XOMA's CEO Discusses Q4 2011 Results - Earnings Call Transcript

| About: XOMA Corporation (XOMA)

XOMA Corporation (NASDAQ:XOMA)

Q4 2011 Earnings Call

March 14, 2012; 04:30 pm ET


John Varian - Chief Executive Officer

Dr. Paul Rubin - Vice President & Chief Medical Officer

Fred Kurland - Vice President & Chief Financial Officer

Carol DeGuzman - Senior Director of Investor Relations


Matt Kaplan - Ladenburg Thalmann

Jason Kantor - RBC Capital Markets


Good day ladies and gentlemen and welcome to the XOMA, fourth quarter 2011 financial results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions).

I’ll now turn the call over to Carol DeGuzman, Senior Director of Investor Relations. Please begin.

Carol DeGuzman

Thank you operator. Good afternoon everyone. A short while ago we issued a news release, which included our financial results for the period ended December 31, 2011 and a general business update. Our Annual Report and Form 10-K is being filed with the Securities and Exchange Commission this afternoon and each of these documents will be available on our website at xoma.com. Today’s webcast also can be accessed via our website and will be available for replay until the close of business on June 10, 2012.

Leading today’s call is John Varian, XOMA’s Chief Executive Officer, who is joined by Dr. Paul Rubin, our Vice President and Chief Medical Officer and Fred Kurland, our Vice President and Chief Financial Officer.

We wish to remind our listeners that certain statements that will be made today concerning the timing of initiation of clinical trials, availability of clinical trial results, continued sales of approved products, regulatory approval of unapproved product candidates and anticipated levels of cash utilization or that otherwise relate to future periods are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

These statements are based on assumptions that may not prove accurate. Actual results could differ materially from those anticipated due to certain risks inherent in the biotechnology industry and for companies engaged in the development of new products in a regulated market.

Among other things, the timing and initiation of and availability of clinical trials may be delayed or may never occur as a result of actions of inaction by regulators of present or future collaboration partners, complications in the design implementation or third party approval of clinical trials, complications in the collection or interpretation of statistical data or unanticipated safety issues, continued sale of approved products maybe impacted by XOMAs ability to implement it’s marketing efforts, competition or unanticipated safety issues, regulatory approval of unapproved product candidates may be affected by the results of future clinical trials, actions or inaction by the FDA or unanticipated safety issues and anticipated levels of cash utilization may be other than as expected due to the unavailability of additional licensing or collaboration opportunities, inability to obtain the services of contract manufacturing or service providers on anticipated terms, higher than expected costs for clinical trials, outsourced manufacturing or other services, the effects of the pace of development spending in light of the terms of XOMA's existing collaboration arrangements, or unanticipated changes in XOMA's research and development programs or other businesses.

These and other risks, including those related to current economic and financial market conditions; the results of discovery and pre-clinical testing; the timing or results of pending and future clinical trials, including the design and progress of clinical trials; safety and efficacy of the products being tested; action, inaction or delay by the FDA, European or other regulators or their advisory bodies; and analysis or interpretation by, or submission to these entities or others of scientific data; changes in the status of existing collaborative or licensing relationships; the ability of collaborators, licensees and other third parties to meet their obligations and their discretion in decision-making; XOMA's ability to meet the demands of the U.S. government agency with which it has entered into with government contracts; competition; market demand for products; scale-up, manufacturing and marketing capabilities; availability of additional licensing or collaboration opportunities; international operations; share price volatility; XOMA's financing needs and opportunities; uncertainties regarding the status of biotechnology patents and uncertainties as to the costs of protecting intellectual property, are all described in more detail in XOMA's most recent filing on Form 10-K and in our other SEC filings. Please consider such risks carefully when evaluating XOMA's prospects.

I’ll now turn the call over to John Varian.

John Varian

Thanks very much Carol. Good afternoon everyone. We’ve accomplished a great deal since we last spoke with many of you in November, although I’m sure we have quite a few first time listeners as a result of our recently completed financing.

