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XOMA Corporation (NASDAQ:XOMA)

Q2 2012 Earnings Call

August 7, 2012 4:30 pm ET

Executives

Ashleigh Barreto – Investor Relations

John W. Varian – Chief Executive Officer

Paul D. Rubin – Senior Vice President, Research and Development and Chief Medical Officer

Fred Kurland – Vice President-Finance and Chief Financial Officer

Analysts

Adnan Butt – RBC Capital Markets

Matthew Kaplan – Ladenburg Thalmann & Co.

Liana Moussatos – Wedbush Securities

Thomas Yip – MLV & Co.

Whitney Ijem – Canaccord Genuity Inc.

Joseph Pantginis – Roth Capital Partners

Operator

Good afternoon, ladies and gentlemen, and welcome to XOMA Corporation’s Second Quarter 2012 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this call may be recorded.

I would now like to turn the call over to your host for today, Ashleigh Barreto, Investor Relations at XOMA. You may proceed.

Ashleigh Barreto

Thank you, operator. Good afternoon and welcome to XOMA Corporation’s Second quarter 2012 financial results and corporate update conference call. On our call today are John Varian, Chief Executive Officer; Dr. Paul Rubin, Senior Vice President, Research and Development and Chief Medical Officer; and Fred Kurland, Chief Financial Officer.

Certain statements made during this call including but limited to statement related to anticipated timing of initiation and completion of clinical trials, anticipated size of clinical trials, continued sales of approved products, regulatory approval of unapproved product candidates and anticipated restructuring charges, sufficiency of our cash resources, and anticipated levels of cash utilization or 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. And actual results could differ materially from those anticipated due to certain risks inherent in the biotechnology industry and for companies engaged in development of new products in a regulated market.

Potential risk to XOMA, meeting these expectations are described in more detail in XOMA’s most recent filings on Form 10-K and other SEC filings. Consider such risks carefully when considering XOMA’s prospects.

Any forward-looking statement in this conference call represent XOMA’s views only as of the date of this conference call and should not be relied upon as representing its views as of any subsequent date. XOMA disclaims any obligation to update any forward-looking statement, except as those required by applicable law.

And with that I’ll turn the call over to John Varian. John?

John W. Varian

Thanks Ashleigh. Good afternoon everyone and thank you for joining us. Our second quarter was devoted to launching both the gevokizumab global Phase 3 non-infectious uveitis trial and our Phase 2 trial in erosive osteoarthritis of the hand. The initiation of our first Phase 3 study of gevokizumab was the culmination of a significant amount of work by the XOMA team and their colleagues at our partner Servier.

I want to start my comments today with a big thank you to the joint team for a job well done. Paul Rubin, who leads the XOMA team is with Fred Kurland and me to answer any questions you have about these trials and their protocols. Another crucial effort in our development of gevokizumab is its initial clinical and commercial manufacturer.

As you remember, in January of this year, we announced our decision to outsource Phase 3 and commercial manufacturing on a go-forward basis. By the end of April, we completed our final run in XOMA’s 31,000 square foot lease facility. And we have now exited this building. Our lease runs out next April, but as you will hear from Fred later on, we have been able to sublease the facility to a third party.

We currently have enough gevokizumab on hand for all the planned studies in non-infectious uveitis, as well as our ongoing proof of concept studies. Last week, we announced the signing of a three-way agreement between XOMA, Servier and Boehringer Ingelheim or BI. For BI to manufacture gevokizumab going forward.

Our decision to select BI was based on a collaborative, and through evaluation of the world's leading antibody manufacturers, with capabilities both in Europe and the U.S. We in Servier are already working with our colleagues at BI, to ensure that technology transfer is made in a stepwise and thoughtful manner. We are happy to work with such a premier organization to supply all future gevokizumab clinical and commercial needs.

You all know XOMA’s expressed strategy by now, invest in value creating activities. Over the past seven months, we primarily spent our time, with you discussing gevokizumab. We haven't spent much time, discussing our progress since become in the U.S distributor of ACEON nor have we provided detailed update on the perindopril and amlodipine, fixed dose combination program, but let me be clear, gevokizumab is our absolute top priority, but these other assets also reflect our investment in value creating activities, so we want to take some time today to provide an update on the perindopril franchise.

ACEON as you recall was created by Servier and is the branded version of the generic ACE inhibitor, perindopril erbumine. It was most recently distributed in the U.S. by Abbott. In January, we announced that we had acquired rights to the perindopril franchise and we began our commercial operations on January 23. In late March, we made our first shipment of ACEON bearing the XOMA label to distributors. While transferring distribution of any product between two companies has its challenges, we are very pleased with the progress we are making.

This was our first full quarter with full responsibility for ACEON and we’ve generated $569,000 in sales. We anticipate selling between $2 million and $3 million of ACEON in our first full year. In February, we initiated the Phase 3 path trial. The path name representing perindopril and amlodipine for the treatment of hypertension. This is a three armed study evaluating a fixed dose combination or FDC, perindopril arginine and amlodipine for the treatment of hypertension.

If successful, we expect this final trial to be sufficient for an NDA submission. As we stated in March, we expected the path trial to take approximately one year to complete. Based in large part upon the fact that we have enrolled 88% of the projected total of 816 patients, we believe we are well on target to meet that goal. You will recall we were able to negotiate agreements between Servier, our CRO, and XOMA that makes this study cash flow neutral to XOMA.

