial phase 1 study and we believe the data provides a strong foundation for advancing XOMA 052 to phase II testing which we plan to initiate this quarter.

A few weeks ago, we announced the top line US phase 1 results for XOMA 052 in the treatment of type II diabetes. For the first time, we provided data using a subcutaneous route of administration instead of intravenous, and this is important as we move forward towards commercialization. We provided a very detailed analysis of our US phase 1 trial results in a conference call last month which most of you today likely attended. So I will focus on the important high-level results and implications.

In announcing our US trial results, we focused on those patients who had received three biweekly doses of either 0.03 milligrams per kilogram of XOMA 052 or 0.3 milligrams per kilogram of XOMA 052 over the course of four weeks. Those results were the most for informing on the design of our phase II program for XOMA 052 in type II diabetes. It is important to point out that we have seen a reduced impact on type II diabetes specific biomarkers like hemoglobin A1c with larger doses of XOMA 052. We believe that there are several issues relevant to this finding.

First, we are dealing with a very potent candidate drug with an excellent safety profile over a two to three log dose range. This is not seen in many drugs on the market or in development. With our profile, we are yet to reach a maximum tolerated dose, that is the limiting factor in most early drug development. Therefore, we likely need a very low dose in the range of 0.03 milligrams per kilogram, which translates into a total dose of 3 milligrams in 100 kg patient. This leaves XOMA with at least a one log or tenfold range of dosing at a once a month or less frequent schedule and still get optimal clinical activity. This dose range is broader than that seen with most marketed biologics and pharmaceuticals currently used.

Another aspect is that the unique set of biological activities of XOMA 052 is not shared by any of the current diabetes drugs on the market nor is the combination of beneficial effects. The anti-inflammatory aspect of the improved beta cell function and mitigating the cardiovascular complications of diabetes, the improved liver or hepatic insulin sensitivity seen in our phase 1 study, or the potential benefit effects on muscle and adipose or fat tissue insulin sensitivity. These aspects of the pathology of diabetes may have different time courses which will need longer observation in later studies to see the full beneficial effects like the six-months needed for the current diabetes meds currently on the market and in development.

Do not forget that the full effect on hemoglobin A1c cannot be seen for at least 60 to 90 days after stable fasting or average glucose controls obtained as seen with the current clinical therapies in use. We only gave three versus in part three of our phase 1 study and still had a clinically significant improvement at four to eight weeks after the last dose, that is we have not reached steady state at that point. The greatest glycemic control data was observed in the 0.03 milligram per kilogram dose with every patient demonstrating improvement in hemoglobin A1c at day 56. Also those patients demonstrated a sustained reduction in fasting blood glucose of 27 milligram per deciliter at day 56 and 29 milligrams per deciliter at day 84. This of course will be further evaluated as we move further and move forward in our phase II program which will include monthly or less frequent dosing for longer duration than we had in our phase I trials.

On markers of inflammation, multidose treatment with XOMA 052 had an immediate effect on the levels of high sensitivity C-reactive protein which is a biomarker strongly associated with systemic inflammation and implicated as an excellent marker for cardiovascular disease. Also, there was a rapid and persistent reduction in the erythrocyte sedimentation rate or ESR which is an additional biomarker of systemic inflammation. The reduction in ESR rates was consistent with the result we got in C-reactive protein. Safety results continue to show that XOMA 052 appears to be well tolerated by single dose and multiple dose subcutaneous administration at the dose levels tested. Adverse events were generally mild and similar between the XOMA 052 and placebo groups. No maximum dose was identified based on safety.

The pharmacokinetic half-life of 23 days is typical for a good monoclonal antibody and consistent with monthly or less frequent dosing. Multiple dose bioavailability for the subcutaneous administration was an excellent 62%. The data continued to support our push to quickly advance into a phase II development program. We are on track to start the program this quarter. At the American Diabetes Association scientific session in June, we presented additional clinical results from the intravenous administration of XOMA 052 that built upon the data we previously presented from the US and Switzerland at the European Association for the study of diabetes conference in 2008.

While I won't go into the details here, I note that consistent reductions in hemoglobin A1c and C-reactive protein were observed out to the end of the 91 day study period. In the Swiss patients, specialized evaluations of insulin production and secretion demonstrated improvements in beta cell health that we view as very promising. Also at to the American Diabetes Association meeting, we presented preclinical data on a diet induced mice model of obesity. These data demonstrated statistically significant improvement in multiple measures of glycemic control, insulin secretion and beta cell function and proliferation, and the dyslipidemia for these 052 treated animals compared to control.

