UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended September 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Transition Period from ________ to ________
Commission File No. 0-14710
XOMA CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 94-2756657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2910 Seventh Street, Berkeley, CA 94710
(Address of principal executive offices) (Zip Code)
(510) 644-1170
(Registrant's telephone number including area code)
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Secu-
rities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing require-
ments for the past 90 days.
Yes_X__ No ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock, $.0005 par value ____ 24,554,650______
Class Outstanding at
September 30, 1995
<PAGE>
XOMA CORPORATION
Table of Contents
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets as of
September 30, 1995 and December 31,
1994............................................ 1
Condensed Statements of Operations
for the Three and Nine Months Ended
September 30, 1995 and 1994..................... 2
Condensed Statements of Cash Flows
for the Nine Months Ended
September 30, 1995 and 1994..................... 3
Notes to Condensed Financial
Statements...................................... 4
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations...................................... 7
PART II OTHER INFORMATION
Item 1 Legal Proceedings............................... 10
Items 2, 3, 4 and 5 are either inapplicable or
nonexistent and therefore are omitted
from this report
Item 6 Exhibits and Reports on Form 8-K................ 10
Signatures........................................................ 11
-ii-
<PAGE>
XOMA CORPORATION
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
(Unaudited) (Audited)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 19,115 $ 3,576
Short-term investments 6,181 36,074
Interest and other receivables 505 856
Inventory (see Note 4) -- 4,170
Other current assets 351 822
-------- --------
Total current assets 26,152 45,498
Assets held for sale (see Note 5) 3,982 --
Property and equipment, net 7,084 15,448
Other assets 2,338 1,483
------- ----------
$ 39,556 $ 62,429
-------- --------
Liabilities and Stockholders' Equity:
Accounts Payable $ 1,179 $ 1,415
Other current liabilities 4,828 8,968
-------- --------
Total current liabilities 6,007 10,383
Non-current liabilities (See Note 3) 1,304 8,585
Stockholders' equity 32,245 43,461
-------- --------
$ 39,556 $ 62,429
-------- --------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
-2-
XOMA CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
<S> <C. <C> <C> <C>
Revenues:
Collaborative agreements $ -- $ -- $ -- $ 136
License fees 8 38 1,063 1,388
Product sales and royalties 17 84 71 167
------- ------- ------- --------
25 122 1,134 1,691
------- ------- ------- --------
Expenses:
Cost of products sales -- 2 -- 2
Research and development 5,227 6,793 17,280 20,165
General and administrative 1,182 1,993 4,437 6,702
------- ------- ------- -------
6,409 8,788 21,717 26,869
------- ------- ------- -------
Loss from operations (6,384) (8,666) (20,583) (25,178)
Other income (expense):
Investment income 429 603 1,523 1,672
Other income (expense) 1,882 23 1,920 (42)
(See Notes 3, 4 and 5) -------- ------- ------- --------
Net loss $ (4,073) $ (8,040) $ (17,140) $ (23,548)
Net loss per share $ (0.17) $ (0.36) $ (0.74) $ (1.08)
Weighted average common
shares outstanding 24,268 22,174 23,034 21,835
</TABLE>
See accompanying notes to financial statements.
<PAGE>
-3-
XOMA CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating
activities $ (20,480) $ (21,544)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of short-term investments 61,635 266,358
Payments for purchase of short-term
investments (31,627) (262,424)
Change in unrealized gain (loss) on
investments -- (111)
Capital expenditures (318) (1,072)
---------- ----------
Net cash provided by (used in)
investing activities 29,690 2,751
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale and leaseback of equipment 1,800 ---
Proceeds from issuance of common stock 4,925 ---
Capital lease principal payments (396) (486)
---------- ----------
Net cash provided by (used in)
financing activities 6,329 (486)
--------- ----------
Net increase (decrease) in cash and
cash equivalents 15,539 (19,279)
Cash and cash equivalents at beginning
of period 3,576 23,490
--------- ---------
Cash and cash equivalents at end of period $ 19,115 $ 4,211
--------- ---------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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XOMA CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The interim information contained herein is unaudited
but, in management's opinion, includes all normal recurring
adjustments which are necessary for a fair presentation of
results for the periods presented. Interim results are not nec-
essarily indicative of results to be expected for the full year.
The financial statements should be read in conjunction with the
Company's financial statements for the year ended December 31,
1994.
2. Amendment to Pfizer Agreement
During the third quarter of 1995, XOMA and Pfizer Inc.
