Good afternoon. Welcome to XOMA's Third Quarter, 2007Conference Call. At this time, all participants are in a listen-only mode.Later the company will hold a question-and-answer session and I will give youmore instructions at that time. As a reminder to all participants, thisconference is being recorded. Our host for today's call is Greg Mann, XOMA'sSenior Director of IR. Please go ahead, Greg.

Good morning and welcome to XOMA's third quarter conferencecall. Earlier this morning XOMA filed its quarterly report on Form 10-Q withthe SEC for the quarter ended September 30, 2007 and issued a news release withthird quarter 2007 financials. Each document is available on the XOMA website, www.xoma.com. Today's webcast can be accessed by XOMA's website and willbe available for replay until close of business on February 28, 2008. Thetelephone replay will be available beginning later this morning until close ofbusiness on November 23, 2007. Access numbers for the replay are listed in thenews release that we issued this morning. Leading today's call will be Steven Engle, Chairman andChief Executive Officer; Dr. Alan Solinger, Vice President of ClinicalImmunology; and David Boyle, Chief Financial Officer. Before beginning we wish to remind all listeners thatcertain statements made on the call today will be forward-looking. We havebased those statements on assumptions that may not prove to be accurate. XOMA'sactual results could differ materially from those we anticipate due to risksinherent in the biotechnology industry as well as for companies engaged inproduct development in a regulated market. These risks include the success of our existingcollaborations, the marketing and sales efforts for RAPTIVA and LUCENTIS, thepotential regulatory approval of CIMZIA, our ability to enter into additionalarrangements, the size and timing of expenditures, the timing of clinicaltrials and other events, changes in our collaborative relationships and actionsby the Food and Drug Administration, international drug regulatory bodies andthe U.S. patent and trademark office are discussed in XOMA's Form 10-Q for thethird quarter 2007 filed today and in other SEC filings. Please consider suchrisks carefully before making any investment decisions. I will now turn the call over to Steve Engle.

Thank you, Greg. Good morning and thank you for joiningtoday's call. We are pleased and excited to report our third quarter 2007results. XOMA had an excellent quarter. In fact, it was the single bestquarterly performance in XOMA's history. Revenues for the third quarter were greater than revenuesfor all prior quarterly and annual periods. David Boyle will speak in moredetail, but to be specific we had $43.1 million in revenues this quarter. Netincome was a positive $21.8 million and the [ending] cash is $47.6 million. All areas of our business performed well, enhancing ourfinancial strength significantly. Royalty revenues grew. Our collaborationprograms made continued progress. Our bio-defense development activitiesadvanced, and we added a major player to our list of technology licensees. Weare well positioned to move forward as a premier therapeutic antibodydevelopment company. Today's call will proceed as follows. I will begin with anupdate of our overall progress during the quarter, review our licensingagreement with Pfizer and say a few words about our strategy review process. Alanwill summarize the progress of XOMA 052 program, our proprietary anti IL-1 betaantibody. David will review third quarter's strong financial results andprovide updated guidance for 2007. Let me review our recent highlights starting with XOMA 052.During the third quarter, we initiated two Phase I studies of XOMA 052 inpatients with Type 2 diabetes, one in the US and one in Europe. The XOMA 052 isa potent monoclonal antibody that interrupts inflammatory process via the IL-1pathway and that has the potential to reduce inflammation in a number ofdiseases. It was discovered and developed using XOMA's integrated antibodycapabilities and expertise. With the start of the two studies, we are now speaking moreabout XOMA 052, something we had not discussed prior to April of this year.Alan will be discussing the details, but I would like to touch upon four…