Today’s call is a review of 2011 and we will be taking a look back at certain events that occurred in the fourth quarter of last year, but hopefully we’ll convey those activities in a manner that highlights how they have positioned us for success going forward. I can tell you that the rest of the management team and I have never been more convinced that XOMA as a business is ready to take advantage of it’s long history of scientific successes.

We are transitioning away from our historic reliance on licensing deals and royalty revenue, to a company, which benefits more fully from our own scientific discoveries. With XOMA we envision we’ll be a self-sustaining commercial organization in the U.S., with partners around the globe supporting our products in local markers.

In addition to discussing late 2011 events, we are going to use today’s call to talk about the activities that has taken place since the end of 2011. I’ll explain the implications of how each helps us achieve our vision of becoming a commercial organization in the U.S. and I’ll lay out the milestones we expect to achieve for the remainder of 2012.

We all agree our most valuable asset is gevokizumab. In fact I described it as our first, second and third highest priority. When Paul Rubin joined us last June, he and the clinical and regulatory teams took a fresh look at our IL-1 beta antibody, to identify ways to increase the value of the product for XOMA and inherently for our gevokizumab partner Servier.

Paul’s extensive experience in drug development, particularly with anti-inflammatories helped the XOMA and Servier teams come to two important decisions for the gevokizumab program. First, we were able to design a significantly expanded Phase 3 uveitis program for gevokizumab that meets the needs of Servier and improves our commercial potential in the U.S.

Non-infectious uveitis is a broad-spectrum ocular disorder. It includes patients suffering from Behcet's uveitis. There are approximately 150,000 patients in the U.S. alone who suffer from the form of non-infectious uveitis we are targeting. With this approach we maintain our commitment to the Behcet's patient population, increase the number of patients who may benefit from gevokizumab, at the same time retain an orphan drug opportunity.

The worldwide non-infectious uveitis program includes the Phase 3 studies run by XOMA, as well as the Phase 3 Behcet's uveitis study run by Servier outside the U.S. We expect these studies to form the basis of the BLA we anticipate submitting to the FDA, to seek approval for treatment of non-infectious uveitis patients in the U.S.

The entire program, including the manufacturing of gevokizumab for these studies is covered by special provisions and our agreement with Servier, under which our partner pays the first $50 million of cost and then we share cost 50/50 thereafter.

Our approach to gain approval for gevokizumab was discussed with the FDA in November of last year. Since this is a global program, we also saw input from the European authorities at EMA. We have received from EMA, which was consistent with our expectations and now together with Servier, we are finalizing the study protocols. We will launch the non-infectious uveitis study next quarter, with top line data targeted for 18 months from the study’s initiation.

The second important step we took to increase the value of gevokizumab for XOMA was our decision to launch a proof-of-concept program and a diverse set of indications that have IL-1 beta involvement. We have launched or will launch three separate web powered Phase 2 studies and indications with our validated tool used to determine efficacy, in which we should have data read outs quickly.

Under our agreement with Servier, each party can do proof-of-concept studies testing gevokizumab at it’s own cost and the other party has the right to buy in for it’s territories by paying approximately 50% of cost incurred, as well as 50% of cost going forward.

Remember that XOMAs territories are generally the U.S. and Japan, while Servier has rights to the rest of the world. In addition to the three proof-of-concept studies we will complete, Servier is considering additional proof-of-concept studies that it may perform with gevokizumab. This would be in addition to Servier’s plan to begin a Phase 2 cardio vascular study in 2012.

Now we think of our proof-of-concept program as just that, a program. The goal is for Servier and XOMA to find the next Phase 3 opportunity to follow non-infectious uveitis. While we wouldn’t launch any one of these studies if we didn’t think gevokizumab has a good chance of success, this may suggest that not all clinical trials are successful. We believe our multi study approach, looking at three independent diseases, should enhance the possibility and probability of a potential positive outcome for gevokizumab.

Development of an anti-inflammatory is best accomplished with this type of thoughtful approach. Now we are committed to doing the studies that allow gevokizumab to lead us down the optimal path.

We began our first proof-of-concept study in December. This study is designed to determine gevokizumab’s ability to treat inflammatory legions seen in moderate to severe inflammatory acne vulgaris. Moderate to severe acne affects three to four million people in the U.S. and the mean age when it presents itself is about 24 years of age. Therefore we believe there could be significant commercial potential for gevokizumab in this indication.