Servier has provided direct financial support for part of this trial and the balance will be paid for from the profit XOMA generates from the U.S. ACEON sales, whenever those profits come. Any variability in the level of ACEON sales only affects the timing of when the trial will be paid for and when the profits may begin supplying us directly with cash.

We believe there is a clear patient need for FDCs to three hypertension, and therefore there is a commercial benefit in pursuing final development for this fixed-dose combination. A body of clinical evidence in over 54,000 patient supports perindopril’s beneficial impact in treating a special hypertension in stable coronary artery disease.

In addition, data from the American Journal of Medicine in August of 2007 has shown better compliance resulting better outcomes when FDCs are prescribed compared with the monotherapies. The proprietary form of perindopril being tested in path, as well as any additional FDC’s we develop containing this proprietary form had patent protection into 2023.

Amlodipine, the calcium channel blocker included in the six dose combination is the most prescribed anti-hypertensive in the U.S. Because ACE inhibitors and calcium channel blockers target different cardiovascular functions and can be additive in their hypertensive benefits, physicians often use them in combination to treat their patients. We are in active conversations with Servier on a variety of commercialization options available to us.

Coveram which is Servier’s similar perindopril amlodipine FDC is marketed in 78 countries outside the U.S. and generated approximately $150 million in sales in 2011. The entire perindopril franchise generated $1.2 billion in sales outside the U.S. during the same year. While XOMA will not create a primary-care sales force to market this FDC, we believe this agent can be successfully promoted by a third-party with an existing sales force or under some alternate approach.

Again, we have a range destruction that allows us to obtain the final clinical data that we believe is required for approval in a cash neutral manner for XOMA. Over the coming six months, we will work with our partner to identify the best path forward for the product.

With that, I'll turn the call over to Paul Rubin to discuss our most important efforts during the second quarter, which are the development of gevokizumab. Paul will also cover what you can expect from us on the clinical side for the remainder of 2012. Paul?

Paul D. Rubin

Thanks, John, and hello everyone. In our call last quarter, we delivered an in-depth presentation of the non-infectious uveitis or NIU and erosive osteoarthritis or EOA protocols. Today, we do not plan to reiterate that information. As you recall, studies were opened after protocols were submitted to a review by FDA in June.

In the five weeks since we initiated enrollment in our NIU Phase 3 study, we have opened four sites that are actively screening patients and another 25 out of final total of 51 in the United States are waiting institutional IRB approval and should be enrolling in the next few weeks. The remaining 22 sites including many academic centers will be included in the weeks following with all sites expected to be on Board by October.

For the EOA Phase 2 study, we have four of 20 sites enrolling and the rest are waiting IRB approval. All sites are expected to be rolled in over the next six weeks as IRB approvals are received. The progress is just planned for each these studies. I will remind you that based on our conversations with FDA, we intend to submit a BLA for the treatment of NIU with data from this just launched Phase 3 study in NIU patients with active disease coupled with the Servier run Phase 3 study in patients with Behcet’s uveitis.

As we have discussed previously, Servier has been conducting a safety and pharmacokinetic study in patients with Behcet’s uveitis before initiating the global Phase 3 Behcet’s uveitis trial, which they will conduct outside the United States. In abbreviated protocol description for this multi-country Phase 2 study can be viewed at controlledtrials.com which is the international counterpart to clinicaltrials.gov. The preliminary interim data that Servier has generated is encouraging and has allowed Servier to finalize the design of and select the dose for its upcoming Phase 3 study.

Detailed results from the ongoing Phase 2 study will be disclosed when the study is complete and the data is appropriately validated. While Servier is responsible for the execution and timing of the Behcet’s Phase 3 uveitis study, we do work closely with them. We understand they are unscheduled to start the study on time later in the third quarter.

We have primarily focused our conversations with you and the efficacy signals will be evaluating in NIU and Behcet’s uveitis trials. It is important to remember, the FDA requirements for approval with product therapies include a safety database consisting of at least 300 patients receiving the highest marketed dose the drug candidate for at least six months, and 100 patients receiving the same dose for at least one year. While we have already built a significant safety database in order to meet these requirements, our clinical plans include the use of patients of efficacy studies as well as supplemental safety studies to complete our long-term safety database. We expect to launch a separate safety study later this quarter.

Let’s turn now to our moderate-to-severe inflammatory acne vulgaris Phase 2 proof-of-concept study. We have 55 patients randomized and another 16 in screening. The rates had started more slowly than anticipated, but we still expect top line data from the study by the end of the year. We’ve initiated a number of actions to ensure timely completion.

Patients in the study must be over 70 years of age and have been diagnosed with moderate-to-severe acne vulgaris that has been unresponsive to oral antibiotics. As indicated in prior communications, we had initially calculated that 171 patients were necessary to provide adequate statistical power. In order to determine the required sample size for the study, we made an estimate as to how variable the response would be across the total patient population.

Based on the data from the first 50 patients, we have reevaluated this variability assumption and determined it to be significantly less. This was done while the patients remained blinded. This observation should allow us to be decrease the required patient number and still maintain adequate statistical power.