Thank you, Steve. I would like to say a few words thismorning about why I believe XOMA 052 has such significant potential fortreating patients with debilitating inflammatory conditions. First, as Steve mentioned, we have proof-of-concept for theIL-1 mediated pathway. Years of research and experience point to IL-1 as animportant mediator of inflammatory processes. When IL-1 levels get out ofcontrol patients experience diseases like rheumatoid arthritis, acute gout,systemic juvenile idiopathic arthritis, and diabetes. We already know that thepathway is central to the pathogenesis of several diseases. Kineret, anapproved drug, has validated this concept. Second, we have reason to believe the blockade of IL-1 beta,the specific approach of XOMA 052 activity, is a superior mechanism of action.Although we must demonstrate this in clinical studies, we have reason tobelieve that this specific approach will provide superior results, compared toexisting therapies. Kineret and XOMA 052 are both designed to prevent thissignaling complex from forming, thereby shutting down the signaling process andreducing IL-1 levels. But they do this through very different mechanisms. Kineret targets the IL-1 receptor. XOMA 052 blocks theligand. We believe that blocking IL-1 beta is a more efficient process andsuperior to what Kineret does. The Kineret mechanism works and provides strongproof of concept for XOMA 052's approach to targeting IL-1 beta. However, webelieve that sales of Kineret have been limited by two basic shortcomings thatXOMA 052 can address well. The first shortcoming relates to the large number of IL-1receptors and the difficulty of blocking enough of them to reduce excess IL-1signaling. IL-1 receptors reside on nearly all the cells of the body so thereare an extremely large number of them. More importantly, the studies have shownthat approximately 95% of these receptors must be blocked to achieve ananti-inflammatory effect. Rather than going after the receptor, XOMA 052 goes afterthe ligand. It is a…

Thanks Alan. I think it's very clear that XOMA has had anoutstanding third quarter. This is a year in which the company has madeexcellent progress on many fronts, including important licensing agreements,clinical progress on our products, our antibody discovery collaborations, thebio-defense work for NIAID and improving financial results. I will take a few minutes to highlight some of the financialresults that I think are most important to our investors. We released thirdquarter 2007, financial results and filed the 10-Q earlier today. Thosedocuments are available to you on our website and on the SEC's website. We are pleased to report that XOMA's net income for thethird quarter was $21.8 million compared to a net loss of $10.8 million lastyear. For the first nine months of 2007, XOMA's net loss has been reduced to$2.4 million from $37.4 million last year. Looking at the top line, we recorded $43.1 million inrevenues for the third quarter compared with $7.4 million in the third quarterof 2006. Year-to-date revenues increased to $69.5 million from $20.5 millionlast year. Obviously, the upfront payment of $30 million from the Pfizer BCElicense agreement has had a significant positive impact. But also, allcategories of revenue, including royalties and contract revenues, have almostdoubled for the first nine months of 2007 over 2006. Worldwide sales of RAPTIVA in the third quarter of 2007 were$56 million, an increase of $15 million from the prior year's third quarter andLUCENTIS sales for the third quarter were $320 million, more than doubling fromthe $156 million in the same quarter last year. We are increasing our guidance on the 2007 full year revenueforecast. We now expect to grow [2000] revenues 165% to 175% over the full year2006 revenues of $29.5 million. This compares with our previous guidance ofgrowth of 95% to 105%. XOMA's R&D spending for the third…

Thank you, Dave. All areas of XOMA's business performed at ahigh level this quarter. Our collaboration activities, the Novartis,Schering-Plough, Takeda and others continued moving forward. Gross salesrevenues from RAPTIVA and LUCENTIS continued to grow. Our bio-defensedevelopment activities were on track. We licensed our BCE technology to Pfizer. Each of these areas contributed to a quarter of strongrevenue growth. We are also very excited about XOMA 052 and its potential tobenefit patients in a variety of diseases. The two Phase I studies started inthe third quarter were important milestones for the company, and we lookforward to the programs continued progress in 2008. This concludes our prepared remarks for today. Operator,would you please review instructions for the question and answer session?

(Operator Instructions). Our first question comes from theline of Joe Pantginis with Canaccord Adams. Please, proceed with your question.

Hi guys. Good morning. Congratulations on the financialprogress.

Thanks Joe. We appreciate it.

