Good day, ladies and gentlemen, and welcome to the XOMA Ltd. second quarter 2010 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Fred Kurland, Vice President of Finance and Chief Financial Officer.

Thank you, operator. Good afternoon and welcome to XOMA’s call today. A short while ago, we issued a news release which included our financial results for the quarter ended March 30, 2010 and the general business update. Our quarterly report on Form 10-Q was filed with the Securities and Exchange Commission this afternoon. Each document will be available on the XOMA website, www.xoma.com. Today’s webcast can be accessed via our website and will be available for replay until the close of business on November 9th, 2010. Joining me on today’s call is Steven Engle, Chairman and Chief Executive Officer; Dr. Patrick Scannon, our Executive Vice President and Chief Medical Officer. We wish to remind all listeners that certain statements concerning conduct or availability of results of clinical trials, entry into a XOMA 052 development partnership or potential licensing and collaboration arrangements or other aspects of product development or that otherwise relate to future periods are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on assumptions that may not prove accurate. Actual results could differ materially from those anticipated due to certain risks inherent in the biotechnology industry and for companies engaged in the development of new products in a regulated market. Among other things, the conduct or availability of results of clinical trials may be impacted by or delayed or may never occur as a result of unavailability of resources, actions or inaction by our present or future collaboration partners, insufficient enrollment in such trials or unanticipated safety issues, and a XOMA 052 may not be entered into in the timeframes indicated or at all. These and other risks including those related to inability to comply with NASDAQ’s continued listing requirements, the generally unstable nature of the current economic conditions, the results of discovery, research, and preclinical testing, the timing or results of pending and future clinical trials, including the design and progress of clinical trials, safety and efficacy of the products being tested, action, inaction or delay by the FDA, European or other regulators or their advisory bodies, the analysis or interpretation by or submission to these entities or others of scientific data. Uncertainties regarding the status of biotechnology patents, uncertainties as to the cost of protecting intellectual property, changes in the status of the existing collaborative and licensing relationships, the ability of collaborators, licensees and other third parties to meet their obligations, market demand for products, scale up and marketing capabilities, competition, international operations, share price volatility, XOMA’s financing needs and opportunities and risks associated with XOMA’s status as a Bermuda company, are described in more detail in XOMA’s most recent annual report on Form 10-K and in other SEC filings. Consider such risks carefully in considering XOMA’s prospects. I will now turn the call over to Steven Engle, XOMA’s Chairman and Chief Executive Officer.

Thank you, Fred. Three years ago, we refocused XOMA’s business model on developing high-value proprietary therapeutic products. And, to date, we’ve made significant progress in this product-focus strategy. We’ve expanded the potential indication for XOMA 052, used technology licensing and royalties to partially fund product development, have entered into new biodefense contracts and have forged more lucrative license and collaboration agreements such as those centered on our antibody phage display library expertise. Most significantly, we have increased confidence in the potential for XOMA 052 as a multi-indication product with multi-billion dollar potential to address the underlying inflammatory cause of many human diseases. The decision to lead our proprietary product development program with XOMA 052 has yielded better results than expected. While it has been well known for more than 20 years that IL-1 is the Master Cytokine at the top of the inflammatory cascade, what wasn’t known was whether IL-1 inhibition would prove to be a viable therapeutic target. Clinical and preclinical data generated over the past several years with XOMA 052 and other IL-1 targeting agents have convincingly demonstrated that it is. It’s important to remember that when we made the decision to focus on XOMA 052, there was only one IL-1 inhibitor on the market, Anakinra or Kineret. Today, there are three commercially available IL-1 inhibitors and a huge increase in clinical development for an expanded number of indications for which IL-1 is known to have a role. These advances in the field directly support our XOMA 052 development efforts, enabling us to benefit from others’ investments, while we focus our resources on potential indication such as diabetes and cardiovascular disease. For example, in the past few months, we’ve seen positive new Phase II and Phase III results in the treatment and prevention of gout, a classic auto-inflammatory…