I will now turn the call back to Steve for closing comments.

Steve Engle

Thanks, an. Well first of all I would say that with that kind of results coming out of the trials, we are rationally very excited about things. With the multiple revenue streams, the world-class antibody discovery platform, and a growing pipeline featuring our anti IL-1 antibody with multiple indications, anti-inflammatory potential, we feel we are well-positioned for additional progress for the remainder of 2009 and beyond. We believe our initiatives to reduce spending and emphasize our promising programs will enable the company to continue moving in the right direction well beyond 2009. In the rest of the year, we anticipate successful execution on multiple levels and look forward to updating you on our progress in the future.

Carol DeGuzman

Operator, could you begin the Q&A?

Question-and-Answer Session

Operator

Certainly. (Operator instructions). We will go first to Liana Moussatos with Wedbush.

Liana Moussatos – Wedbush

Thank you. Can you talk a little bit about the design of the phase II trial and when do you think you will release data? And then second, can you describe the data coming up at EASD and the IDF meetings? You mentioned before there was going to be mechanistic data comparing XOMA 52 to maybe other anti-IL-1 treatments, and then finally were essentially all of the 1.975 million in royalties all LUCENTIS?

Steve Engle

Thank you, Liana. Let us see if we can work through (inaudible). So on the first one, as far as the 052 phase II program, as you know we just finished getting the results on the phase I program a few weeks ago, so we're still going through those results to make final determinations on dose regimens and so forth. Nonetheless we think in the next few weeks, that we will be announcing the full phase II program as we plan to do it, and we do expect to start the program before the end of the third quarter. So if you'll give us just a little bit of time, we do intend to do that, but we do not think we would do it on this phone call. There is a just a couple more things that need to be buttoned-down, if you will.

Liana Moussatos – Wedbush

Okay.

Steve Engle

And the second question, I'm sorry, if you could?

Liana Moussatos – Wedbush

Yes. Can you remind us of the data that is going to be presented at EASD and IDF? You had mentioned before mechanistic data comparing…

Steve Engle

Yes, right. So thanks. And yes we do intend saying much more about the mechanism of action of XOMA 052 at the EASD meeting and so when we get there, I'm sure there will be a press release and probably more to talk about. We think, I think everybody knows that those watching the story for a while, we already believe the drug has a higher binding affinity than the other drugs that we're aware of, that people are working on. However, and we think that it could turn into several things.

It could require us to, that could turn into not only smaller doses and therefore better ease of administration, but also in lower cost for our drugs. But in addition to that, we think there are differences in the mechanism of action and what we intend to do is to begin to talk about that at the ESD meeting. And then on the – obviously we're going to speak at the IDF meeting as well. And Alan, I don't know, do you know the topic? I think it is our general clinical results.

Alan Solinger

correct.

Steve Engle

For humans, so that we will be focusing in more tightly than we did with the top line reporting on the results. And then go ahead, Liana, the other question?

Liana Moussatos – Wedbush

The other question was your 1.975 million in royalties essentially on LUCENTIS?

Steve Engle

Right, so Fred can answer it.

Fred Kurland

Liana, the answer is yes, and even to emphasize the point, we reported certainly well after the first quarter results that they were – and I suppose this should be expected, more returns than we had been informed about concerning Raptiva. It turns out there therefore that the 1.9, almost $2 million in royalty revenue for the second quarter, understates the total amount of royalty revenue that we have for LUCENTIS which is about 2.8 million. And you will see the details of that in our 10-Q.

Liana Moussatos – Wedbush

All right, thank you very much.

Steve Engle

Thank you.

Operator

We will move next to Matt Kaplan with Ladenburg.

Matt Kaplan – Ladenburg

Hi. Thanks for taking the question.

Steve Engle

Good afternoon, Matt.