Patients with severe inflammatory acne frequently suffer with multiple modules as part of their disease. Our initial entry criteria based on regulatory recommendations limited a number of modules allowed for any patient to a maximum of three. We found this limitation made enrollment difficult. We subsequently submitted a protocol amendment to allow cushioned patients with up to 7 modules. This amendment was realized allowed by the FDA and should have the significant impact on enrollment. In addition since patients targeted for the study, typically fall into the 17 to 40 age category, we have come to appreciate just how important social media is for recruiting these patients.

Three months ago, I said we were just launching a social media patient equipment campaign during some of the most popular and common sites of networks. A couple of months ago, we engaged the social media expert to work with XOMA clinical operations team and our CRO to deepen the impact we can derive from this important venue.

Specifically, we have seen a marked increase in patient increase, and approximately 33% increase in the number of patients being screened. both of these should continue to rise. So, with these changes, we expect to have top line data from this study by year-end, as I said earlier. We have also chosen our third indication for the Phase II proof-of-concept program. the study will be taking place at a particularly prestigious organization. Until the study plan has received IRB approval, and the study begins, we will not announce the organization indication or details of the study design. Should everything progress as we currently expect, we will be issuing a press release in September or October with all the details.

With that, I’m going to turn the call over to Fred to review the financial results. Fred?

Fred Kurland

Thank you, Paul, and good afternoon everybody and welcome to our call. In our statement of operations, we reported total revenues of $9.3 million in the 2012 second quarter, compared with $16.5 million in the 2011 second quarter. The decrease in 2012 revenues was due to the reduction in contract revenue, particularly from NIAID contracts. I want to point out, that this is the first quarter that XOMA is reporting product sales, the $569,000 of ACEON sales posted represents a major transition for XOMA towards realizing its goal of being a commercial company in the U.S.

As you know, we began the process of streamlining our operations in early January, including the decision to cease late stage clinical and commercial manufacturing, the annualized savings of $14 million from this restructuring are being realized. Research and development expenses for both the second quarters of 2012 and 2011 were $18.4 million.

General and administrative expenses were $3.6 million in the second quarter of 2012, a 42% reduction from $6.1 million incurred in the second quarter of 2011. The reduction in the 2012 second quarter was primarily due to decreases in stock-based compensation of $1.1 million, and decreases in professional service cost of $0.9 million.

The streamlining is expected to result in total restructuring charges of $4.6 million of which $2.5 million will be cash charges. In the second quarter of 2012, we took a restructuring charge of $676,000 primarily in the accelerated depreciation of leasehold improvements as well as moving expenses necessary to consolidate and reduce the cost of our ongoing facilities expense.

Our projection of total restructuring charges is significantly lower than when we spoke with you during our first quarter call. This is because we have been able to sublease our unneeded facilities as well as sell some of our unneeded equipment to CMC ICOS, a contract manufacturing company.

As you know, we issued warrants in conjunction with our financing in March. I know most of you joining us today understand warrant valuation accounting. But since many of our investors who listen to the replays of our call have varying experience with these matters, we believe we should walk through how the accounting for warrant works. So for those whom this is the standard procedure I hope you will just hold on for a couple of moment.

As a result of the increase in XOMA warrants that were granted as part our equity financing in early March and a significant subsequent increase in our stock price. We’re required to take a non-cash charge for this quarter, and we'll mark-to-market the value of our warrants on a quarterly basis. This means the contingent value of our warrants will increase or decrease each quarter based upon a formula that you will find spelled out in great detail in our Form 10-Q filed today.

On March 9, 2012, the fair market value of our warrants was estimated to be $6.4 million, using the Black-Scholes Model. In accordance with generally accepted accounting principles, we will revalue – the warrants liability on a quarterly bias using the pervious quarters’ value as the base line for adjustments.

On June 30, 2012, our stock price was higher than on March 31, 2012. Therefore, the warrants at the end of this quarter had a fair value of $23.3 million representing a $2.2 million increase, which we book as a non-cash charge in the revaluation of contingent warrant liabilities line in our statement of operation.

For the quarter ended June 30, 2012, we reported a net loss of $16.2 million or $0.24 per share, representing a net loss of $8.1 million or $0.27 per share for the quarter ended June 30, 2011. Excluding the $2.2 million non-cash charge reflecting the increase in fair value of our warrant liabilities, our net loss per share was $0.21 for the second quarter of this year. On June 30, 2012, we had cash, cash equivalents, and short-term investments of $66.9 million, including the $36.2 million raised during the equity offering compared with $48.3 million at the beginning of the year.

Today, we are reaffirming our 2012 guidance that we issued on January 5, we anticipate cash used in ongoing operating activities will be approximately $35 million. We expect our cash will be sufficient to fund our operations into 2014 and comfortably pass the time when we expect to report top line data readouts on the clinical trials that Paul has just discussed. I’ll turn the call back to John now.

John W. Varian

Thanks, Fred. Now, I’d like to briefly touch on our XMet program. XMetA is designed to provide long-acting insulin-like activity to diabetic patients who cannot make sufficient insulin. This has the potential to reduce the number of insulin injections needed to control their blood glucose levels.

XMetS is designed to reduce insulin resistance and could enable diabetic patients to more effectively use their own insulin to control blood glucose levels. We continue our conversations with the world’s best diabetes drug development companies, and there is clear interest in the potential of these two XMet assets. \

The key for us is to get the right long-term value for these potential game changing assets. I believe these assets can best be developed for the broad diabetes market by one of the large pharma companies with whom we are speaking. We continue to work to build the profiles of XMetA and XMetS. We will license them and we believe the value received is adequate.