Thanks, Steve. XOMA had total revenues of $5.9 million in the second quarter of 2010 compared with $9.7 million in the second quarter of 2009. The decrease in the 2010 period compared with last year was primarily due to reduced revenue from collaboration agreements and reduced royalties due to the sale of our royalty interest in LUCENTIS in the third quarter of 2009. We had total operating expenses of $24.3 million in the quarter ended June 30, 2010, compared with $19.5 million in last year’s second quarter. Research and development expenses were $19.3 million in the second quarter of 2010, compared with $13.5 million in the 2009 second quarter, primarily reflecting increased spending on the XOMA 052 Phase II clinical program in the second quarter of 2010. Selling, general and administrative expenses were $5 million in the 2010 second quarter compared with $5.7 million in the 2009 second quarter, reflecting decreased expenses for salaries and related personnel costs primarily as a result of the January 2009 workforce reduction, and continued cost control measures. At June 30, 2010 we had cash and cash equivalents of $12.1 million, compared to $23.9 million at December 31st, 2009. Subsequent to the end of the second quarter, we raised $15.6 million in gross proceeds from equity financing, and received as Steve mentioned earlier, a $750,000 milestone related to our collaboration with AVEO Pharmaceuticals for its AVEO 299 antibody, which just entered Phase II development in non-small cell lung cancer. Net cash used in operations during the first half of 2010 was $32.5 million compared with cash provided by operations of $1.4 million in the same period last year. The decrease in cash provided by operating activities in the 2010 period was primarily due to the decrease in revenues from license and collaboration fees and royalties…

Thank you. (Operator Instructions). And our first question comes from Chris James with MLV. Thomas Yip – MLV: Hi, good afternoon. Thank you for taking my questions. This is actually Thomas Yip [ph] sitting in for Chris James. First, I want to congratulate you on a great quarter, and for 052 obtaining orphan drug definition for Behcet's disease. Yes, this is great news.

Thank you. Yes. Thomas Yip – MLV: Do you have any information on –?

Hello.

Operator, I think we just lost the caller.

Hello.

Chris? Thomas Yip – MLV: Yes.

Sorry, we lost you for a second. Can you say your question one more time? Thomas Yip – MLV: Yes, okay. I’m sorry.

No problem. Thomas Yip – MLV: This is Thomas Yip sitting in for Chris James. He’s away. The – I’m wondering in terms of partnership for the 052 program given the specific strategy to leverage the orphan drug definition on that and any progress on the partnership?

Yes, thank you for the question. Yes, it’s been our thought that, as you look at the time it takes to take a diabetes drug approved, that having an orphan indication may provide you with a faster way to put the drug on the market. And so, we see that as positive for us as well in the partnership discussions. The advantage, of course is, is that, you already have a certain amount of expected value in the product from that initial indication, and we also believe that Behcet's can lead to a number of other possible indication, but it gives us a way to move forward more quickly. So adding that in has worked in the conversations just as we would expect, which is, people come in the door thinking about things like diabetes and cardiovascular. But, in addition to that, they see our point as we’ve brought the drug along in Behcet's which has the ability to get the drug on the markets sooner. Thomas Yip – MLV: I see. That’s great.

Yes. Thomas Yip – MLV: Speaking in – and speaking off adding value considering their current pricing for treatments for Behcet's disease, the – I know it’s still early in the game, but do you have any direction in terms of pricing for 052?

Yes, and you’re right. It is early. But I think what we can say is, there is an unmet need out there for a drug that works on the IL-1 inhibition pathway. As we look at it, there are no approved drugs TNF Inhibitors and so forth in that area, and so we see that as helpful. Many of the other drugs that are used are used off-label and you can imagine cyclosporine and corticosteroids and azathioprine and so forth. And the problem with those drugs is, they’re all inherently problematic for the eye. And so, it’s a very interesting situation as we talk to the physicians to treat these patients. This is not one where you go see your doctor and then come back in a week and let me know what’s going on. These patients have to be monitored everyday until the problem clears up, because basically, they could lose their sight from the event. So it’s a very tense difficult situation. In our clinical trial, we actually were working with physician group in the way they handled the drug, as you probably have read, is that they base – the trial was designed to bring in patients who were already flaring or add an exacerbation in Behcet's Uveitis, and that the drugs that they were on, they were being maximally dosed, and it still wasn’t stopping the progress of the disease itself. And so, at that point, they were switched off of the azathioprine and immunosuppressive drugs, some remained on a low-level prednisone, but they were switched off of that, and put on to XOMA 052. And as Dr. Gul had explained at the last conference call, what was quite striking is, in a moment, when things might have actually even gone worse, taking them off of immunosuppressive, they in fact all responded and responded within a few hours and days to the effect. Now, for some people, it took out 21 days or so to get full remission. But, as you know, from the data that we presented, most all of them showed beginning impacts almost immediately. So it’s quite an exciting situation as the physicians explain in it to us in the sense that they’ve got a new therapeutic approach in their armamentarium to use with these patients and certainly the first results are very hopeful. Thomas Yip – MLV: Right. Thank you very much. And one last question I have. You mentioned that you completed enrollment for Type 2 diabetes for Phase II trial.