Matt Kaplan – Ladenburg

Just a follow up on one of Liana's questions in terms of, I understand you can't give us the complete details on the phase II development program in terms of the trial design, but notwithstanding that, can you give us a sense of the timing of the program in terms of when we could expect a read out on data there? And then two the quick questions in terms of, could you…

Steve Engle

Just, Matt, if I could, let me take them a little bit more one a time, I would be happy to go back and forth with you. So on this again, I have just got to right up front that we haven't determined everything, so it is kind of hard to go out there forecasting the end of the study when you haven't predetermined. But just to say a little bit more in general, which is that we do expect that there'll be both diabetes related studies as well as cardiovascular related studies. We think that there are some very relatively short-term studies that will be run as long as you – along with as we have described before, the usual large six-month type studies for diabetes with A1c as the primary endpoint. So all of those things are in there. What you're now down to is how fast the patients can enroll, and how many sites and so forth and so if you'll just give us a little bit more time, we will give you the targeting on that as soon as we go through it with the public. And I think we will be doing that shortly, but at any rate that is kind of what we know right now, and I think in general, you could say that, we do think that it would be reasonable amount of time relative to the kinds of studies we're talking about. We will go as fast as we can.

Matt Kaplan – Ladenburg

Fair enough. Just to be clear so there is going to be two, at least two studies, one cardiovascular, and one diabetes?

Steve Engle

Oh yes. At least. What I'm really saying to you is that there could be smaller studies on both the diabetes and the cardiovascular side, studies with an S, looking at lots of different things. We're intrigued with what kinds of results that we can pull out for different potential indications in the cardiovascular area and because of the way that IL-1 beta affects the different systems in the body, so as I was talking about a little bit my notes and, of course, Alan knows far more, IL-1 beta test directly involved with the initiation as well as the enlargement of plaque and then finally the rupturing. We also notice that it is involved with coagulation PTA and so forth.

We note that it up regulates the, if you will, the hooks on the inside of the blood vessels such as ICAM, VCAM things like this. So there are several different ways IL-1 can affect the cardiovascular system and we think we will be able to execute on more than two, let us put it that way, of the cardiovascular studies, as well as on the diabetes site looking at the maybe one or two small studies there as well as a large dose ranging type studies that we are all accustomed to. And just one other thing I can tell you that our intent in designing the dose ranging studies is of course to have that complete and if the results are as expected to move directly into a phase III type situation. So I hope that helps a little bit.

Matt Kaplan – Ladenburg

No, that is good. And that kind of leads me into my next question in terms of did you envision before I guess having all these studies up and running and having to sign off of a partner who I guess is probably going to help fund these studies?

Steve Engle

Yes, Matt. That is a great question, because we are always, given this current economic environment making trade-offs between having studies start where we are spending money versus controlling costs and maintaining the kind of run way and you have seen how we have done for the last six to nine months in trying to control costs and we've certainly made a big difference to our burn rate in that period of time. So we are concerned about that, we continue to focus on it very tightly, and that is one of the other elements that we are thinking through as we look at the studies that we want to bring up and running. So we're looking at those. You know, there are different answers from do everything to pick the smaller studies that you think will maximize information coming back to you and move on to the larger studies as you have additional funding. And of course, part of that equation no doubt is the timing of the partnership itself in a worldwide deal kind of arrangement.

Matt Kaplan – Ladenburg

And then last question, associated with the Goldman Sachs debt, could you help us understand in terms of what is a reasonable expectation in terms of getting all the paperwork done for that?

Steve Engle

Thanks. We didn't mean to make it into (inaudible) a couple of our situation. It really is just about as plain as it can be, what we're doing right now is almost. When we did the previous agreement with them, it was very, very limited in nature, very focused on just the royalties with LUCENTIS and Raptiva and CIMZIA, and no doubt this is a bigger agreement with these folks, and that at least I think to our minds explains the key issues here which is there is just a lot more writing and discussion about that writing going on. We hope to do it sooner than later. You know it could easily be a month, exactly when it is, I just can tell you right now.

The thing that doesn't, as Fred indicated in his discussion, it doesn't bother it is a lot, because we think that as Fred indicated that when we raised the money recently that money flowed to our side and everybody understood the importance of using those funds to move the company forward both 052 and the partnership and all the other things we're trying to do. So I think that that is there. The problem we have is that until there is actually a signed agreement, we don't have one, and so it is very difficult to go forward forecasting that kind of thing until we really have it in front of us.

And we do know that it is a concern for everybody and we are too and we're working hard to get it done but the other thing is that it is got to be done correctly. And, as Fred indicated, that is at least as important and so we're trying to get there as quickly as we can and again we appreciate everybody's understanding of this. It has been a very, very strange here because of this. I think without that, as Fred indicated, in his remarks part of the talk, it would have been a much more straightforward time even under these very difficult conditions. I don't know Fred, anything else you want to add?

Fred Kurland

Yes. Just to echo, Matt, I wish I could give you a particular moment in time where we could be more forthcoming but for all the reasons that Steve said, I don't think we can comment any further.