XMetD is an asset XOMA also discovered in the same insulin receptor program. We believe, we could potentially develop this asset on our own for several orphan indications. We are at the early stages of considering the impact that we’d come along with moving up the development activities for XMetD. I’m very hesitant to increase our burn rate, there could be significant value and expanding our clinical pipeline, in addition to – in these additional orphan indications.

Before I turn the call over for Q&A, I’d like to outline the milestones you should expect from us through the end of the third quarter. First, we will closely work with our CRO to enroll patients in the non-infectious uveitis and erosive osteoarthritis studies.

Second, we anticipate Servier will begin the Behcet’s uveitis Phase 3 study. Third, we believe, we will complete the design for begin the supplemental safety study designed to meet FDA requirements for the gevokizumab safety database. Fourth, we believe, we will be able to complete enrollment in the acne study, which is consistent with our projection of top line data by year-end. Fifth, we expect we will complete the agreements enabling us to initiate our third phase 2 proof-of-concept program.

While, December is pretty quite for scientific meetings, our team will be making presentations in September and Paul, Fred and I will be at the Wedbush Conference next week.

So as we ask the operator to start up the queue for questions. I'll repeat what I hope you’ve heard today. We have a great candidate in gevokizumab. We have a broad clinical plan to give the proxy good opportunities at initial pivotal studies, as well as an opportunity to point us in the right direction for the next large scale clinical program. There is good interest in our XMet program, and we will license it, and we can attain the appropriate value for the company and our shareholders.

Our unique financing structure for the perindopril, amlodipine FDC study gives us the clinical data necessary to file an NDA, and assuming these data are positive, and the cash neutral manner to the company and our shareholders. We have the right people in place to grow the company, and we have the financing in place to focus all of our intention executing on our strategy. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Simos Simeonidis with Cowen and Company. Your line is open.

Unidentified Analyst

Hi guys, this is (inaudible) calling in for Simos. Thank you for taking my question. I have a question on gevokizumab. Could you let us know how many patients have been enrolled so far? have you started treating patients already in the Phase III trial? And also if you can let us know when do you expect to complete the enrollment?

John W. Varian

Yeah. Right now again, I don’t know the total number, but there have been quite a few patients that have been screened in their various stages of screening process. The plan is to complete enrollment in such a matter that will allow us to get top line data by the end of next year.

Unidentified Analyst

Great, thanks. And then another question, previously you have indicated that Servier will initiate a Phase II trial in cardiovascular disease. Do you still expect them to initiate the trial, and when do you expect them to initiate? Thanks.

Paul D. Rubin

Thank you. And so at this point, we still expect them to initiate a study as they had indicated to us. We have been in some very good detailed conversations with them, not only about the initial studies, but about the long-term cardiovascular plan. And so we do expect them to start the initial studies soon and hopefully by the end of this year. But we do in fact, I think we’ve learned quite a bit more about the long-term plans in cardiovascular. And as those plans are finalized, we’ll be able to share more with you about the longer-term cardiovascular plans.

Unidentified Analyst

Thanks. I’ll get back in the queue.

Paul D. Rubin

Servier’s real expertise is cardiovascular. and so this is an area that’s very near and dear to their heart. And so having an indication for gevokizumab in cardiovascular is very important to them.

Operator

Thank you. Our next question comes from the line of Adnan Butt from RBC Capital Markets. Your line is open.

Adnan Butt – RBC Capital Markets

First congrats on the first product sales, but my question is on gevokizumab first, you mentioned safety database, so do you anticipate needing more [placements] and then what's projected in that pivotal studies to fulfill that requirements for the safety database?

Unidentified Company Representative

Yeah, it's really a question of whether the high dose or the middle dose ends up being approved. If it’s the middle dose there should be no problem, if it’s the higher dose there might be not a huge number, but a few extra patients that might be required for these prolonged period, and that's why we would initiate this supplemental safety study just to ensure that we have that covered.

Unidentified Company Representative

But very importantly both from a timing and spent standpoint, we have always assume that we would need the number of patients at the highest dose, because we want to make sure that’s done and available at the time of the filing of BLA, so it's crucial to have that done and out of the way and again this building of the safety database around the highest dose has been planned both in our timing and our spending projections from day one.

Adnan Butt – RBC Capital Markets

Okay. And then has it been disclosed what dose survey book they are using for the big [patient] study?

Unidentified Company Representative

No, and in fact as part of these Phase II results they have in fact selected their dose, but for competitive reason, they've asked us not to disclose that does until they’re ready to disclose that dose. And so there is a single dose that’s been selected and as you could probably imagine it's – there’s two different doses we’re using in our Phase III study you want to assume it’s one of those two, right. And so we won’t disclose until they’re ready for to be disclosed, but it has been selected.

Adnan Butt – RBC Capital Markets

Okay. Can you remind me again what the total time as for patients to be followed on the NIU and Behcet’s studies?

Paul D. Rubin

Sure, NIU (inaudible) John.

John W. Varian

You’re talking about from a safety perspective?

Adnan Butt – RBC Capital Markets

Well, actually just if you remind me for the primary efficacy end point and then anything beyond that?