First, I would just like to ask a couple of questions then Iwill jump back into queue. For 052 I know it's early, obviously, in thedevelopment pathway, but can you share with us again, your commercial strategysurrounding the pipeline? I'm sorry, surrounding 052? And then, secondly, Iknow in the press release and then you mentioned it today, you are currently inyour strategic review of the company. And one of the statements that was madewas, you know, potentially looking to increase growth of internal pipeline. Ijust wanted to know if you have any more visibility on that? And then I willjump back in. Thanks.

No problem, Joe. On the second question, I think we will betalking about that more once we finish with our strategic review. So if youwill allow me we will get through that and get back to you in the next fewweeks. On the first question, as far as commercial, can you just provide alittle more clarity specifically, what were you looking for on thecommercial --.

Sure. I mean how long you take a partnering strategy -- howfar do you want to take it in different indications before you exploreopportunities?

Right, well, as you can understand, being in Phase I withsomething to go in multiple indications, some of which are chronic, and some ofwhich are acute; and then also some of which are large markets and some ofwhich are orphan. There is a lot of possibilities here. So our idea is ingeneral, that as you look at the big indications you are going to be thinkingabout how you are going to fund large long trials and developments processes. On the other hand when you look at these orphan drugindications or the indications like gout, where a single dose of Kineret can beshown to have a positive impact on patients, even though gout would be a largeindication, you may already get signals from it that would be very positive. So,there are still some decisions we have to make there and we haven't completelygone one way or the other and it is fairly complex. Again, it will come down towhat kind of results we get out of the studies and then which indication wedecide to proceed with first.

Okay. Thanks. I will jump back in the queue.

Thank you. Our next question comes from the line of JasonKolbert with Susquehanna Capital. Please, proceed with your question.

Good morning guys. Thanks for the update andcongratulations. Really great quarter.

Thank you, Jason.

Just would like to ask Alan a question about finding themaximum tolerated dose on XOMA 052 given its very long half-life. What doesthat process look like and if that is kind of the 1-A part of the trial, whatmight the 1-B look like given the opportunity to look at other signals indiabetic?

Thanks for the question. It's a very good one. I would saythat really, our approach isn't necessarily to find the maximum tolerated doseas much as to find an effective dose that gives us enough of a biologicalsignal that we can move on into the other additional indications whilecontinuing with our plans for the Type II diabetes trials. I think that in thecase of most biologics, it is sometimes very difficult to find a maximumtolerated dose clinically. You end up – really, ending up looking at more volume ofdrug given, cost of goods. So, I don't think those will be the kinds of issueswe will be dealing with. We are really looking for biologic activity thatindicates that we have the right track in our program so we can move into theseadditional indications that very seriously need intervention.

And on the 1-B side of it, Alan, what kind of indicatorswould you be looking for in diabetes?

I think the standard ones accepted by most regulatoryagencies certainly are items such as glycoslated hemoglobin, sometimes called hemoglobinA1c, changes in the fasting blood sugar levels and various functionalcapabilities of the pancreas that we can look at during the course of ourtrials.

And one last question is --

I'm sorry, let me just step in for one second because I wantto make sure you get an additional part to that question. Alan, maybe you couldtalk about what is being measured in the study.

In the current trials, we are not only looking at specificitems related to diabetes, such as blood sugars, hemoglobin A1c, C-peptide, butwe are also looking at inflammatory mediators and inflammatory indicators thatwould show us that the mechanism of action of our drug is what we anticipatedshould be by our excellent modeling systems. Though we are looking at thingssuch as sed rate, C-reactive protein, various levels of cytokines such as IL-6and we will be looking at the clinical manifestations as well. But for theearly readings, we will be looking more at the biologic indicators.

Can you help us with a timeline on how long it will take forthe Phase I part of the trial to play out?

Alan, could I speak to that for just a second?

Certainly.

So what we're doing is a dose escalation study and so thequestion is when do you arrive at the right dose? We have put into the studywhich is on clintrials.gov, if you would like to look at the details. Basically,six dose levels and those we would expect to take somewhere between six andeight weeks apiece based on the kind of enrollment that we are experiencing. So you can multiply that out and if you had to go throughall six and then look at the data, you would be talking about having theinformation to talk about in the third quarter of 2008. Now our hope of courseis that one of the doses that occurs earlier in the group will be the dose wecan take forward. But at any rate for planning purposes, I think you got toknow that that could be the time period and we will hope that it actually showsup sooner.