("Pfizer") agreed to modify the funding arrangement of the
current E5\ clinical trial, so that XOMA may at its option reduce
its contribution towards the cost in return for an agreed
reduction in future royalties to be paid by Pfizer. The
agreement also modifies the formula for paying the Company's $8.5
million obligation to Pfizer for litigation expenses solely by
reduction of future royalties. The maximum royalty reduction in
any one year will be 30% of the royalty otherwise payable on
Pfizer's U.S. sales of the E5\ product, until such time as the
amounts owed are fully paid.
3. Litigation Accrual
Based on the recent agreement concluded with Pfizer,
XOMA management has no reliable basis for anticipating when or
whether the $8.5 million litigation cost, previously recorded as
a non-current liability will have to be paid by the Company.
Accordingly, due to its contingent nature, this liability has
been eliminated from the balance sheet. The $8.5 million gain
from elimination of this liability is included in Other
Income/(Expense).
4. Inventory Reserves
The Company has maintained a $6.9 million reserve
against its product inventories of $11.1 million, leaving a net
inventory balance of $4.2 million. These inventories consist of
<PAGE>
-5-
E5\ raw materials. Concurrent with the elimination of the lia-
bility for litigation expense, the Company has recognized a 100%
reserve against E5\ inventory. The resulting $4.2 million loss
is included in Other Income/(Expense).
5. Building for Resale
In 1992, XOMA completed construction on a building to
be used in the production of its CD5 Plus~ product. Late in
1994, XOMA made the decision to discontinue development of this
product, and has been evaluating alternative uses for the facil-
ity. During the third quarter of 1995, the decision was made to
attempt to sell the facility. The net book value of the facility
as of September 30, 1995 was approximately $6.4 million. The
Company has written the facility down to a value of $4.0 million,
and classified it as an asset held for sale. The resulting $2.4
million loss is included in Other Income/(Expense).
6. Restructuring
The activities in the first six months of 1995 affect-
ing the restructuring accrual established in the fourth quarter
of 1994 are as follows:
In Millions
Original amount accrued $2.5
Charges against the accrual 2.0
Adjustments to the accrual --
7. Supplemental Cash Flow Information
In the first nine months of 1995 the Company paid an
$0.8 million preferred stock dividend by issuing 252,745 shares
of common stock.
In July 1995, investors converted 7,808 shares of the
Company's Series B Preferred Stock into 1,501,731 shares of com-
mon stock.
8. Financings
In July 1995, the Company raised $1.8 million from the
sale and leaseback of certain assets. In August 1995, the
<PAGE>
-6-
Company issued 4,799 shares of its Convertible Preferred Stock,
Series C to foreign investors in an offering exempt from regis-
tration under the Securities Act of 1933 in reliance on Regula-
tion S thereunder. The offering yielded net proceeds to the Com-
pany after expenses of $4.2 million. For two years after issu-
ance, the Series C Preferred Stock will be convertible by the
holder into Common Stock of the Company at a conversion price
equal to 80% of the then current market price of the Common
Stock. After two years the Series C Preferred Stock may be con-
verted by the Company at the same conversion price. The Company
will not be required to issue more than approximately 4.5 million
shares of Common Stock upon conversion of shares of Series C Pre-
ferred Stock, but may instead obtain stockholder approval or
redeem such shares at a 25% premium to liquidation value. In
June and July 1995, the Company also issued 470,859 shares of
common stock in reliance on Regulation S for net proceeds of $0.7
million.
<PAGE>
-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Revenues in the first nine months of 1995 consisted
primarily of license fees and technology sales, of which
$0.2 million consisted of cash received in connection with the
Company's ING-1 technology license, and $0.9 million consisted of
an additional long-term interest bearing note related to XOMA's
TCR peptide technology which was sold in 1994. Revenues for the
first nine months of 1994 included $1.4 million for the sale of
TCR peptide technology. Revenues in the third quarter of 1995
and 1994 were not significant.
Research and development expenditures in the first nine
months of 1995 were $17.3 million, a 14% reduction versus the
comparable 1994 period. For the third quarter of 1995, research
and development expenditures were $5.2 million, a 23% reduction
versus the third quarter of 1994.
General and administrative expenses were $4.1 million
in the first nine months of 1995, or 34% below the comparable
1994 period. Third quarter expenses of $1.2 million were 43%
below last year.
Overall, 1995 operating expenses showed savings of 19%
and 27% versus 1994 for the nine month and three month periods,
respectively. These savings reflect the benefits of the restruc-
turing undertaken in the fourth quarter of 1994, which was
intended to reduce operating expenses and to focus the Company's
development efforts on Neuprex~ and other products derived from
BPI.