I’m going to ask Paul to review IL-1 beta as potential in this indication we are approaching. Paul.

Dr. Paul Rubin

Thanks John. As mentioned, the first indication we are pursuing is moderate to severe inflammatory acne. Acne is characterized by the presence of a bacterium known as Propionibacterium acne, which promoted the production of pro-inflammatory substances like IL-1 beta in experimental models of this disease, including studies evaluating this effect in human skin cells.

Secondly, drugs presently being used for acne, including the tetracycline antibiotics also have documented anti-inflammatory effects. The mechanism of these anti-inflammatory properties seems to be directly related to these drugs ability to inhibit, caspase 1 the enzyme responsible for converting inactive IL-1 beta to its active form.

Finally, there are no medical syndromes that have numerous abnormal effects that are driven by an over production of IL-1 beta. One of these syndrome is called PAPA syndrome, includes severe skin ulcerations and inflammatory acne, but at least in this population, acne results from high IL-1 beta levels. Interestingly there are case reports documenting that in patients with PAPA syndrome, their acne clears with treatment with anakinra, another IL-1 modulator.

Moderate to severe acne that does not respond to top collisions is often treated with orally administered antibiotics. For the most severe non-responsive acne, accutane or isotretinoin, which is an oral retinoid drug may be prescribed, although this is available only through a restricted distribution program due to a side effect of that.

The subset of patients we are targeting have a high incidence of facial scarring and suffer from significant psychosocial trauma. Therefore we believe physicians and patients will be interested in new treatment options for this particular subset that are both effective and safe.

Our Phase 2 acne study will enroll approximately 170 patients, who will be randomized to receive one of two doses of gevokizumab or placebo, given subcutaneously once monthly for three months. The primary end point is the mean absolute change from baseline in inflammatory patient we’d encounter after these three months of therapy. We continue to anticipate having a data from this study in the second half of this year.

During our recent financing we disclosed we have selected the indication for our second Phase 2 study. Erosive osteoarthritis with the hand or EOA is caused by the break down of the body’s natural balance between cartilage formation and degradation, which leads to the narrowing of the space between the first and the second joints in the fingers.

Patients with EOA experience a high degree of pain, including throbbing, swelling and prolonged periods of morning stiffness. Over time the joints become deformed, impacting hand function and ultimately reducing EOA patients quality of life. EOA impacts women on a 12:1 ratio compared to men and is the only documented form of the (genitive) joint disease with a large inflammatory component. Approximately four million people in the U.S. have been diagnosed with EOA.

Public studies have highlighted IL-1 beta and tumor necrosis factor or TNF alpha for their team involvement in the development of EOA and the destruction of the cartilage matrix resulting from this disease.

One study utilizing anakinra, an IL-1 receptor antagonist demonstrated a reduction in pain and improvement in the hand function of EOA. We believe gevokizumab by modulating IL-1 beta effect will be useful in treating the size and symptoms of this disease. We expect to begin enrolling patients in this study in the second quarter of this year. The third indication has not been selected yet. We will announce the selection when we initiate the trial.

John, I’ll turn the call back to you.

John Varian

Thanks Paul. Before leaving the scientific discussion, we’d be remiss if we didn’t touch on our XMet program, which was discussed in an article in today’s BioWorld.

The XOMA discovery team has been working to discover antibodies, which impacts the insulin receptor. The team has discovered two antibodies, XMetA which is an insulin activator and XMetS, an insulin sensitizer. Some of you have probably seen this, but I’d like to take this opportunity to congratulate our team on getting the XMetA program recently published in diabetes. This is the first peer review publication we’ve had for this program.

Paul, can I ask you to also comment on this important milestone.

Dr. Paul Rubin

Sure, I’d be happy to. The XMet program, as well as the discovery of gevokizumab points to the power and the unique attributes of XOMAs discovery engine. The richness and diversity of our libraries, coupled with our ability to rapidly analyze signally at the ligand-receptor direction allows us to evaluate monoclonal antibodies defined to allosteric regions of the target or parts of the target not related to direct ligand-receptor interaction. By being able to discover these allosteric binders, we can now find monoclonal to either stimulate, block or sensitize a receptor, while maintaining the ability for this ligand to continue to bind to it’s receptor.

