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, 1997;
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, par value $.0005 39,635,387
- - ---------------------------------------- ---------------------------------
Class Outstanding at March 31, 1997
<PAGE>
XOMA CORPORATION
Table of Contents
Page
Part I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets as of
March 31, 1997 and December 31, 1996.......................... 1
Condensed Statements of Operations for the
Three Months Ended March 31, 1997 and 1996.................... 2
Condensed Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996.................... 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
1997 1996
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 5,188 $ 1,213
Short-term investments 34,097 45,447
Notes, interest and other receivables 806 1,123
Other current assets 347 219
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Total current assets 40,438 48,002
Property and equipment 29,348 29,191
Accumulated depreciation (24,581) (24,093)
Assets held for sale 4,442 4,442
Other assets 133 133
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$ 49,780 $ 57,675
============= ==============
Liabilities and Stockholders' Equity:
Accounts payable $ 1,295 $ 1,778
Other current liabilities 7,103 6,901
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Total current liabilities 8,398 8,679
Non-current Liabilities:
Convertible notes, principal and interest 14,037 13,545
Other non-current liabilities 570 703
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Total non-current liabilities 14,607 14,248
Stockholders' equity 26,775 34,748
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$ 49,780 $ 57,675
============= ==============
</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
1997 1996
---- ----
<S> <C> <C>
Revenues:
License and other revenue $ 657 $ --
Product sales 17 17
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674 17
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Expenses:
Research and development 7,470 5,985
General and administrative 1,578 1,264
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9,048 7,249
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Loss From Operations (8,374) (7,232)
Other Income (Expense):
Investment income 592 377
Other income (expense) (232) (142)
------------ -------------
Net Loss $ (8,014) $ (6,997)
============= ==============
Net Loss Per Common Share $ (0.20) $ (0.25)
Weighted average common shares outstanding 39,619 28,202
</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
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities $ (7,140) $ (3,987)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of short-term investments 46,699 3,098
Payments for purchase of short-term investments (35,434) (13)
Capital expenditures (160) (115)
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Net cash provided by (used in)
investing activities 11,105 2,970
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CASH FLOWS FROM FINANCING ACTIVITIES:
Capital lease principal payments (116) (221)
Proceeds from issuance of common and preferred stock 126 6,775
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Net cash provided by (used in) financing activities 10 6,554
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Net increase (decrease) in cash and cash equivalents 3,975 5,537
Cash and cash equivalents at beginning of period 1,213 20,400
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Cash and cash equivalents at end of period $ 5,188 $ 25,937
============= =============
</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, 1996.
2. Litigation Accrual
In the securities class action lawsuit Warshaw, et al. v. XOMA Corporation,
et al., the defendants and plaintiffs reached an agreement on March 14, 1997 to
settle all claims for $3.75 million in cash and $2.25 million in XOMA common
stock. It is anticipated that all of the cash portion of the settlement will be
covered by insurance. The Company retains the option, up to fifteen days after
the later of the date that the court's approval becomes final or processing of
claims is substantially complete, to pay the stock portion in cash. The
settlement is subject to court approval after notice to stockholders. In the
fourth quarter of 1996, the Company recorded a provision of $2.5 million for the
settlement and estimated 1997 legal expenses not covered by insurance.
The activities through March 31, 1997 affecting the litigation accrual
established in the fourth quarter of 1996 are as follows:
In Millions
-----------
Original amount accrued $2.5
Charges against the accrual 0.1
Adjustments to the accrual 0.0
3. Supplemental Cash Flow Information
The Company contributed $0.1 million to the Company's bonus programs using
19,191 shares of common stock.
4. Subsequent Event
On April 24, 1997, XOMA and Pfizer decided to discontinue the U.S. clinical
trial of the E5(R) monoclonal antibody product as a treatment for gram negative
sepsis. The financial impact
4
<PAGE>
of this decision is to reduce cash requirements (approximately $300,000 in
1996) and eliminate a contingent liability for legal and clinical trial costs to
be repaid from future royalties on U.S. sales of E5(R) ($22.4 million as of
December 31, 1996).
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Revenues in the first three months of 1997 were $0.7 million, primarily
related to licensing income. Revenues in the first three months of 1996 were
negligible.
Research and development expenditures for the first three months of 1997
were $1.5 million (25%) higher than for the same period in 1996, reflecting
increased spending on clinical testing of Neuprex(TM) in multiple indications
and development costs for HU1124.
For the first three months of 1997, general and administrative expenses
were $0.3 million (25%) higher compared with the same period in 1996, reflecting
higher salaries, recruiting and other administrative costs.
Investment income was higher in the first three months of 1997 compared to
1996 due to higher interest rates and a higher average investment balance. Other
expenses in 1997 included interest on the Company's Convertible Notes and 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
$39.3 million as of March 31, 1997 compared with $46.7 million as of December
31, 1996. Of the $7.4 million net cash outflow during the quarter, $7.3 million
was the result of current operations. Cash increased by $2.5 million in the
comparable 1996 period as financing proceeds of $6.5 million were only partially
offset by cash used in operations. 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 $0.2 million and $0.1 million for the three
months ended March 31, 1997 and 1996 respectively.
The Company's cash position and resulting investment income are sufficient
to finance the Company's currently anticipated levels of spending for more than
one year. The Company continues to evaluate a variety of arrangements which
would further strengthen its competitive position and provide additional
funding, but cannot predict whether any such agreement will be consummated or
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
6
<PAGE>
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 securities class action lawsuit Warshaw, et al. v. XOMA
Corporation, et al., the defendants and plaintiffs reached an agreement
on March 14, 1997 to settle all claims for $3.75 million in cash and
$2.25 million in XOMA common stock. It is anticipated that all of the
cash portion of the settlement will be covered by insurance. The
Company retains the option, up to fifteen days after the later of the
date that the court's approval becomes final or processing of claims is
substantially complete, to pay the stock portion in cash. The
settlement is subject to court approval after notice to stockholders.
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: April 30, 1997 By: /s/ JOHN L. CASTELLO
--------------------
Chairman of the Board,
President and Chief Executive Officer
Date: April 30, 1997 By: /s/ PETER B. DAVIS
------------------
Vice President, Finance and
Chief Financial Officer and Treasurer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Mar-31-1997
<CASH> 5,188
<SECURITIES> 34,097
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40,438
<PP&E> 29,348
<DEPRECIATION> 24,581
<TOTAL-ASSETS> 49,780
<CURRENT-LIABILITIES> 8,398
<BONDS> 0
20
0
<COMMON> 0
<OTHER-SE> 26,755
<TOTAL-LIABILITY-AND-EQUITY> 49,780
<SALES> 0
<TOTAL-REVENUES> 674
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,048
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 282
<INCOME-PRETAX> (8,014)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,014)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,014)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