Matt Kaplan – Ladenburg

Thanks a lot guys.

Steve Engle

Absolutely. Thank you.

Operator

We will go next to Aaron Lindberg with William Smith & Company.

Aaron Lindberg – William Smith & Company

Thanks. How much of the contract revenue in the quarter was from Takeda and Schering?

Steve Engle

Fred?

Fred Kurland

Aaron, the contract I would say the majority of the contract revenue was from Takeda and Schering and the cast majority from with respect to our program with Schering.

Aaron Lindberg – William Smith & Company

Okay. And then is that pretty consistent numbers over the last two quarters, is that going to be a little consistent, or should we expect that to be pretty lumpy going forward?

Fred Kurland

It tends to be lumpy. There were some particular thing worth noting in the second quarter, Aaron, to your point, the as usually happens with these programs where multiple products are being worked on, we received some time ago upfront payments which are amortized over into the P&L over a period of time. And two of the programs we completed and they were – that resulted in acceleration of the revenue recognition in the second quarter. And so for that reason, just what you said, lumpiness is what we would expect.

Aaron Lindberg – William Smith & Company

Okay. And then how many companies are you currently discussing 052 partnership with type II diabetes and cardiovascular indications?

Steve Engle

Yes, Aaron. We haven't given a specific number. We started out the year with quite a list of them, we have weeded those down and as we have said before, we have had good progress in moving forward with these folks in particular in some cases we have actually gone all the way through the due diligence process and others people are still in the middle of that. In terms of working with that group of companies, we have also of course with the new phase I data, just completed really providing them with all of the information. And as you might guess, we have gone through transition over the last six, nine months, which is moving from focused mostly on diabetes to move into diabetes and cardiovascular and that requires a change in the way they are approaching us as well in the sense that they need to bring in people who understand the cardiovascular situation, both technical and marketing. In addition, with the new data, that was really what they needed we think to get a strong sense of the drug with 98 patients that have been in there. So we're having a very interesting and proof of conversations in just the last couple of weeks and expect to be doing that. There is the usual question and I think it falls on all companies at this time is as you step into August, the companies that you're talking to, that happen to be either fully based in Europe or primarily based or even have some key people in Europe, there is that tendency to see the vacation period come during August and not quite have everybody there to work with. Nonetheless, these are generally international companies and so they have lots of people in different places to work on things. So we plan to keep right on working through the August period of time and to continue to move forward with the conversations.

Aaron Lindberg – William Smith & Company

Okay. I talked to you in the past that there is kind of five or six core potential partners?

Steve Engle

I'm sure that we have talked about that kind of number in the past, so I don't mean to…

Aaron Lindberg – William Smith & Company

That is a reasonable number anyway.

Steve Engle

Yes, that is a reasonable range to pick for the kind of numbers of companies that we're talking to. You know if it goes way up or changes dramatically, that is going to be particularly pin down, but it is in that ballpark.

Aaron Lindberg – William Smith & Company

Okay. And so, if we just kind of look to the future, once a partnership was established, obviously you push forward with the clinical trial work for type II diabetes and cardiovascular, but beyond those, what then becomes your top priorities?

Steve Engle

I'm sorry. Fred you're saying… so, our thought is twofold. One is that the organization is going to be still very involved in moving forward with 052 in cardiovascular and also in diabetes. So we plan to the co-developers as well as co-marketers of the drug in those two primary indications as we envisioned the deals we have been discussing. The second part though is that we do think that there are other indications for these drugs – for the drug 052 that is very important to us.

And as I think we talked about previously, that are probably a couple of dozen different indications to consider and we do see ourselves as going out to do proof of concept and other work for those kinds of things and to help them tee up for additional work. Again, I think we will be able to say a little bit more when we actually pull together the phase II program as to what all is going there, because in talking about that program, we will also talk about some of the things we're doing on the proof of concept side for the other indications. So I have both of those.

And just one other – two other things is to be sure is that we are continuing as far as events for the rest of the year, besides the partnership itself, to be looking at both the technology licensing side as well as other things we're doing vis-à-vis the medical conferences. And beyond that, as you know, we have preclinical work going on, and we think we have some exciting things there, but at this point in time, they are not far enough along to really warrant bringing into the conversations yet. Still we think of them as very exciting and if this is were any other but the current market we would have maybe already mentioned something.