The meanness of this binding ability can facilitate better clearance of the drug and provides the potential for the body to maintain some of it’s normal response mechanisms related to the target receptor, thus allosteric modulators have the potential to be active drugs with better side effect profiles. Gevokizumab is one example of the monoclonal that has these characteristics.

Our second advantage of being able to evaluate allosteric binding is the ability to affect a single function of a receptor without simultaneously affecting other receptor activity. Often stimulation of a single receptor leads to multiple processes being activated within the body. In the case of the insulin receptor, the presence of insulin leads to glucose update by itself and a lowering of blood sugar, but this interaction also results in the stimulation of cellular proliferation also known as mitogenesis. This latter effect can predispose an individual to cancer and in fact high levels of insulin are associated with an increased risk for malignancy.

Our XMet antibodies by virtue of binding allocations other than the main binding side of the insulin receptor have been shown to favor the effect of high glucose levels, with no stimulation of the mitogenic pathway. These antibodies by virtue of this documented (inaudible) virus could present a better alternative for diabetes therapy. John.

John Varian

Thanks again Paul. In order to optimally develop our XMet therapies, we know we require a partner with significant experience in conducting diabetes studies, as well as the ability to market to a diverse prescriber base, yet we want to retain significant value in these assets as they may represent a disruptive change in the dynamics of treating both type I and type II diabetics. We will spend 2012 talking with the companies best known for their work in diabetes and when the time and the terms are right, we expect to partner these compounds.

While we knew there was significant value in expanding our Phase 3 gevokizumab study and launching the proof-of-concept study program, as well a further developing the XMet program, we were determine to minimize the impact these broader activities would have on our burn rate.

When I joined the day-to-day operations last September, the management team and I focused hard on identifying cost and activities that could be eliminated from our internal operations, particularly recurring fixed cost that might divert cost away from value creating opportunities.

Concurrent with my accepting the position as CEO in January, we announced the streamlining of XOMA’s operations, which freed up funds to focus on value creating activities, specifically the expansion of gevokizumabs clinical development program we’ve been discussing.

The streamlining resulted in personnel reduction of 84 physicians or 34% of our work force. We decided to outsource Phase 3 in commercial scale manufacturing, eliminate internal research functions that were non-differentiating or obtainable cost effectively through third part providers and reduce G&A expense by approximately 20%. We also decided to complete the work on the $120 million in biodefense contracts we have been awarded, but not to actively pursue future contracts going forward.

As Fred will discuss in a few minutes, the net result of these changes was a reduction of approximately $14 million in fixed internal cost that can now be applied to value increasing activities. Untimely our decision to streamline our operations was designed to allow us to focus our attention squarely on gevokizumab, since we believe it is our key asset in the near term.

With all our recent achievements towards attaining our vision of becoming a commercial organization in the US with a strong scientific discovery capability, there is a renewed sense of energy amongst the team here at XOMA. We were gratified to tell you the story of our actions and plans for XOMA, allowed us to attract $39 million in new capital, reflecting the new interest institutional investors have in XOMA.

We believe this fund raising will take us into 2014, at which point we will have the Phase 3 from gevokizumab non-infectious uveitis study and the results from the proof-of-concept program, likely with a second Phase 3 indication under consideration.

To become a self-sustaining company, we knew we had to transition from a solely science based company to an organization that also has the commercial capability. This capability is important to helping us recognize the true value from our scientific discoveries. This vision was articulated in 2011 and early this year we announced we had acquired the U.S. rights to the perindopril franchise, including the marketed product sold under the brand name ACEON(NYSE:R), perindopril erbumine from our partners Servier.

We launched our commercial operations on January 23. ACEON(R) is an angiotensin converting enzyme or ACE inhibitor, which is commonly used to treat hypertension. In taking over ACEON(R) we took the step to ensure ACEON(R) remains available to pharmacies and patients. We finalized all manufacturing and product packaging with the XOMA name/NDC and we registered the label and NDC with the FDA.