Yes. Thomas Yip – MLV: Actually, you exceeded the enrollment target, which is great.

Yes. Thank you. Thomas Yip – MLV: So, will you consider a partnership before Phase II data is complete, or is it not likely?

Yes. Well, that’s a great question. It’s not so much around us. But we do know that there are – we’ve said for several months now that we believe that a number of people will be there after the 2D trial, because we’ve done kind of the classic study with the six months on drug and so forth that you see over and over again, when you look at what people are doing for their Phase II trials in diabetes. But we also have said that we have conversations ongoing with companies and that we do think it’s possible that one could occur sooner. However, a more likely case, because of the number of companies possible is going to be later on when all the results are available. But still, it’s probabilistic at this point, and there is opportunities on either side. To your point, yes, one of the big announcements today really is that, we have completed enrollment and we had said before, we had already gone through our goal of 325, and we’ve actually completed enrollment with 421 patients and we are very pleased with that. It represents something, several things. It represents the fact that the physicians and patients were very interested in being in that study. This represents the lead study in a new disease approach to their diabetes and so there was a lot of excitement. Also, the profile of the drug, the safety profile so far, and it was Phase I study, but that sense of what’s possible here, and so for those reasons, we had quite a bit of interest. And so even as we met our goal, we realized there were a lot of patients who still wanted to get in and we thought there is only upside to have additional patients in the trial helping to make the trial and its results even stronger. Thomas Yip – MLV: Right, thank you very much. Congratulations again on a great quarter.

Absolutely, thank you very much.

Our next question comes from Matt Kaplan with Ladenburg Thalmann. Matt Kaplan – Ladenburg Thalmann: Hi guys. Can you hear me?

Yes, Matt. Thank you. Matt Kaplan – Ladenburg Thalmann: Thanks. Great, thanks for taking my questions. Couple of things. Just maybe working backwards a little bit; with the completion in enrollment in the Phase IIb study, that’s a – it’s a multi-arm study, right? There is – there are, what, five groups, four doses and placebo in that study. Can you help us understand what we should look for in terms of the primary endpoints in HbA1c, magnitude of changes, and some of the secondary endpoints and biomarkers and stuff like that that you are looking for? Just set the stage for the us, what to look for in the first quarter.

Well, Matt, I’ll let Dr. Scannon speak a little further in a moment. But I would also say just from our view of view, as you look at the design of the study, this is a classic study in the sense that, hemoglobin A1c is the primary endpoint. It’s been measured once a month. Patients are being kept in a trial over a six-month period. And we’re seeking patients who are on monotherapy of metformin in the study and they have elevated levels of hemoglobin A1c of different kinds within some ranges, if you will. And so that’s kind of who the patients are, that’s the length of the study. So when we talked about being able to get all the results in the first quarter, we’re looking at that timing based on six months from last patient in as you might guess. In terms of the other endpoints, again, I can let Pat talk some more, but clearly there are other diabetic endpoints such as fasting, blood glucose, and so forth, and there are also cardiovascular biomarkers such as C-reactive protein. And one way to describe all of this simply is, they’re the same kinds of endpoints that we were measuring in the Phase I study. And when you ask about the results out of the study, I think their – who we have to be a little bit careful just to by where we are in the process and so forth. But certainly you can take a look at what we did in the Phase I for the short time patients were on drug and begin to get an idea of what can be done with the drug. I think there were very interesting results both for the diabetes outcomes and for the cardiovascular risk outcomes, so we feely fairly comfortable. Beyond that, it’s hard to go much further, because – Matt Kaplan – Ladenburg Thalmann: I guess what I'm getting at a little bit is, should we expect to see kind of a dose response curve as you’re looking at multiple doses in terms of that kind of thing?