Thanks guys. I will jump back in the queue.

Thank you. Our next question comes from the line of ChristopherJames with Rodman & Renshaw. Please, proceed with your question. Mike King - Rodman& Renshaw: Hey guys. It's Mike King with Chris.

Hi, Mike. How are you? Mike King - Rodman& Renshaw: Congratulations as well. I just wanted to -- could we get anupdate on the HCD122 please? It seems like things have been fairly quiet therefor a while. I just wondered when we might get another update from Novartis?

Alan?

At the present time, there will be an oral presentation onHCD122 at the ASH meeting in early December. In this, we will discuss some ofthe data from the ongoing trials as well as data from preclinical. Mike King - Rodman& Renshaw: Can you maybe more specific about the nature of that, Alan?

I believe the abstract will be going online very shortly andI think because of the embargo placed on abstracts to those meetings, I reallycan't say much about the specifics. Mike King - Rodman& Renshaw: I guess the other question is -- I got on the call late andso I haven't had a chance to really examine the income statement, but X the 30million that you booked for the Pfizer license fee, it looks like your revenueswere down modestly sequentially. A) Am I correct in that? And B) Can you talkabout what the contributors were to that?

We will be happy to have David.

I'll take this. The revenues may have been downsequentially. There's a couple of things going on, but the primary thing isthat we do have actually a plant shutdown in the third quarter of the year,which means that some of the revenues from our contract work are less duringthe quarter during that shutdown period and that is basically it. Mike King - Rodman& Renshaw: So would that be licensed in collaborative, Dave, orcontract?

In contract. Mike King - Rodman& Renshaw: And can I just ask you because again, I don't have thebreakdown here. Can you give -- oh, I see, with $7.4 million okay versus 9.7 inthe second? Okay, so that was a major contribution?

Yes. Mike King - Rodman& Renshaw: Okay. Thank you. I'll get back in queue.

Mike, just one other thing. I think we are aware of is thatwe do believe that the people at Novartis are looking to begin programs for thenon-oncology space, particularly the autoimmune. So we are looking forward tohearing about those plans in the upcoming future. Mike King - Rodman& Renshaw: Do you know what the nature of that would be, Steve?

Alan, can you say anymore?

We are still in discussions as far as what these non-oncologyindications may be, but I think because of the literature out there in theplace where CD40 might fit in, it could be in the anti-inflammatory andautoimmune diseases as well as a large number of other inflammation-mediatedprocesses. And there is also likely to be further word on some additionaloncology indications that we're looking at. Mike King - Rodman& Renshaw: So who's the most likely party to the relationship thatwould announce that? Would that be Novartis in the form of an analyst update orquarterly call? Would that be XOMA when the agreements have been put in place?

Dave, do you have a --?

Right. Well, let me just sort of go back. With respect tothe non-oncology indications, I just want to revisit that our initialcollaboration with Chiron was exclusive to their oncology so actually goinginto non-oncology indication requires that we revisit that agreement withNovartis, something that, of course, we are both interested in doing. So you would expect probably an announcement from us ifthere are any developments on that front. With respect to the clinical trialsongoing in the collaboration, we have typically kept investors up-to-date as towhat is happening. We've suggested in oncology from the additional likelyfuture indications and we will keep you updated as those trials initiate. Mike King - Rodman& Renshaw: Okay. I appreciate that. And in fact, it brings up the otherquestion about the nature of the relationship and the need for XOMA to continueto invest dollar for dollar. I know that has been a work in progress for awhile as it is all bound up in the discussions about additional indications andsuch. Is that all going to get resolved in kind of one package?