John W. Varian

The primary efficacy end point for the trial that we’re initiating is actually after two months of exposure, so it’s actually after 56 days.

Adnan Butt – RBC Capital Markets

Okay.

John W. Varian

So, as soon as that last patients in its 56 days, we’ll be able to do the primary efficacy analysis. The Behcet’s trial, we haven’t given as much detail on. It’s a different type of a design than we’re using. It’s actually patients that are stable that will undergo a post-titration. So those patients will be followed for certain period of time, until we get a certain number of events that we’re going to allow us to do the analysis.

Adnan Butt – RBC Capital Markets

Okay. And then is there’s sufficient supply available even with anticipating the additional patients for the safety study?

John W. Varian

Yeah, there is no issue in terms of drug supply for any of our clinical endeavors and support of the manufacturers’ uveitis submission. It will have our proof-of-concept trials.

Adnan Butt – RBC Capital Markets

Okay.

Paul D. Rubin

Yeah, we have plenty of materials and we also have based upon the [DI] timetable with lots of leeway within it. We have plenty of room for us to have clinical supply and have commercial supply and for a BLA filing.

Adnan Butt – RBC Capital Markets

Okay, just one question, and then I’ll get back in queue. When this data from 985 expected?

Paul D. Rubin

985, okay…

Adnan Butt – RBC Capital Markets

(Inaudible)

Paul D. Rubin

Okay, our FTC study, I’m sorry.

Adnan Butt – RBC Capital Markets

Yes.

John W. Varian

We announced the start of this study last March, when we started we said it would be a 12-month study. As I said earlier, we are at 88% enrollment as of now. So I think that March date is very safe.

Adnan Butt – RBC Capital Markets

Okay, thanks. I’ll get back in queue.

Unidentified Company Representative

Sure, thank you.

Operator

Our next question comes from the line of Matt Kaplan with Ladenburg Thalmann. Your line is open.

Matthew Kaplan – Ladenburg Thalmann & Co.

Hi guys. Thanks for taking my question.

Unidentified Company Representative

Hi, Matt.

Unidentified Company Representative

Few of them, just starting off with the supplemental safety study, kind of a follow-up to the prior question with respect to the Phase III. With the endpoint of 56 days, our patients going to be enrolled in an open-label extension study and free to capture longer term safety dial in that setting. And then I guess kind of the, with respect to supplement or safety study. all those going to be NIU patients or is that what type of patients are you now enrolling in the safety study?

Matthew Kaplan – Ladenburg Thalmann & Co.

Okay. First, I think the study that we’re doing in non-infectious uveitis actually calls for patients to be exposed for up to one year. It’s likely that the end of that period of time, we’ll put an additional extension to keep as many patients on the drug as we possibly can between the time of study, completion and ultimate hopefully, approval product. So, these patients once are in the study, providing their loss to follow-up or have an adverse event should be on the drug in prep two that will be the objective in anyway.

Unidentified Company Representative

That calls for basically one-year study and then patients could be at the end of that stake, they extended portfolio. Okay.

Unidentified Company Representative

That's our plan. Obviously, we haven’t designed that compassionate used part of the protocol yet. Could you repeat the second question?

Matthew Kaplan – Ladenburg Thalmann & Co.

The supplemental study what type of patients are you going to enroll in the safety study?

Unidentified Company Representative

The intention is to loosen the criteria. so certainly patients with non-infectious uveitis, and that can, in our studies that can include in the United States, patient with Behcet’s uveitis. So, the enrollment will be – we won’t be a strict as their baseline entry severity.

Matthew Kaplan – Ladenburg Thalmann & Co.

Okay. And then thank you for the updates in terms of proof-of-concept studies. You spoke quickly with respect to that, can you give us just restate the number of patients are enrolled in EOA study in the act of severe acne study…?

Paul D. Rubin

Yeah, we haven’t stated again BLAs early days. So, we’re in the process of opening the studies and are having patients that have been screened and dosing. But we haven’t given numbers as of yet.

Matthew Kaplan – Ladenburg Thalmann & Co.

Okay.

Paul D. Rubin

So, we’re still in the process of getting the full complement of studies open, and if you recall that the protocols were viewed by updating June, so we couldn’t really start opening and getting approval until July. So, we’re just in the process of doing that.

Matthew Kaplan – Ladenburg Thalmann & Co.

And how many sites you’re going to have within the EOA?

Paul D. Rubin

We have a total of 20 sites and all will be on board by October.

Matthew Kaplan – Ladenburg Thalmann & Co.

Okay.

Paul D. Rubin

In the acne study there are 54 patients I believe that are dosing 55 patients that have been randomized. And we have another 16 in screening. So that’s where we are right now.

Matthew Kaplan – Ladenburg Thalmann & Co.

And then with your new assumptions with respect to variability what are the numbers that you’re shooting for now for total numbers?

Paul D. Rubin

When we look at the variability calculations, the number of patients per group is significantly less, although we haven’t said exactly what they are. But it does give us the flexibility should we needed going forward of doing an analysis sooner or rather than later.

Matthew Kaplan – Ladenburg Thalmann & Co.

Okay.

John W. Varian

But key products and this is our internal decision is that we want to make sure we’re fully covered with the plenty of patients to make sure we get to an answer that we can count on, yeah.

Matthew Kaplan – Ladenburg Thalmann & Co.

Is it like 50% less than what you expect and understand it?

