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 March 31, 1996
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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2910 Seventh Street, Berkeley, CA 94710
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(Address of principal executive offices) (Zip Code)
(510) 644-1170
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(Registrant's telephone number, including area code)
Not Applicable
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(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 Securities 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
requirements 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 31,581,420
-------------------------------- ------------------------------
Class Outstanding at April 30, 1996
<PAGE>
XOMA CORPORATION
Table of Contents
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets as of
March 31, 1996 and December 31, 1995 ............. 1
Condensed Statements of Operations
for the Three Months Ended
March 31, 1996 and 1995 .......................... 2
Condensed Statements of
Cash Flows for the Three Months Ended
March 31, 1996 and 1995 .......................... 3
Notes to Condensed
Financial Statements ..............................4
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations ....................................... 6
PART II OTHER INFORMATION
Item 1 Legal Proceedings ................................ 8
Items 2 through 6 are either inapplicable or nonexistent and
therefore are omitted from this report
Signatures......................................................... 9
<PAGE>
XOMA CORPORATION
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 25,937 $ 20,400
Short-term investments 2,917 6,005
Notes, interest and other receivables 444 2,865
Other current assets 377 210
--------- ---------
Total current assets 29,675 29,480
Property and equipment 28,468 28,418
Accumulated depreciation (22,747) (22,237)
Assets held for sale 4,442 4,442
Other assets 133 775
--------- ---------
$ 39,971 $ 40,878
========= =========
Liabilities and Stockholders' Equity:
Accounts payable $ 1,715 $ 2,120
Other current liabilities 4,402 4,230
--------- ---------
Total current liabilities 6,117 6,350
Non-current Liabilities:
Convertible debentures -- 6,500
Other non-current liabilities 1,076 1,192
--------- ---------
Total non-current liabilities 1,076 7,692
Stockholders' equity 32,778 26,836
--------- ---------
$ 39,971 $ 40,878
========= =========
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
XOMA CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
<S> <C> <C>
Revenues:
License and other revenue $ -- $ 1,055
Product sales 17 38
--------- ---------
17 1,093
--------- ---------
Expenses:
Research and development 5,985 5,617
General and administrative 1,264 1,639
--------- ---------
7,249 7,256
Loss From Operations (7,232) (6,163)
Other Income (Expense):
Investment income 377 552
Other income (expense) (142) 22
--------- ---------
Net Loss $ (6,997) $ (5,589)
========= =========
Net Loss Per Common Share $ (0.25) $ (0.25)
Weighted average common
shares outstanding 28,202 22,427
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
XOMA CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in)
operating activities $ (3,987) $ (6,128)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of short-term
investments 3,098 28,524
Payments for purchase of short-term
investments (13) (22,172)
Capital expenditures (115) (178)
----------- -----------
Net cash provided by (used in)
investing activities 2,970 6,174
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital lease principal payments (221) (108)
Proceeds from issuance of common
and preferred stock 6,775 2
----------- -----------
Net cash provided by (used in)
financing activities 6,554 (106)
----------- -----------
Net increase (decrease) in cash
and cash equivalents 5,537 (60)
Cash and cash equivalents at
beginning of period 20,400 3,576
----------- -----------
Cash and cash equivalents at end
of period $ 25,937 $ 3,516
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
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
necessarily 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, 1995.
2. Capital Stock
In March 1996, the Company completed a private placement exempt from
registration under the Securities Act of 1933 in reliance on Regulation D
thereunder, issuing 606,061 shares of common stock for net proceeds of $1.9
million and 5,000 shares of its Convertible Preferred Stock, Series D ("Series D
Preferred") for net proceeds of $4.9 million. Each share of Series D Preferred
has a liquidation preference of $1,000 and will pay, when, as and if declared by
the Board of Directors, a cumulative annual dividend of $40, payable
semi-annually in cash or common stock at the Company's discretion. Each share of
the Series D Preferred is convertible by the holder into shares of common stock
at a conversion price equal to 80% (subject to adjustment in certain
circumstances) of the market price of the common stock at the time of
conversion. After January 1998, the Series D Preferred may be converted 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 D Preferred, but may instead obtain stockholder approval or
redeem such shares at a 25% premium to liquidation value. In addition, the
initial holders of the Series D Preferred and the common stock issued in such
private placement will not be entitled to convert shares of Series D Preferred
if the issuance of common stock upon a proposed conversion, when the shares to
be so issued are counted together with other shares of common stock beneficially
owned by such holders or any of their associates, affiliates or advisors (other
than shares so owned through ownership of Series D Preferred), would result in
such initial holders and/or their associates, affiliates or advisors
beneficially owning more than 4.9% of the outstanding common stock.
4
<PAGE>
In the first three months of 1996, all $6.5 million aggregate principal
amount of the Company's 4% Convertible Subordinated Debentures due 1998 (the
"Debentures") were converted into a total of 2,038,375 shares of common stock,
and accrued interest of $0.1 million on the Debentures was paid with 15,849
additional shares of common stock. Unamortized debt issuance costs of $0.6
million were charged to stockholders' equity upon the conversion.
