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 June 30, 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
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 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 33,433,785
- - ------------------------------ -------------------------------
Class Outstanding at June 30, 1996
<PAGE>
XOMA CORPORATION
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets as of
June 30, 1996 and December 31, 1995 ...............1
Condensed Statements of Operations
for the Three and Six Months Ended
June 30, 1996 and 1995 ............................2
Condensed Statements of
Cash Flows for the Six Months Ended
June 30, 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, 3 and 5 are either inapplicable or
nonexistent and therefore are omitted
from this report.
Item 4 Submission of Matters to a Vote of
Security Holders...................................8
Item 6 Exhibits and Reports on Form 8-K...................9
Signatures........................................................10
<PAGE>
XOMA CORPORATION
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Assets:
Cash and cash equivalents ................... $ 6,972 $ 20,400
Short-term investments ...................... 30,936 6,005
Interest and other receivables .............. 827 2,865
Other current assets ........................ 336 210
-------- --------
Total current assets ................. 39,071 29,480
Property and equipment ...................... 28,748 28,418
Accumulated depreciation .................... (23,325) (22,237)
Assets held for sale ........................ 4,442 4,442
Other assets ................................ 133 775
-------- --------
$ 49,069 $ 40,878
======== ========
Liabilities and Stockholders' Equity:
Accounts payable ............................ $ 1,472 $ 2,120
Other current liabilities ................... 5,018 4,230
-------- --------
Total current liabilities ............ 6,490 6,350
Convertible debentures and notes ............ 5,000 6,500
Other non-current liabilities ............... 956 1,192
-------- --------
Total non-current liabilities ........ 5,956 7,692
Stockholders' equity ........................ 36,623 26,836
-------- --------
$ 49,069 $ 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 Six Months Ended
June 30 June 30
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
License fees .................................. $ 3,005 $ -- $ 3,005 $ 1,055
Product sales and royalties ................... 13 16 30 54
-------- -------- -------- --------
3,018 16 3,035 1,109
-------- -------- -------- --------
Expenses:
Research and development ...................... 6,625 6,436 12,610 12,053
--------
General and administrative .................... 1,756 1,616 3,020 3,255
-------- -------- -------- --------
8,381 8,052 15,630 15,308
-------- -------- -------- --------
Loss from operations ............................... (5,363) (8,036) (12,595) (14,199)
Other income (expense):
Investment income ............................. 529 542 906 1,094
Interest expense and other .................... (153) 17 (295) 38
-------- -------- -------- --------
Net loss ........................................... $ (4,987) $ (7,477) $(11,984) $(13,067)
======== ======== ======== ========
Net loss per share ................................. $ (0.16) $ (0.33) $ (0.40) (0.58)
Weighted average common
shares outstanding ................................. 31,438 22,438 29,808 22,415
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
XOMA CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1995 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating
activities $ (8,360) $(12,734)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of short-term investments 13,226 42,513
-------
Payments for purchase of short-term investments (38,157)
Capital expenditures (460) (329)
------- -------
Net cash provided by (used in) investing activities (25,391) 10,716
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible debt 5,000 --
-------
Proceeds from issuance of common stock, net 10,798 595
Proceeds from issuance of preferred stock, net 4,850 --
Capital lease principal payments (325) (210)
------- -------
Net cash provided by (used in) financing activities 20,323 385
Net increase (decrease) in cash and cash equivalents (13,428) (1,633)
-------
Cash and cash equivalents at beginning of period 20,400 3,576
------- -------
Cash and cash equivalents at end of period $ 6,972 $ 1,943
======= =======
</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.
Alternatively, the Company may elect not to declare or make payment of any
dividend, in which event the accrued and unpaid dividends will be taken into
account at the time of conversion. 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. In June 1996, 900 shares of Series D Preferred were
converted into 171,429 shares of common stock. Subsequent to the end of the
second quarter of 1996, an additional 2,890 shares of Series D Preferred were
converted into 555,934 shares of common stock.
In the first three months of 1996, all $6.5 million aggregate
principal amount of the Company's 4% Convertible Subordinated Debentures due in
1998 (the "Debentures") were converted into a total of 2,038,375 shares of
common stock, and accrued interest of $0.1 million
4
<PAGE>
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.
In April 1996, Genentech, Inc. ("Genentech") purchased 1.5 million
shares of XOMA common stock for approximately $5.90 per share under the
collaborative agreement to develop jointly Genentech's anti-CD11a monoclonal
antibody product, hu1124.
In June 1996, the remaining 7,807 shares of the Company's Senior
Convertible Preferred Stock, Series B, which were issued in December 1993, were
converted into 1,648,115 shares of common stock.
3. Restructuring
The cumulative activity through June 30, 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 90,422 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 six months and the second quarter of 1996 consisted
primarily of a $3.0 million license fee from Genentech for intellectual property
covering chimeric IgG1 antibodies specific to the CD20 antigen on the surface of
human B-cells. Revenues in the first six 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. Revenues in the second quarter of 1995 were negligible.
Research and development expenditures in the first six months of 1996 were $0.6
million (5%) 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 hu1124 product under the agreement completed with Genentech in April
1996. (See "Liquidity and Capital Resources.")