John W. Varian

It will be flat.

Matthew Kaplan – Ladenburg Thalmann & Co.

Significantly, less.

John W. Varian

It’s meaningful after the point where we’re very comfortable then we can get good power and have the patient enrolled for a good analysis in the times that we talked about.

Matthew Kaplan – Ladenburg Thalmann & Co.

Yeah, okay. And just on the follow-up question on the Phase 3 that uveitis trials and Behcet’s disease, is there anything else that they need to complete the size, the PK study which I guess is the play of interim analysis there, before they start to Phase 3 and anything that could delay it longer than the third quarter such that this could affect the timing of the BLA at all?

John W. Varian

Yeah, again we don’t anticipate anything right now. The things that are gating are really getting kind of country by country regulator approvals and Ethics Committee approvals and things like that. So, we at least at this stage, we’re not aware of anything else that could conceivably delay it. They’ve been working extremely hard on this over the last couple of months to get this ready to go. And so we’re right in the middle of it all, and so we feel very good about their effort to get this thing up and running on time, and then it looks like everything is in place to do that at this point.

Paul D. Rubin

Yeah, again it’s just waiting for final regulatory type approvals, but this is on a country by country basis.

Matthew Kaplan – Ladenburg Thalmann & Co.

And I guess once they start, you will be able to share additional filings in terms of design and timing.

John W. Varian

Yes.

Matthew Kaplan – Ladenburg Thalmann & Co.

And then just one question for Fred, I want to leave now. With the restructuring and the sale of the manufacturing plant, it sounds in term of the SG&A that we saw this quarter and kind of going forward what should expect?

Fred Kurland

Well, we had given guidance at the beginning of the year that we thought that SG&A for 2012 will be approximately 20% less than that reported in 2011, and we’re sticking with that guidance. That would guesstimate that as you follow the numbers for first quarter and second – and go into the second half of the year that if you use that 20% parameter, which we still think it’s accurate, it’s pretty easy to calculate. It’s a little bit higher than what we’ve reported in the second quarter.

Matthew Kaplan – Ladenburg Thalmann & Co.

Okay, enough. And then in terms of the restructuring charge, you said that you don’t expect that to be a high as you first anticipated. What are you expecting now?

Fred Kurland

We expect that with the exception of maybe $100 or $2,000, a very small amounts that were done.

Matthew Kaplan – Ladenburg Thalmann & Co.

Okay.

Fred Kurland

And that’s of course on the strength of this deal that I mentioned in my remarks, the subleasing of our unneeded facilities to this other company.

John W. Varian

Yeah, I mean I just say, I think our business development and finance teams did a spectacular job. When we set up the estimated cost, first we go to the straight lining, we didn’t assume that anybody would take this thing over for the remaining eight months or so that we had on and it could be a cost, but it was the cost well spent to get out there. The fact that these guys were able to pull together this deal and save us a couple million bucks, okay. But I want to make sure, I don’t say it wrong, a couple million dollars on what would have just been money that would just big loss was a really nice effort. And so we didn’t expect it and it happened and we are really happy it did, and it was really nice job by the teams to do that.

Matthew Kaplan – Ladenburg Thalmann & Co.

I have that answer (Inaudible) you on that, that’s impressive how quickly that it done.

Unidentified Company Representative

All right, congratulate it on myself. It wasn’t me though – it’s (inaudible) surprising so…

Unidentified Company Representative

You did a real nice job in addition to sub-leasing the property, the same company hadn't, I guess the quite logical that they had an interest in the equipment that we no longer needed and so they purchase some of that too, so that even help further.

Matthew Kaplan – Ladenburg Thalmann & Co.

Okay. Well, congrats on the progress. And thanks for taking my questions again.

Unidentified Company Representative

Thank you.

Unidentified Company Representative

Thank you.

Operator

Our next question comes from the line of Liana Moussatos with Wedbush Securities. Your line is open.

Liana Moussatos – Wedbush Securities

Congratulations on your quarter, and for taking my question. Can you tell me, I mean you gave the sort of some guidance on ACEON first full year $2 million to $3 million, are you counting calendar year 2013 or Q2 through Q1?

Fred Kurland

Yeah, I'm really, thank you Liana, hello. We are counting really the full 12 months of sales, so basically, I think you its April 1 through March 31, we think it would be between $2 million and $3 million. As we said, we have 569 sales in this quarter, what we don't know is whether there were still some inventories and stock during this quarter that will be used up that's next quarter will be higher or we just don't know that yet, so what we can say today is we did 569 in the first quarter, which an annualized rate put us over two. We don't know if there is still some old inventory with some of the distributors that would be to [shoot] up that will start becoming orders for us to going forward, so that's what we given the fairly wide range. If you remember, the last 12 months, trailing 12 months when we took the price over was about $2.8 million. So that's another guideline.

Liana Moussatos – Wedbush Securities

Okay. And then what do we think about cost of sales going forward. How should we think about that?

Unidentified Company Representative

With ACEON?

Liana Moussatos – Wedbush Securities

Yes.

Unidentified Company Representative

Yeah, it's our total cost of sales, distribution, et cetera, is somewhere between 15% and 20% of the sale price.

Liana Moussatos – Wedbush Securities

Okay. And what was the stock-based compensation in the quarter?

Unidentified Company Representative

Total stock-based compensation for the quarter is $1.2 million.