Aaron Lindberg – William Smith & Company

Okay. No, I'm not – that is helpful, I was just trying to get my arms around it, you put everything else on hold while you focused on this, as you start to as this starts to move forward, what are the first things that will come back in?

Steve Engle

No, I understood. And I will say that in general the way we think about it is there are additional indications for 052. So you will be getting the results from the different pieces, the phase II program over the next period of time, and then in addition to that, we want to move forward with some of the other indications.

Aaron Lindberg – William Smith & Company

Okay. So other indications, first, other compounds, second, maybe this is a fair way to look at it?

Steve Engle

Yes, thank you.

Aaron Lindberg – William Smith & Company

Okay. Awesome, thanks.

Steve Engle

Thank you.

Operator

And we will take up a follow-up question from Liana Moussatos.

Liana Moussatos – Wedbush

Thank you. You mentioned some small phase II for XOMA 52 in cardiovascular and diabetes, do you think you will start those before the end of the year, and is it possible we can get some data from them before the year end?

Steve Engle

Yes, Liana. Thank you for asking the question and again I'll just preface by saying in general we just haven't got it all nailed down yet. Sorry about that. But we do have a lot of ideas about it. What we think is that we will start them. The question is whether anything will come before the end of the year, that would be hard to say yes to at this point. So let us get a little bit further with the planning. But as you know, any time you try to do this stuff, it is 2 to 3 months before you can even turn the switch on to see the first patient. And so it does take time to make these things happen, but we're trying to move quickly. What we like is that there is some of these designs that are quite a bit shorter than most people are thinking about and so in terms of actually executing that is having patients in the study itself and so we do think that some of these will be easier to move along. So as to whether it will fall in the first half or not of next year, that is something that we will say when we have the general discussion about phase II program.

Liana Moussatos – Wedbush

And the data that is going to be presented at EASD, is that something that the potential partners are especially looking at in their due diligence?

Steve Engle

Yes. This is one of the items where we made a – we think a good amount of progress on the preclinical side. And that information is we think will be very helpful in helping to begin to distinguish characteristics between our mechanism and potentially other ways of going at the IL-1 data target. And as you know with antibodies, it is a little bit different than some places, you know, with patents filed and so forth. You have some idea of what the binding region is and where it is likely to bind to on the target.

And so, that is one way that we have a sense of what the differences might be, but I do want to say though is while we think there is a clear difference, we have been careful not to go too far with the statement because until we get into humans and you can actually see the difference in terms of results coming out, it is a lot harder to be able to strongly support it in that direction. So I think at this point we will be coming out with is preclinical kinds of results and modeling results to talk about what the difference is.

And of course, we will relate to what we think we are seeing in the clinic but it will not be the kind of thing because the studies have run so far and long enough that we can actually say that we know it yet. So outside of that caveat, we do undoubtedly believed that there is only a tiny, if any, difference but that is binding location difference which we think will be substantial as the drugs actually come to market.

Liana Moussatos – Wedbush

Thank you.

Steve Engle

Absolutely, thank you.

Operator

We will hear next from Jason Kantor with RBC Capital Markets.

Adnan – RBC Capital Markets

Hi. It is Adnan [ph] on Jason's behalf.

Steve Engle

Hi, Adnan.

Adnan – RBC Capital Markets

Hi. I just wanted to know if you could remind us what 052 trials are ongoing at this time?

Steve Engle

Yes, well. There is the tail end of what we were doing for the phase 1 study in Europe. And if you're remember, Adnan, that we had done several of the doses, but not for 1 milligram dose, and so that dose is the one where we are completing the results on that, and it is just a question of timing. The study enrolls at a certain speed, and so that data was unavailable when we put out the US total results a few weeks ago. But we think we pretty well know where it is going to end up based on the US results, so it does not materially change what we were thinking about the way the drug works. So as a result of that, we would expect those will either be in late August or early September to see that but again basically we will be adding five or so patients plus placebo to the total and that will be the additional information at the 1 mg/kg group. In addition to that, there is rheumatoid arthritis trial, phase II trial ongoing, which we started earlier this year, and so that trial continues to move forward.

Adnan – RBC Capital Markets

Okay. And can you remind us the dose that you used in the RA trial and when you might see the safety data?

Steve Engle

Sure. Alan maybe you could talk to it?

Alan Solinger

This trial is initially going with just a single dose looking at the onset of activity. I think based on the enrollment rate which is sort of unpredictable at this time, small numbers, and we did actually as we announced put that on hold for a while, while we were doing the type II diabetes work. I think it'll be unclear when we will have the final data but certainly we should have data you know as quickly as we can.