That would be a reasonable expectation and a fair hope, Iwould say. Mike King - Rodman& Renshaw: Dave, if I might just again, on the operation side. I noticethat you had a fairly large sequential increase in G&A. So maybe you couldspeak to that. And I feel also, that R&D expense was down sequentially, socan you give us a sense of what is going on the spending side?

I can and there are a couple of things that I want tohighlight in particular. Let me talk about R&D first. We did have asignificant credit of $2.8 million from one of our collaborators that wasrecorded in the quarter, and that was actually noted in the financials, relatedto some cost around that collaboration. So that had a very positive impact andit is basically why there is the sequential decrease in R&D. With respect to G&A we had certain personnel-relatedcost including the CEO transition which we are extremely pleased about, thathave increased G&A sequentially for the quarter and those have beencommented on in the Q. Mike King - Rodman& Renshaw: Okay. Fine. Thanks so much for helping me out there.

You are welcome.

Thank you. Our next question comes from the line of AaronLindberg with William Smith. Please, proceed with your question.

Thanks. A couple of quick follow-ups there. The plant isback online now. That's just the annual shutdown that happens during Q3?

Yes, we do a couple of shutdowns for cleaning andcalibration during the year. I mean, this is just basically, normal maintenanceperiods that we have scheduled for the plant.

Do the Novartis discussions include trial design?

We actually, of course participate with Novartis in all ofour joint committees and teams in terms of trial design, discussions and allthe development programs and I might invite Alan to comment a little bit moreabout this specifically since he is our project team leader for HCD122.

Yes, we have regular teleconferences, face-to-face meetingsto discuss design and ongoing issues with our trials. So this is a verycollaborative agreement. We take a very active part in discussions and designof the trial setting.

Would it be fair to characterize the negotiations withNovartis to be just ongoing for all quarters at this point from when youeliminated the exclusivity on oncology up till today it's just been a continualprocess until you had a resolution?

I think that's a fair statement. I might just say that wehave a very positive collaboration with Novartis and relationship and feel itis going very well. You know we have expressed interest as have they indeveloping the non-oncology side of HCD122 which we think could be a great potentialbenefit to both parties and we are exploring that in recent discussions.

When do you expect the 629 trials to begin?

629 trials, we are actually as part of these strategicreview taking a look at the indications and we will update you on that as we goforward probably with part of the strategic review early next year.

Is it possible that you don't start the trial?

We haven't made final decisions around development of thatproduct. I think what we have said is that we are looking at a number ofsuperficial skin infections for that product. I think there are some veryinteresting indications available because of the nature of the product,including that bugs don't develop resistance to it. So we are looking at anumber of indications and I think if we complete that review as part of ourstrategy, we will give you more guidance around what to expect.

We apologize but we can't give you quite as much clarityuntil we finish the process. I hope that is easy to understand.

The two compounds that are kind of being most heavilyscrutinized there, 629 and NEUPREX?

All the compounds are being scrutinized and certainlyNEUPREX and 629 are getting their share.

Then have you set new targets into the Takeda collaborationduring Q3?

We haven't typically in the past commented on the number ofproject and/or targets in any specific collaboration. I think we will probablystick to that for now.

Okay. And then can you comment on the enrollment so far inthe 052 trial?

That is not something that we have been publicly updating onand as there is important data available. We will make that available, but as Steveand Alan have indicated, the time frame for getting data from that trial issometime out into next year.

But I think also, just to clarify from my comments andAlan's regarding the study itself indicating that a six to eight weeks to gothrough a dose level. You can already draw conclusions about where we are inthe process and it may differ as we go along to say on enrollment as long as itstays in that general frame, then that's the way we will keep reporting thingsat this point.

Okay. Can you tell me when exactly the European trialstarted?

A press release was --

It was at the last press release and we will get the datefor you --

Slightly after the US trial?

Yes.

Yes.

And then, what did you buy for $6.5 million? The fixedassets purchase there, just looked like PP&E only went up $1 million in thequarter.