Liana Moussatos – Wedbush Securities

Thank you very much.

Fred Kurland

Thanks, Liana.

Operator

Thank you. Our next question comes from the line of Thomas Yip with MLV & Co. Your line is open.

Thomas Yip – MLV & Co.

Good afternoon, everybody. And thank you very much for taking my questions.

John W. Varian

Thank you.

Thomas Yip – MLV & Co.

My first question is under the partnership terms with Servier for the development of gevokizumab for the NIU indication. we officially enter the 50% reimbursement for R&D expenses they’ve got?

Fred Kurland

Thomas, the answer is no. We do expect, as you might expect, we’re approaching it, but we’re not there yet. And all of our projections have consistently taken this very important fact into account as we’ve made our cash projections.

John W. Varian

Yeah. So just to reiterate what Fred said earlier, the cash that we have in place with the spend that we expect. We have cash to take this well into 2014 and all of the assumptions [around when] we cross that $50 million are built into that set of spending assumptions.

Thomas Yip – MLV & Co.

Okay, okay. Thanks. So my second question is, can you give us an update on XOMA 3AB, sponsored with some – the study that’s sponsored by NIAID?

John W. Varian

Okay. We’re all looking at each other.

Thomas Yip – MLV & Co.

Yeah.

John W. Varian

So there’s really not much new this quarter, we had finished the Phase 1 study, Fred looking I’m even more excited. So there hasn’t been a lot of activity from a clinical standpoint on the NIAID program this quarter, what we have seen is, that we’ve continued to work under the NIAID contracts, and produce our product for the future for future studies we hope. and we’ve been reimbursed for that. But there really haven’t been any clinical events around the whole NIAID program at all this quarter.

Thomas Yip – MLV & Co.

Okay, all right. Thank you. Just wondering…

Paul D. Rubin

Sorry about that…

Thomas Yip – MLV & Co.

That’s okay…

John W. Varian

Okay.

Thomas Yip – MLV & Co.

Well, congratulations on the great quarter.

John W. Varian

Thank you, thank you.

Operator

Thank you. our next question comes from the line of Ritu Baral with Canaccord. Your line is open.

Whitney Ijem – Canaccord Genuity Inc.

Hi guys. Thanks for taking the question. This is Whitney on for Ritu. Quick question about the NIU Phase 3 that you’ve just started, what are the secondary end points for that, and what is the powering for that trial?

John W. Varian

Well, the study has powered, it has a 90% power to show a difference in our primary end point, which as you know is a responder analysis in the number of patients that show at least a two point improvement in vitreous haze. So we have significant power, and its power strictly of the primary end point. so the power has not been calculated as the function to the secondary end points, so it’s difficult to answer that question.

The secondary end points do include a visual acuity is probably one of the most important ones that we’re looking at. and then also there are secondary end points filed with timing of the change in vitreous haze at different points in time, and also in things like numbers of treatment failures. So I think those are probably the main secondary end points that we’re looking at.

Whitney Ijem – Canaccord Genuity Inc.

Okay, great, thanks. And then in terms of the treatment of NIU across the geographies, are there any sort of treatment differences in terms of standard of care and baseline Servier?

John W. Varian

I think that there certainly are probably little tweaks, but I think the main drugs used are the same independent of where you look. There are different biologics available in different countries. But I think that biologics are always I believe at this stage and we’re really talking about anti-TNF kind of treasury. So almost all patients are treated at some point in time with doses of systemic corticosteroid and doctors try to temper the amount of steroids by using various immunosuppressants that include the usual immunosuppressants such as azathioprine, methotrexate, cyclosporine. So I think it’s the same drugs independent of part of the world.

Whitney Ijem – Canaccord Genuity Inc.

Okay, great. And then in terms of enrollment, is there a dose that is an exclusion criteria or is everybody at the 10 doses to (inaudible)?

Unidentified Company Representative

Yeah, they have to be somewhere between 10 and 25 milligrams of steroid to – to be in the trial.

Whitney Ijem – Canaccord Genuity Inc.

Oh, got it. Okay, great. Thanks for taking the questions.

Unidentified Company Representative

It’s okay.

Operator

Thank you. Our next question comes from the line of Joe Pantginis from Roth Capital Partners. Your line is open.

Joseph Pantginis – Roth Capital Partners

Hi, guys. Thanks for taking my question. Sorry, if I missed something earlier, we had some technical difficulties here in New York or entire phone system just shutdown and (inaudible). So, I apologize, just quick question on the Xnet program. Obviously your primary goal is to monetize and get the best deal you can. Is it possible you’re just looking at different options or like where you can do individual products or essentially monetizing with one partner both A&F? Just wanted to get some sense of the kind of options that are out there and then also are you willing to discuss any what the orphan indications are Freddie that you might be able to straight forward and then I have a follow-up. Thanks a lot.

John W. Varian

Okay. Let me answer the question A and that’s first. And then I think we won’t go into the orphan indications, I don’t think at this point. But I’ll let Paul think about that, well I’m speaking here. You can speak generally about it, I guess as what I would say.

Paul D. Rubin

On A&F, what’s interesting is it seems that most of the companies that were talking to really want both products and it’s been difficult for us to have separate deals on around both A&S and it has to do with both, the review would risk and fall backs and all those sort of things right. So it makes a more complicated situation because we want to make sure that both A&S are at a stage were we get full value for each of them in the deal that we do.