3. Restructuring
The cumulative activity through March 31, 1996 affecting the restructuring
accrual established in the fourth quarter of 1994 is as follows:
In Millions
Original amount accrued $ 2.5
Charges against the accrual 2.3
Adjustments to the accrual --
4. Supplemental Cash Flow Information
In addition to the conversion of the Debentures (see note 2 above), the
Company contributed $0.4 million to the Company's deferred savings plan and
bonus programs using 91,449 shares of common stock.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Revenues in the first three months of 1996 were negligible. Revenues in the
first three months of 1995 were $1.1 million, 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.
Research and development expenditures for the first three months of 1996
were $0.4 million (7%) higher than for the same period in 1995, reflecting
increased spending on clinical testing of Neuprex(TM) in multiple
indications. The Company anticipates continued increases in expenditures
throughout the rest of 1996, as patient accruals in these clinical efficacy
trials accelerate, as toxicology studies of BPI-derived peptides are
completed, and as the Company begins to develop the anti-CD11a product under
an agreement completed with Genentech in April 1996. (See "Liquidity and
Capital Resources".)
For the first three months of 1996, general and administrative expenses
were $1.3 million. This represented a reduction of $0.4 million (23%) compared
with the same period in 1995, reflecting lower salaries and other administrative
costs. Total operating expenses were essentially unchanged.
Investment income was lower in the 1996 period compared to 1995 due to
lower interest rates and a lower average investment balance. Other expenses in
1996 included interest on the Company's 4% Convertible Subordinated Debentures.
Liquidity and Capital Resources:
The Company's cash, cash equivalents and short-term investments totaled
$28.9 million as of March 31, 1996 compared with $26.4 million as of December
31, 1995. Of the $2.5 million net cash inflow during the quarter, $6.5 million
was the result of financing activities during the quarter, partially off-set by
a $4.0 million outflow related to current operations. Cash consumption was $6.4
million in the comparable 1995 period. The Company's cash, cash equivalents and
short-term investments will continue to decrease while the Company pursues U.S.
Food and Drug Administration licensure or until the Company secures additional
sources of funds.
Capital expenditures totaled $0.1 million and $0.2 million for the three
months ended March 31, 1996 and 1995 respectively.
In April 1996, XOMA entered into a collaborative agreement with Genentech,
Inc. ("Genentech") to develop jointly Genentech's anti-CD11a monoclonal antibody
product for
6
<PAGE>
treatment of psoriasis and for organ transplant rejection. In connection
therewith, Genentech purchased 1.5 million shares of XOMA common stock for
approximately $9 million and has agreed to fund XOMA's development costs for
anti-CD11a until the completion of Phase II through a series of convertible
subordinated loans. Genentech is expected to provide more than $20 million in
funding under the arrangement. Under the terms of the agreement, XOMA will
scale-up and develop anti-CD11a and bring it through Phase II clinical trials.
After completion of Phase II trials, Genentech will determine the product's
future development strategy. Upon meeting certain milestones, XOMA will have an
option to participate in development through U.S. approval, after which it will
have earned the right to co-promote and share in the profits in the United
States and receive royalties on sales elsewhere.
The Company has been able to control its operating cash consumption by
carefully monitoring its costs and securing additional funding, including the
April collaborative agreement with Genentech. As a result, its cash position and
resulting investment income are sufficient to finance the Company's currently
anticipated levels of spending approximately through the end of 1997. The
Company continues to evaluate a variety of arrangements which would further
strengthen its competitive position and provide additional funding, but cannot
predict whether additional funding will be available when required.
Forward Looking Statements:
Certain statements contained herein that are not related to historical
facts may contain "forward looking" information, as that term is defined in the
Private Securities Litigation Reform Act of 1995. Such statements are based on
the Company's current beliefs as to the outcome and timing of future events, and
actual results may differ materially from those projected or implied in the
forward looking statements. Further, certain forward looking statements are
based upon assumptions of future events which may not prove to be accurate. The
forward looking statements involve risks and uncertainties including, but not
limited to, risks and uncertainties related to regulatory approvals, product
efficacy and development, the Company's financing needs and opportunities,
scale-up and marketing capabilities, intellectual property protection,
competition, stock price volatility and other risk factors referred to herein
and in other of the Company's Securities and Exchange Commission filings.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1 Legal Proceedings.
In the lawsuit entitled Warshaw et al. v. XOMA Corporation, et
al. described in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, the defendants' petition for
rehearing and suggestion for rehearing en banc was denied by the U.S.
Court of Appeals for the Ninth Circuit on March 25, 1996.
Item 2 Change 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
8
<PAGE>
XOMA CORPORATION
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: May 15, 1996 By:/s/ JOHN L. CASTELLO
----------------------------------
Chairman of the Board,
President and Chief Executive Officer
Date: May 15, 1996 By:/s/ PETER B. DAVIS
----------------------------------
Vice President, Finance and
Chief Financial Officer and Treasurer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 25,937
<SECURITIES> 2,917
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,675
<PP&E> 28,468
<DEPRECIATION> 22,747
<TOTAL-ASSETS> 39,971
<CURRENT-LIABILITIES> 6,117
<BONDS> 0
14
0
<COMMON> 1
<OTHER-SE> 32,763
<TOTAL-LIABILITY-AND-EQUITY> 39,971
<SALES> 0
<TOTAL-REVENUES> 17
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,249
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138
<INCOME-PRETAX> (6,997)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,997)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,997)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