We finalized all wholesaler agreements. This week ACEON(R) with the XOMA name has been stocked at distribution facilities as prior inventory is making its way out of the system. We anticipate March will be the first month as XOMA books ACEON(R) product sales.

I want to stress how important it is that we’ve been able to establish the skeleton necessary to commercialize products in this very low risk manner. I’ve been through commercial launches before and having this core capability in place will help us with future XOMA products and enhance our ability to secure core promotes with teeth in them when we negotiate future licensing agreements.

Our agreement with Servier also includes a portfolio of fixed dose combination product candidates that use a propriety form of perindopril combined with other active ingredients. This proprietary form of perindopril has patent protection until 2023.

We chose to initiate the three arm Phase 3 path trail, the path name representing perindopril Amlodipine for the treatment of hypertension. Since we were able to negotiate agreements between Servier, our CRO and XOMA that makes the study cash flow neutral to XOMA. The path trial, which we will conduct, will be funded in part through an arrangement with Servier with the balance provided by the profits generated from U.S. ACEON(R) sales whenever those profits come. Again, let me emphasize the critically important fact that the study will be cash flow neutral to XOMA.

There is a commercial benefit pursuing final development for this FDC. Perindopril has been studied in clinical trials involving more than 54,000 patients. This body of clinical evidence supports its beneficial impact in treating essential hypertension and stable coronary artery disease.

Amlodipine a calcium channel blocker is the most prescribed anti-hypertensive in the U.S. Because ACE inhibitors and calcium channel blockers target different cardio vascular functions, physicians often use them in combination to treat their hypertensive patients. The path trial is expected to enroll approximately 816 patients with hypertension to determine the efficacy and safety of our FDC candidate versus either perindopril or Amlodipine alone. This type of study is typically referred to as a factorial design study.

The primary endpoints of reduction from base line is sitting diastolic blood pressure after six weeks of treatment. If positive we expect the trail will be the only additional efficacy trial needed to complement the existing clinical data in support of a new drug application submission.

Clinical development of FDCs in hypertension follows well-defined FDA guidelines. As the two drugs in this FDC, each have established clinical profiles, we believe the fixed dose combination has the potential to generate value for our company in the future.

We expect to complete the study in approximately one year, at which point Servier and we will determine next steps. While XOAM will not create a primary care sales force to the market the FDC, we believe they can have commercial value to a third party or under some alternate approach. Again, we’ll get the data in a cash neutral matter for XOMA and we’ll see where we go next.

Importantly, Servier markets, the similar perindopril Amlodipine FDC called Coveram in 78 countries outside the U.S. The perindopril franchise generated $1.2 billion in sales for Servier during 2011 and the FDC program itself, so approximately the $150 million. Needless to say, this franchise is important to our partner.

I will now turn the call over to Fred for a quick financial discussion. Fred.

Fred Kurland

Thanks John and welcome everybody to our call. You’ve all read and have access to our financial results, so I’m not going to review them in detail.

Our total revenues were $58.2 million in 2011, reflecting the payments made by Servier throughout the year for gevokizumab development and funding under our biodefense contracts with the U.S. government.

Our 2011 R&D expenses decreased to $68.1 million, primarily reflecting decreased sending on gevokizumab related clinical trails during the third and fourth quarters of 2011.

Our 2011 General and Administrative expenses were $24 million, essentially flat with the $23.3 million in 2010. We posted a net loss of $32.7 million or a $1.04 per share for the year.

At December 31 of last year, XOMA has cash and cash equivalents of $48.3 million compared with $37.3 million at the end of 2010. January of 2011 we received from Servier approximately $35 million in cash related to our development and commercialization agreement for gevokizumab, including an upfront payment of $15 million and a euro denominated $15 million loan. In December 2011 we secured a $10 million loan from GE capital.

As the focus of our call is on 2012, I want to emphasize three things, the financial implications of the streamlining that we announced in January and as John just discussed, our capital raising activates and our expectations for cash used in ongoing operations during 2012.