The $6.5 million fixed assets is year to date and I mean,frankly, there are number of things around that as you might anticipate some ofthe equipments that support antibody discovery in the preclinical areasrelatively costly. We continue to do things for both the pilot and the GMPmanufacturing plant. We have also added a facility next door, where we have movedsome of our people into, relatively smaller expenditure, but it is a number oftypical things and just moving our business forward. There is no one, sort of tosay, large chunk out of that $6.5 million that is specific to anything.

Okay. So, it's scattered about. I didn’t know it'syear-to-date, but still year-to-date looks like the PP&E just went up $2million. So, the lion share that's scattered amongst other things?

Right.

By the way, the announcement date for the start of this trialwas September 12.

Thank you. One last question for you, given the strong Q3, doyou anticipate minimal licensing and collaborative revenues in Q4?

I think you would have to think in terms of the relativeterms. You wouldn’t expect to see the same thing happen this quarter, whetherwe’ll some probably it's hard to tell when you are getting closer to the end ofthe year. Sometimes the end of the year works for you and people close thingout because they want to take care of them and sometimes they float on overinto the first quarter. So, we will try and keep you aware of it, as it happens.

Okay. I will jump back in queue, thanks.

Thank you very much.

Thank you. Our next question comes from the line of JosephNapodano with Zachs. Please, proceed with your questions.

Hey guys, it’s Jason. I am wondering if you could talk alittle bit about the discussions with scientific advisors at the EMEA as far asthe new practice?

Alan?

Yes, thanks Jason. At the present time, we are doing ongoingdiscussions with the EMEA related to the various aspects of the submission. So,this is an iterative type of process that will get us closer to being able tomake a decision on how to proceed. Those discussions are going well, but as youprobably are aware that you take some time since they are iterative and thenthere is a lot of back and forth. So, this can involve anything from looking atthe clinical data, manufacturing issues, labeling, follow-on discussions. Atthe present time, I think the best thing to say is that it's proceeding asscheduled.

Okay. And I would just add that when Alan says that it'sproceeding well, he means the process is going well, because it is sequentialand iterative. We don’t know the answer till we get there. It is exceptionalcircumstances and I have been through this at my last company and you will notknow until you get to the end of it where you are to be aware of that place.

Got you. How would you say the investigators (inaudible) aregoing?

Alan?

I would say that they are certainly going as anticipated bythe investigators. The data is coming in any moment as expected and so, becausemany of these are investigator-initiated studies, we don’t necessarily havemuch influence on the enrolment rates. But, we are in close contact with theprincipal investigators and I think that data should be forthcoming in severalof those trials.

Got you. Let me ask about your government work. I think thisis something that you guys are focusing pretty heavily on beginning of the yearand last year. But now there seems to be a lot of activity with in-housepipeline, which is great. But I am wondering as far as government work isgoing, are you guys still focusing on growing the government business?

Yes Jason, as you know we've already had two major contractsleft in 2005 and 2006 and we are now working on the third one. So, we believewe have a good reputation with the government on time, on budget. We also thinkwe have to write contacts and interactions to grow this into a more significantpiece. There are two ways to do that of course with the government business.One would be the stock piling of drugs such as (inaudible) and then we've seenone or two companies do that quite effectively. We obviously need to get through our clinical work to getthere. In the meantime then, we are looking for the R&D payment revenues tous for the work being done to move that as well as some of the other projectsforward. We do think in the next three to five years this could be a muchlarger business and then from that point of view we still see it as a proprietarypipeline piece and so we do see it as a key part of generating revenues becauseit's high margin profits over the longer term

And you think you have sufficient manufacturing capacity to continueto grow that business?

Where we are at, we are fine. Obviously, as we begin toanticipate a real buildup, then we begin to ship things as necessary and we arelooking at all sorts of alternatives there

Okay and may be just one last question guys. You talkedabout I think Pfizer said -- I think you guys have mentioned in a presentationthat Pfizer has 14 biotherapeutic products in mid to late stages. Any ideaabout when we will start to hear what some of these products are?

I am sorry, say last part. When the --

When we will hear more about those products, specificallywhat the products are?

