1. Description of Business

XOMA Corporation (“XOMA” or the “Company”), a Delaware corporation, combines a portfolio of clinical programs and research activities to develop innovative therapeutic antibodies that it intends to commercialize. XOMA focuses its scientific research on allosteric modulation, which offers opportunities for new classes of therapeutic antibodies to treat a wide range of human diseases. XOMA’s scientific research has produced six product candidates to treat diseases within the endocrine therapeutic area.  These include candidates from the XMet platform, which consists of several Selective Insulin Receptor Modulator antibodies that could offer new approaches in the treatment of metabolic diseases. The lead compound from the XMet platform, XOMA 358, is a fully human monoclonal allosteric modulating antibody that binds to insulin receptors and attenuates insulin action.  XOMA intends to investigate this compound as a novel treatment for non-drug-induced, endogenous hyperinsulinemic hypoglycemia (low blood glucose caused by excessive insulin produced by the body). In October 2015, the Company initiated a Phase 2 proof-of-concept study for XOMA 358 in patients with congenital hyperinsulinemia.  XOMA’s endocrine portfolio also includes a Phase 2 ready product candidate targeting the prolactin receptor as well as other preclinical or research stage programs.  XOMA is also engaged in Phase 3 development for gevokizumab, an interleukin-1β (“IL-1β”) modulating antibody, in pyoderma gangrenosum (“PG”), a rare ulcerative skin disease.  The Company’s products are presently in various stages of development and are subject to regulatory approval before they can be commercially launched.

On July 22, 2015, the Company announced the Phase 3 EYEGUARD-B study of gevokizumab in patients with Behçet’s disease uveitis, run by Les Laboratoires Servier and Institut de Recherches Servier (“Servier”), its partner for gevokizumab, did not meet the primary endpoint of time to first acute ocular exacerbation. In August 2015, XOMA announced its intention to end the EYEGUARD global Phase 3 program.  In September 2015, Servier notified XOMA of its intention to terminate the Amended and Restated Collaboration and License Agreement dated February 14, 2012, as later amended on November 4, 2014 and January 9, 2015 (the “Collaboration Agreement”), and return the gevokizumab rights to XOMA. Termination of the Collaboration Agreement will be effective on March 25, 2016. Servier and XOMA are in the process of closing down the EYEGUARD clinical sites in an orderly manner such that if any of the data is positive it may be useful in the future.  

Liquidity and Management Plans

The Company has incurred operating losses since its inception and had an accumulated deficit of $1.2 billion at September 30, 2015. Management expects operating losses and negative cash flows to continue for the foreseeable future. As of September 30, 2015, the Company had $32.0 million in cash and cash equivalents, which is available to fund future operations. On September 30, 2015, the Company entered into a license agreement with Novartis International Pharmaceutical Ltd. (“Novartis”) under which XOMA will receive a $37.0 million upfront license fee, which was reported as accounts receivable in the condensed consolidated balance sheet as of September 30, 2015 (see Note 4).  In addition, Novartis Vaccines and Diagnostics, Inc. (“NVDI”) amended the secured note agreement and extended the maturity date of the Company’s outstanding debt of $13.5 million, previously due on September 30, 2015, to September 30, 2020 (see Note 7). Taking into account the receipt of the $37.0 million license fee in October 2015, the deferral of $13.5 million in debt, and certain cost cutting measures enacted by the Company in the second half of 2015, the Company expects it has adequate funds to maintain operations for a period of at least 12 months following the end of the third quarter of 2015.