As noted, the streamlining resulted in the outsourcing of Phase 3 and commercial scale manufacturing, focusing our internal research functions in areas where we can differentiate ourselves from reducing headcount by 34% or 84 physicians, reducing general and administrative spending by 20% to support the leaner organization and deciding to complete the biodefense contracts we have in place, but no longer actively pursuing future contracts.

We anticipate taking one time charges for restructuring and related severance cost totaling approximately $6 million to $7 million during 2012, of which $3.5 million will result in cash charges. In the first quarter of 2012, we expect the charge will be approximately $4.6 million, of which $1.3 million will be in cash. As a result of the streamlining, we expect to reduce recurring net internal spending by approximately $14 million in 2012 compared to the 2011 level.

Ultimately, we believe anticipated cash used in ongoing operating activities during 2012 to be approximately $35 million, which include the important investments in gevokizumab in the form of the proof-of-concept trials as Paul has described and the transfer of technology to a contract manufacturing organization.

For your use in building your model, as a result of our fundraising, our new shares outstanding count is $68 million and our warrants outstanding are $16.7 million. Now that we have attracted $39 million in new capital, all of our programs and corporate operations are funded through Phase 3 data and POC results and we anticipate we have capital that will take us into 2014.

I’ll turn the call back to John now.

John Varian

Thanks Fred. Before I turn the call over for the Q&A, I’d like to outline the milestones you should expect from us through the end of the second quarter.

First, we’ll announce the study design for our global Phase 3 non-infectious uveitis and the Behcet’s uveitis program. Second, we’ll begin enrolment in our U.S. Phase 3 non-infectious uveitis study. Third, we’ll initiate enrolment in our erosive osteoarthritis study. Fourth, we will book our first revenues from ACEON(R) sales.

Additionally, we will be making presentation to the scientific meetings through the end of June, a poster titled Adapt, an integrated displayed platform for streamlined antibodies discovery in rapid characterization will be presented at a Gordon conference, antibody engineering and biology, March 25 through the 30.

One of our scientists John Corbin will be giving an oral presentation titled ‘An Allosteric Fully Human Monoclonal Antibody that enhances Insulin Receptor signaling in vitro and in vivo,’ a distinct new therapeutic approach for the treatment of diabetes. This will be give at the 5th Annual Proteins Congress, April 2 through 3. We will also have a posted titled ‘Overcoming Antibodies Expression Issues by Light Chain Engineering’ at the Cell Culture Engineering Meeting April 22 through 27.

Most importantly, now that we have secured the financing necessary to complete the key studies of gevokizumab we have discussed today, we can fully concentrate on executing those studies and building the value of XOMA for our shareholders.

Operator, we’d like to take some questions now.

Question-and-Answer Session


Thank you. (Operators Instructions) Our first question is from Matt Kaplan of Ladenburg Thalmann. Your line is open.

Matt Kaplan - Ladenburg Thalmann

Hi, good afternoon guys. Can you hear me now?

John Varian

Yes, sure Matt, how are you?

Matt Kaplan - Ladenburg Thalmann

Doing well, thanks. How about yourself?

John Varian

Just great.

Matt Kaplan - Ladenburg Thalmann

Good, good. Just can give us a sense in terms of what you are thinking. I know its not locked and loaded yet so to speak, but in terms of the NIU Phase 3 study design, could you talk a little bit about what I guess most of all, but what your thinking for that trial and also for the Behcet's study too.

John Varian

Yes Matt, I will have Paul describe it. We will be having another conference call. Its funny this time of the year we have a second call really about six, seven weeks from now and so we will really focused that call on the clinical studies design and some update on the studies themselves, but Paul can give us a basic overview of where we are on this study design.

Matt Kaplan - Ladenburg Thalmann

That would be great, thanks.

Dr. Paul Rubin

So the study will be not too dissimilar from studies that we have been done with other products that are presently on the market for non-infectious uveitis. It will be a three arm, approximately 100 per arm patient study that looks at two doses of gevokizumab versus placebo on top of standard care and we’ll be looking at patients that have active disease, this is active – Behcet’s uveitis is measured by a prescribed level of this disease, which is one of the markers of information that have been validated as a primary end point by other drugs.