I think we probably are not going to see [surprises] that we-- we will let you know as soon as we know. It's one of those things trying toget the information out and it’s the same problem that the analysts have ingeneral of trying to find out from the big companies exactly what is going oninside the pipeline. And so, we will try to do that, but it is notstraightforward just because of their approach to how they want to disclosethings about their pipeline.

Okay guys. Thanks a lot. I appreciate it.

Thank you. Our next questioncomes from the line of Joe Pantginis with Canaccord Adams. Please, proceed withyour question.

Hi guys. My follow-ups wereanswered. Thanks a lot.

Okay. Thank you.

Thank you. Our next questioncomes from the line of Aaron Lindberg with William Smith. Please, proceed withyour question.

Thank you. Can you describe the progresson the Lexicon collaboration?

Okay. Lexicon collaboration continuesto move forward very positively -- frankly excellent relationship, we have somevery complementary capabilities. We will reiterate some things that we've saidbefore that these are early stage projects. There are relatively higher risksand they are very novel interesting targets, but also potentially high rewardedif we are successful. They do continue moving forward, but they are good ways awayfrom the clinic, and there is nothing more specific that we are actually ableto communicate to you at this time.

Okay. We haven't heard anythingon that for a while or so. In relation to the contract with NIAID, at thispoint there has been no revenue; you are still finalizing the details, is thatcorrect?

Yes.

That's correct on the NIAID contract.

Okay. And then do you anticipaterevenue in Q4 from them?

Probably not at this point. We arenot absolutely sure but, in the guidance, I did not include revenue from thatcontract in Q4.

Okay. And then do you expect tomake similar size transferable payments on your Goldman facility in Q4(inaudible) maybe in Q3?

Actually, Goldman has the optionto draw down from the restricted cash only twice a year and that happensactually in Q1 and Q3. So there will be no principal payments made on Goldmanin Q4, just mechanistically, that cannot happen.

Okay. Can you just review the mechanism around that for us? Iknow that they've got the ability to draw -- I guess, I thought that you guysalso have the ability to make prepayments on that as you [talk to us].

We can do within certain limitations something we would notat this point choose to do. They do mechanistically every six months, I believeit's in March and September. Have the opportunity to draw down of course, theinterests do, but also principal payments for excess amount of that maybe inthe restricted cash which is derived from the royalty payment stream. Ashappened in September, though, when they elect not to do that that cash thengets returned to the XOMA unrestricted cash and that really is Goldman's call.

Okay. On interest expense, you said that you had expectedinterest expense for the full year to be like 10% lower than ' 06?

Yeah.

Okay. Can you tell me what you expected for -- it looks likethen you would have a pretty large interest expense in Q4, just year-to-date Ithink the interest expense is really like $4.2 million.

Well, year-to-date net interest expense is about $9 million.Keep in mind that within that we had about $6.6 million in Q1 that was relatedto the convertible debt. [multiple speakers]. So, I mean, if you take that out and youcertainly look at our last quarter where we had net interest expense, we had actuallyabout $1.2 million in expense and about $3 million in income and less than amillion (inaudible) that out you get a better idea of what Q4 is likely to be.

Okay, yeah no primarily (inaudible) there. Last question doyou believe there are additional other companies that may take significant BCElicense like Pfizer, maybe companies that are using the BCE in development right now, the license that beforethey commercialize the product will need to have one?

Well, let me just say that we expect to continue to licensethat technology as we've suggested in the call we are continuing discussionswith a number of potential collaboration partners and licensees of ourtechnology.

There are several large companies that have not taken alicense that we believe probably should. So, we will target those companiesaggressively to continue seeing revenues come out of this area. And then, ofcourse, there may be smaller companies and so forth along the way.

Perfect, thank you.

Thank you.

Thank you. There are no further questions at this time. Iwould like to turn the floor back over to management for closing comments.

We again, are just very excited about the progress thisquarter. I hope you are too and we think we've got even bigger things to see inthe coming months. So, please stay tuned. Thank you.

Ladies and gentlemen, this does conclude today's conference.You may disconnect your lines at this time. Thank you for your participation.