So we would – we have tried to think of those as two separate assets as we talk to companies but I would say that it’s been really driven by their interest, but they really want both because they want to commit to the full program rather than just one half of the program is based here. So I think it will be a deal that we do were both A&S go together if I had to guess.

On XmetD, the orphan indication is probably, you can talk may be generally around the sort of things useful it sure.

Unidentified Company Representative

Yeah, so we can about it’s a – I think as many of you know XmetD is essentially a inhibitor of insulin signaling, that it’s an finds to an orthopedic side on the insulin receptor. So in theory, this could be useful for any number of a series of diseases where there is too much insulin which results in hypoglycemia.

So if you look at the literature, there is a number of kind of orphan like indications that found to that category, and we’re trying to determine, which ones will be the easiest to develop, the fastest develop things like that. But any type of either normal insulinemic or hyperinsulinemic hypoglycemia might be amendable to this type of therapy.

Joseph Pantginis – Roth Capital Partners

That’s helpful, thank you, and I apologize a few addresses in a prior question but just want to get some sense here. Obviously you gave some on this my interpretation in positive body language surrounding the active program even though its still blind which gave you the opportunity to reduce your enrollments assumptions while maintaining the power. so I interpret that as I mean positive despite being blinded. With that said, 10-Q have these sort of incremental data points to go from, have your potential plans for the program changed in anyway, assuming the Phase 2 as positive?

John W. Varian

Yeah. We can’t really comment and I really don’t know, if it’s we interpret; all we can say is that the variability is less. And that was done in a completely blinded manner. So that’s all we can say about that. And at this stage, our plans haven’t changed.

Paul D. Rubin

Yeah. Just to say, I think it’s really important for people to understand that when we launched this whole proof-of-concept program, the idea was not that every single one of these POCs is going to work and each point is going to turn into a Phase 3 program. what we want to do is, look at the proof-of-concept study results really as a whole. and as we learn, which indication has the most promising profile for us to take forward in the Phase 3; we want to pick that one.

So even in context of what result we get in the acne study, there probably won’t be an immediate reaction to that. Even if it were very positive, because what we want to see two is how the erosive osteoarthritis study comes out, and then this third POC indication, which again will be right in the timing to be part of this mix. So we’re doing this POC study as part of an overall program to lead us in the right direction. And I know that would probably get lost as we go along the way and we announced each study results, but if we do still and are committed to looking at as an overall program to lead us to our next steps.

Joseph Pantginis – Roth Capital Partners

Great, that’s very helpful. Thanks a lot guys.

Paul D. Rubin

Sure.

John W. Varian

Sure.

Operator

Thank you. And our final question comes from the line of Adnan Butt with RBC Capital Markets. Your line is open.

Adnan Butt – RBC Capital Markets

Thanks for letting me back, and I just thought, I’d ask a couple of perindopril questions. Assuming that combination trial shows superiority over the individual components, so have you given some thought as to what’s your filing strategy would be. and then secondly, do you have other combinations in mind that you’d pursue if just strong or positive?

John W. Varian

Yeah. So we’re really taking it in a little bit of a stepwise approach. So of course, if we get good date out of the study, we would plan to file the NDA here in the U.S. and move forward with it. The key question for us is how will it be commercialized and that’s where we’re spending a lot of time again talking to Servier and thinking about ourselves as what’s the best way to in a very low risk way, take advantage of the commercial opportunity for this product. So, as that could pretty strongly imply to my comments, we would look at third parties we actually have at sales force that would match up. we’d also look at some maybe more creative or alternate ways to be able to actually get to the marketplace. But in the way that doesn’t put XOMA’s shareholders at risk for the commercial launch of this product.

So we’re really committed to doing that in a way that it’s extremely low risk that gives us an ability to capture some of the commercial value. When it come to other combinations, again stepwise approach once we see the results from this and make our decisions around this. we’ll make our next decisions around this and makes sense to go forward with the next combination or the next or the next. And under our agreement with Servier, we have the right to do that combined. Trying to go with lots of different combinations, some which are extremely obvious and other ones that are even fairly creative. So it allows us a lot of flexibility, but we’re committed doing this in a very stepwise approach without putting the capital committed to gevokizumab at risk and anyway.

Adnan Butt – RBC Capital Markets

Sure. Thanks, John.

John W. Varian

Sure. Okay. Well, thank you joining us. Fred, we’re going to…

Fred Kurland

(Inaudible)

John W. Varian

Okay.

Operator

That concludes our question-and-answer session. at this time, I’d like to turn the call back to John W. Varian for closing remarks.

John W. Varian

Okay. Start to step there. Okay. Thank you for joining us on our call today. It really was an extremely important quarter for us. And so it’s a little funny, because a lot of what we’ve talked about in this quarter, and lot of the real results for this quarter were initiating and commencing some things. And those of you who know me, if heard me say several times that starting things or initiating things are not quite as exciting as finishing it, but I’ve always said we can’t ever finish something if we don’t started. So, this is a really important quarter for us to get those two studies up and started and getting this manufacturing transition in underway. So crucial quarter for us, and we look forward to hopefully telling you the results of all those things that we initiated this last quarter. All right, thanks very much.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does concludes program, and you may all disconnect. Everyone have a great day.

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