And the study design will be essentially a responder analysis where we’ll look at the number of responders as measured by the improvement in which we are saved after two months of therapy. From this point it will go on to continued exposure for almost a year, to make sure that we get the requisite number of patients needed for exposure and safety data.

Matt Kaplan - Ladenburg Thalmann

Okay. And similarly I guess with respect to the Behçet’s, is that going to be a similar design as well.

John Varian

As you know the Behçet's trail is being done by Servier, but it will certainly different in design and that this would actually be a study looking at patients who are quiescent on stable doses of corticosteroids, systemic corticosteroids and this study design will be a forced taper that will actually quantiate the number of relapses from the number of failures in the prescribed period of time.

Matt Kaplan - Ladenburg Thalmann

Okay, and is the timing for that study parallel to the NIU study in terms of when you expect to be there?

John Varian

It’s very similar. We speak more directly about the non-infectious uveitis study, because we’ll be running that study our self, but when we look at the way that the prescribed study lays out, it lays basically on top of the non-infectious uveitis study.

Matt Kaplan - Ladenburg Thalmann


John Varian

There’s one variable in there, and that the Behcet’s uveitis study is one where they’ll be looking for certain number of events and once they hit that number of events, that’s when that study will be unblended. So there’s a little bit of variability in when that study will be done, but in the plan for the study it’s very similar to the non-infectious uveitis timing.

Matt Kaplan - Ladenburg Thalmann

Okay, and I guess more of a question associated with, and I guess moving on to the Phase 2 proof-of-concept study and erosive osteoarthritis of the hand, give us a little bit more detail on that study and what you are thinking I guess as well.

John Varian

Yes again, we haven’t spoken much about this, but this study would be well powered, likely again be two doses of gevokizumab versus placebo three arm study in patients with active erosive osteoarthritis in hand, which includes again a prescribed magnitude of pain, as well as abnormality in their hand function. So we are looking at both pain and hand function, as well as evidence of more X-ray MRI related evidence, these application type evidence looking at over a period of time from three months to six months.

Matt Kaplan - Ladenburg Thalmann

Okay, and then a question just to make sure I understand this correctly. I guess you know given the recent restructuring and the recent financing, my calculations have that you have enough cash into the first half of 2014. Is that correct? And give me a sense in terms of kind of I guess you detailed kind of expected burn in 2012, but give us a sense in terms of what you are thinking in 2013 as well or is it too far out to look right now?

John Varian

It’s a little too far to look, but what we can say is that 2013 should be lower than 2012, because 2013 includes a couple really important things that Fred talked about. One is with our decision to outsource the commercial manufacturing of gevokizumab there are some big one-time costs that will be incurred in 2012, that won’t be incurred again in 2013, so that’s kind of a one time cost.

The other thing is these proof-on-concept studies, as you’ve heard of very much concentrated in the 2012 time period. So 2013 we won’t be giving exact guidance on it, but it will be lower than 2012 and your calculation of kind of where the cash takes us is exactly where we would kind of send you or direct you.

Matt Kaplan - Ladenburg Thalmann

Great, great. Well listen, thanks for taking the questions and congrats on the progress.

John Varian

Thank you.


And your next question is from Jason Kantor of RBC Capital Markets. Your line is open.

Jason Kantor - RBC Capital Markets

Thank you and congratulations on the progress. A couple of questions; on the accident program, what do you think you need to generate in terms of pre-clinical or clinical data in order to get that to the point where you feel its appropriate to partner and then also on that program, should we think of this as a program that is going to be partnered or are each of these individual antibodies basically going to be part of a separate product licensing deal?

John Varian

It’s a great questions Jason, so let me start and Paul may be can add. So we actually have generated enough data already that we could partner it. The question is what amount of data should we generate to get the right amount of value for the program and that’s really what we are evaluating right now.

If you lift out the six top diabetes companies in the world today and project it to be in the near future, we are talking to more than several of those companies right now and this is potentially kind of world chaining stuff, so its pre-clinical, so we try to not to get too excited about, but its potentially a world chaining way of treating diabetes.