Investment income in the nine and three month periods
of 1995 were both approximately $0.2 million below 1994, as lower
investment balances were only partially offset by more favorable
interest rates.
During the third quarter, XOMA reached an agreement
with Pfizer to amend the cost sharing arrangement for the current
ongoing Phase III clinical trial for the Company's E5 product and
certain other matters. This amendment gives the Company the
option to pay a reduced share of future costs for this trial, in
return for reduced future royalty payments by Pfizer on U.S.
sales of the product. The Company has also increased its
reserves against its E5\ inventories to provide full coverage.
<PAGE>
-8-
Finally, the Company made the decision to attempt to sell its
facility which was to be used for the production of its CD5 Plus~
product and has re-classified it for financial reporting purposes
as an asset held for sale. The net result of these actions was a
one-time gain recorded in the third quarter in Other
Income/(Expense) of $1.9 million ($0.08 per share).
Liquidity and Capital Resources:
The Company's cash, cash equivalents and short-term
investments totaled $25.3 million as of September 30, 1995 com-
pared with $39.7 million as of December 31, 1994. Of the $14.4
million net cash reduction during the first nine months of 1995,
$2.0 million related to payments for restructuring charges
recorded in 1994 and $18.7 million related to the current year
operations before $6.3 million in net proceeds from lease and
equity financing less lease principal payments. Cash consumption
was $23.2 million in the comparable 1994 period. Capital expen-
ditures totaled $0.3 million and $1.1 million for the nine months
ended September 30, 1995 and 1994, respectively. The Company's
cash, cash equivalents and short-term investments will continue
to decrease while the Company pursues its development efforts and
seeks U.S Food and and Drug Administration licensure or until the
Company secures other sources of funds.
In July 1995, the Company raised $1.8 million from the
sale and leaseback of certain assets. In August 1995, the Com-
pany issued 4,799 shares of its Convertible Preferred Stock,
Series C to foreign investors in an offering exempt from regis-
tration under the Securities Act of 1933 in reliance on Regula-
tion S thereunder. The offering yielded net proceeds to the Com-
pany after expenses of $4.2 million. For two years after issu-
ance, the Series C Preferred Stock will be convertible by the
holder into Common Stock of the Company at a conversion price
equal to 80% of the then current market price of the Common
Stock. After two years the Series C Preferred Stock may be con-
verted by the Company at the same conversion price. The Company
will not be required to issue more than approximately 4.5 million
shares of Common Stock upon conversion of shares of Series C Pre-
ferred Stock, but may instead obtain stockholder approval or
redeem such shares at a 25% premium to liquidation value. In
June and July 1995, the Company also issued 470,859 shares of
common stock in reliance on Regulation S for net proceeds of $0.7
million.
<PAGE>
-9-
The Company is relatively debt free and has been able
to control its operating cash consumption by carefully monitoring
its costs, including research and development. As a result, the
Company's cash position and resulting investment income are suf-
ficient to finance currently anticipated levels of spending at
least through the third quarter of 1996. The Company continues
to evaluate a variety of arrangements which would further
strengthen its competitive position and provide additional fund-
ing, but cannot predict whether additional funding will be avail-
able when required.
<PAGE>
-10-
PART II - OTHER INFORMATION
Item 1 Legal Proceedings.
There have been no material developments in the lawsuit
entitled Warshaw et al. v. XOMA Corporation, et al.
since the Company filed its Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
Item 2 Changes in Securities. None
Item 3 Defaults Upon Senior Securities. None
Item 4 Submission of Matters to a Vote of Security Holders.
None
Item 5 Other Information. None
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibit 27.1. Financial Data Schedule.
(b) None.
<PAGE>
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XOMA CORPORTION
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
XOMA CORPORATION
Date: November 9, 1995 By: /s/ JOHN L. CASTELLO
John L. Castello
Chairman of the Board,
President and Chief
Executive Officer
Date: November 9, 1995 By: /s/ PETER B. DAVIS
Peter B. Davis
Vice President, Finance and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 19,115
<SECURITIES> 3,181
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,152
<PP&E> 29,129
<DEPRECIATION> 22,045
<TOTAL-ASSETS> 39,556
<CURRENT-LIABILITIES> 6,007
<BONDS> 0
<COMMON> 11
0
1
<OTHER-SE> 32,233
<TOTAL-LIABILITY-AND-EQUITY> 39,556
<SALES> 0
<TOTAL-REVENUES> 25
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,049
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> (4,073)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,073)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,073)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