Steve Engle

Alan, I think the question he was asking up front, just to be sure, was what dose are being used in that study?

Alan Solinger

The initial dose was a 0.1 mg/kg IV dose. There are several other parts to the study that happened to open yet, so there'll be some other doses used there, and we will be checking the sub-cu dosing, in particular being sure the pharmacokinetics, so we're talking in the range of 0.1 to 0.3 maximum.

Adnan – RBC Capital Markets

Okay. And I guess our understanding is that no matter what the outcome that is not your focus, you will continue with the diabetes studies?

Steve Engle

I'm sorry. Say the last one, Adnan, no matter what the outcome was?

Adnan – RBC Capital Markets

well, I mean basically, RA, it would be nice to have the results but basically you are focused on diabetes obviously?

Steve Engle

Yes, obviously absolutely. I mean the decision lasted year again was that given the economic environment and that we wanted to focus down and so as you remember we were talking about (inaudible) and so forth and so we decided to focus in on those and yet we still decided it was worth going forward with the RA study. But the primary focus without a doubt is on both the diabetes and the cardiovascular side of things. Regarding the RA, just to be in broad in answering to what you're asking is I think you are aware that folks at Novartis have put out an announcement on their RA studies and so we're still waiting to see the data though.

It is a very high-level thing and we are still looking to see where they are, because where we got to last year was we said, look, we don't want to spend too much money on RA because Novartis is spending a lot. And we figured that they are going to come out with results and be able to sit down with people and put those results out. And based on those results then we would think about where to take the program. We do think that our particular antibody has a higher binding affinity and I think Alan especially believes having been as many of you remember, Alan is the person at Amgen that got Kineret approved, and probably knows more about the development and testing of IL-1 drugs than any person on the planet.

And I think Alan still feel strongly that there is a real role for an agent like this in RA. And the question will come down to how competitive is it against either the existing TNF inhibitors or the other drugs. And we all recognize and I think you probably know that the TNF inhibitors have a refractory rate in the patients of about 50% or so and so the question is what are you going to use to treat those patients? There are more than one therapy being developed in the RA area, unlike where we are with diabetes and cardiovascular where we really lead on inflammatory type treatment I think for this kind of approach in those diseases.

So we've tried to be kind of careful about how much time and money we spend on the RA piece not only because of the money and time, but because of the resources, if you will, but because we know that the Novartis people are working in the area. Then the question will be, as we begin to sense out what the results are from what they're doing, the question will be in our mind, is how much better can we do and is that enough to make it work doing that. And at this point, we have got more questions than answers because we just don't know yet what Novartis has done.

We are hopeful that something will come out, but I don't think yet we know whether for example at the American College of Rheumatology or one of the other conferences that they're actually going to put something out. So the long and short of developing the RA indication and I am just trying to be to be as frank and I can here, is that there are questions that both in the market and in the efficacy of some of the agents being tested ahead of us, where we're trying to get a sense of those. And I think once we do, it'll be much easier for us to calibrate how those fit into the overall picture. Does that help? Maybe we lost him.

Adnan – RBC Capital Markets

That is very helpful, thanks. And then, if you can just give us an update on the Azimuth facility, if anything has been drawn down?

Fred Kurland

Well, there are two – this is Fred, Adnan, as you may recall in the latter part of 2008, there were two draw downs from the Azimuth facility totaling 7 million shares, $7 million excuse me. Our registration enables us if we choose to draw down as much as I think it is 60 million registrations but not for something now, and there has been no activity since that time.

Adnan – RBC Capital Markets

And any plans of an activity, it is 60 million?

Fred Kurland

Well, as you know, as you might expect, nobody wants to raise money in this kind of an environment, and we certainly don't. But at the same time, we really can't comment about our financing plans going forward. Now having raised $22 million in the more recent past, we were able to be able to take advantage of relative strength of our stock and we're pleased to be able to do that and it showed strength on our part and on our ability to raise money at a time where as you know it has been very difficult for everybody in our sector to do so. But at that – but on the forward-looking basis, I really can't comment about our financing plans. Sorry.

Adnan – RBC Capital Markets

Sure, thanks.

Operator

And everyone out of the [ph] conference, back to you for closing remarks.

Carol DeGuzman

We like to thank all of you for joining us today. We look forward to seeing you at the various upcoming conferences and that concludes the call for today. Thank you.

Operator

That concludes today's conference. Thank you all for your participation.

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