So we’ve generated enough data now that we could license it. We continue to think about what other animal experiments would increase the value or increase the certainty that we really do have, that we believe we do. We are progressing in some of those studies and we are making decisions about how far do we really go. So there is kind of a parallel process going on that’s making decisions to take next steps, sharing those data with these companies and working to figure out what’s the right moment to actually capture the right amount of value and get it into the hands of somebody who can really development this at the level it should be developed.

When it comes to separating the two molecules, we think of them as separate. We would like to license them as two separate molecules. As you can imagine, as we talked to the companies, they also would like to talk may be taking both of those on and having been somewhat complementary to each other. So that will be decided based upon negotiations and as data flows out from those, but we do think of them as two separate compounds, but it may be the most sensitive to have them both in the hands of the same company

Paul, can you…

Jason Kantor - RBC Capital Markets

Is it too ambitious too think that you have to get something done in 2012 or should we really be thinking of this as a 2013 type of partnering event?

John Varian

I know that we’ll have a choice of doing something in 2012 or 2013 and which choice we end up making I can’t predict right now. I know that if we had a gun to our heads and had to get something done in 2012, we would and could. I’m not sure that’s the right answer, so I don’t want to commit, but that’s what we would do.

Jason Kantor - RBC Capital Markets

Got it and then yes, on the proof-of-concept studies I know that there is an opt-in. How does your deal change if for example they don’t opt-in and you decide to take the program forward in another indication. Do you then find yourself in a strange situation where you have one drug and different indications and different price points and different you know organizations having different indications?

John Varian

Well, I want to make sure I answer the question correctly, Jason. So again, under our deal on gevokizumab, the basic deal is we have the U.S. and Japan, okay, and they have the rest of the world. So if we develop something under proof-of-concept and we took it all the way through our self, lets just say we did that and they decided never to opt-in, they would – I don’t want to fall into a legal trap here, they would not then have rights to that indication outside of the U.S. and Japan and so Fred can you…

Fred Kurland

Well, I just want to augment what John just said. The key here is that Servier owns commercial right to all indications outside the U.S. and Japan and so what that enables us to do, if they chose not to opt-in and this is hypothetical, is that we would continue to develop for the U.S. and Japanese market, have complete commercial right, so we could choose whatever we wanted to do, but that would be it.

What I think the un-spoken question is, in this circumstance would XOMA have the ability to license this indication ex-Japan and the U.S. and I’m pretty sure the answer is no.

John Varian

Yes and just to say Jason, the reason that scenario is so unlikely and we haven’t thought it through the department, we can answer the question quite as directly as your asking it, is this is a true collaboration. We are looking at each of these proof-of-context studies. They are helping us to select ones work, looking at what they are talking to us about while they are thinking about it.

The goal of this is we take an indication together, it’s the right next Phase 3 and so because of the nature of the collaboration and because of the decisions that are being made around what makes sense for each of us to kind of do on our own, ultimately the goal is and I would say without any uncertainty, the answer is going to be, we picked them together and we think it’s the right one to develop on a worldwide basis and that’s what we’ll both do.

So legally answering your question, I mean we haven’t done it quite accurately, but from a practical standpoint we are doing the proof-of-concept studies, they are doing proof-of-concept studies. Most likely they are choosing level two and ultimately we’ll pick the right Phase 3 in the case we want to develop together, because it will make some more sense.

Jason Kantor - RBC Capital Markets

Thank you.


Thank you. There are no future questions at this time. I’d like to turn the conference over to Varian for any closing remarks.

John Varian

Well again, thank you so much everyone for joining us and it was extremely gratifying over the last few weeks to get out and see investors that we hadn’t really spend as much time with in the past and tell the story of XOMA and we have now put ourselves in a position where we believe that the financial risk has been substantially reduced and now we are focus on making sure that we’ll do everything we can to make sure we reduce the clinical risk and actually benefit the most from this molecule that we all think is one that can turn the company to a real success. So again, thank you for your confidence in us over these last weeks and we look forward to keeping you updated on the progress we will be making. Thanks very much.


Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Have a wonderful day.

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