For the first six months of 1996, general and administrative expenses were $3.0
million. This represented a reduction of $0.2 million (7%) compared with the
same period in 1995, reflecting lower salaries, insurance, and other
administrative costs. General and administrative expenses increased $0.1 million
(9%) in the second quarter of 1996 due to legal 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 and
the convertible note payable to Genentech on which interest accrues at six-month
LIBOR plus 1%.
Liquidity and Capital Resources:
The Company's cash, cash equivalents and short-term investments totaled $37.9
million as of June 30, 1996 compared with $26.4 million as of December 31, 1995.
Of the $11.5 million net cash inflow during the first six months, $20.3 million
was the result of financing activities during the period, partially off-set by a
$8.4 million outflow related to current operations. Cash consumption was $12.6
million in the comparable 1995 period. The Company's cash, cash equivalents and
short-term investments are expected 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 $0.5 million and $0.3 million for the six months
ended June 30, 1996 and 1995 respectively.
6
<PAGE>
In April 1996, the Company entered into a collaborative agreement with Genentech
to develop jointly hu1124, for treatment of psoriasis and for organ transplant
rejection. In connection therewith, Genentech purchased 1.5 million shares of
common stock for approximately $9 million and has agreed to fund the Company's
development costs for hu1124 until the completion of Phase II clinical trials
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, the Company will scale-up and develop hu1124 and bring it
through Phase II clinical trials. After completion of Phase II trials, Genentech
will determine the product's future development strategy.
In May 1996, the Company announced the granting of an exclusive license to
Genentech, including a sublicense to IDEC Pharmaceuticals Corporation, to
intellectual property covering the therapeutic use of chimeric IgG1 antibodies
specific to the CD20 antigen on the surface of human B-cells. The Company
received an initial cash payment of $3.0 million and will receive royalties on
the sale of products employing the anti-CD20 technology that are sold in the
United States and in other countries where the Company holds relevant patents.
The Company has been able to control its operating cash consumption by carefully
monitoring its costs and securing additional funding. 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 when or whether additional funding will be secured.
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.
There have been no material developments in the lawsuit entitled Warshaw
et al. v. XOMA Corporation, et al. since the Company filed its Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1996.
Item 2 Changes in Securities. None.
Item 3 Defaults Upon Senior Securities. None.
Item 4 Submission of Matters to a Vote of Security Holders.
On June 13, 1996, the Company held its annual meeting of stockholders.
The following persons (the only nominees) were elected as the Company's
directors, having received the indicated votes:
Votes Votes Broker
Name For Withheld Non-votes
- - ---- --- -------- ---------
James G. Andress 28,125,547 600,371 0
William K. Bowes, Jr 28,131,565 594,353 0
John L. Castello 28,143,600 582,318 0
Arthur Kornberg 28,127,900 598,018 0
Steven C. Mendell 28,147,288 578,630 0
Patrick J. Scannon 28,149,040 576,878 0
W. Denman Van Ness 28,145,780 580,138 0
Gary Wilcox 28,158,288 567,630 0
In addition, the restatement and amendment of the Company's 1981 Stock
Option Plan and Restricted Stock Plan to (A) increase the number of
shares issuable over the terms of the plan by 1,000,000 shares to
5,150,000 shares in the aggregate and (B) increase the number of shares
issuable over the term of the Restricted Stock Plan by 250,000 shares to
1,250,000 shares was approved, having received 24,473,628 votes for,
2,602,927 votes against, no votes withheld, 285,582 abstentions and
1,363,781 broker non-votes.
An amendment to the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of common stock by 30,000,000
to 70,000,000 shares was approved, having received 25,143,260 votes for,
2,421,792 votes against, no votes withheld, 245,171 abstentions and
915,695 broker non-votes.
8
<PAGE>
An amendment to the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of Preferred Stock by 500,000
to 1,500,000 shares was approved, having received 11,703,965 votes for,
2,859,958 votes against, no votes withheld, 289,660 abstentions and
13,872,335 broker non-votes.
The appointment of Arthur Andersen LLP to act as the Company's
independent public accountants for the 1996 fiscal year was ratified,
having received 28,410,814 votes for, 178,682 votes against, no votes
withheld, 136,412 abstentions and no broker non-votes.
Item 5 Other Information. None.
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibit 27.1. Financial Data Schedule.
(b) Current Report on Form 8-K dated April 22, 1996,
Item 5, Other Events and Item 7, Exhibits.
9
<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: July 26, 1996 By: /s/ JOHN L. CASTELLO
--------------------
John L. Castello
Chairman of the Board, President and
Chief Executive Officer
Date: July 26, 1996 By: /s/ PETER B. DAVIS
------------------
Peter B. Davis
Vice President, Finance and
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE>5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Jun-30-1996
<CASH> 6,972
<SECURITIES> 30,936
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,071
<PP&E> 28,748
<DEPRECIATION> 23,325
<TOTAL-ASSETS> 49,069
<CURRENT-LIABILITIES> 6,490
<BONDS> 0
<COMMON> 15
0
1
<OTHER-SE> 36,607
<TOTAL-LIABILITY-AND-EQUITY> 49,069
<SALES> 0
<TOTAL-REVENUES> 3,018
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,381
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92
<INCOME-PRETAX> (4,987)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,987)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,987)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