Well, I mean, the reason – yes, this is Pat Scannon. The reason that you do multiple doses is to determine what is the impact of different dose levels on these endpoints. And so, you will get a dose response curve depending on where you are in the total dose response curve area. Some dose responses are more dramatic, others are more flat. And it just depends on where you are in the curve. We believe that we are in a dynamic range where we would expect to see a dose response. And we saw some suggestions of that in our Phase I studies, so that I – I do expect that we should see these kinds of effects. And after all the purpose of this study is to in fact select dose or doses that we could move into Phase III study. So this dose-ranging study is not just a proof of concept study anymore. This is really importantly to help select and finalize a design for follow-on Phase III study. Matt Kaplan – Ladenburg Thalmann: And what type of –

Matt, just one other thing to add to Pat’s comment also is that, some of the advantageous of the study as you might guess, one is the number of patients per group is much larger. When we were doing the Phase I, it was five patients or so per group. The other big advantage is these patients are all on monotherapy with metformin, so you got a more standardized group coming into the study. And then the third this is, of course, you’re covering them over a longer period of time. So we do think those advantages will be quite helpful in evaluating the drug.

I think the other thing that we – during the course of our Phase I study, from the time we initiated our Phase I study through to this day of the environment in diabetes, particularly from a regulatory standpoint, I think has dramatically changed. That is to say, we’re now seeing not just an emphasis on glycemic control, but a much greater emphasis on safety, particular cardiovascular risk associated safety. And we think that this actually proves to be favorable for XOMA 052 based on a number of the factors that Steve mentioned earlier as success factors. The fact that IL-1 inhibition has been demonstrated to have benefits in diabetes and cardiovascular. These really creates a – I think places us in a excellent position in a growing competitive environment. So I think this Phase II was designed as I mentioned earlier to get us into Phase III. But recognizing the growing competitive role of understanding cardiovascular parameters, we were able to include those into our study, so that our database we think will be comprehensive in designing the kinds of follow-on in Phase III studies necessary for approval. Matt Kaplan – Ladenburg Thalmann: And then talk a little bit about where your Phase IIa study is, the 80-patient study? Are we still expecting some interim results on the first three months later on this year in the fourth quarter?

Yes. Yes, Matt. We still expect to see – and what we’re talking about there is a interim at a three-month point, not a six-month point. As you know, it’s 80 patients, 60 on drug, 20 on placebo, it’s a single-dose that we’re evaluating, but you can guess it’s the center dose on the other trial is the one we thinks mostly likely at this point. And so, it's very interesting data to us. The issue will be simply that we'll be out to three months in that study, not out to six months. And so – but still, we think we’ll have that data before the end of the year and we’ll share with you as soon as possible. Matt Kaplan – Ladenburg Thalmann: Great. And congratulations also on the orphan drug status on Behcet's disease. Now, help us understand what are your plans in that indication with and potentially without a partner? Will you go ahead and initiate studies on your own if you don't have partner in hand by a certain period of time? And, I guess, what are your plans? What are your potential – what does the trial look like there?

Matt, there I think a couple of things that you may remember, we just got the results out on the last conference call, and we’ve since had meeting with the thought leaders in the Behcet's area, so we’re – we’ve got more information, we’re still putting plans together. But as far as actually a Phase III type trial, a pivotal trial, if you will, we still have to go through conversations with regulatory authorities to fully understand what they’re going to need from the design of the trial point of view and we are moving forward to have those conversations. However, the other side is that, we want to go ahead and get the corporate partner in place to be able to have them help fund the study going forward. And so as you might guess between the need to get the regulatory feedbacks as well as getting the partner onboard, we do not see ourselves moving forward in the interim. But we do see it as something that will happen in the next year and maybe sooner. It just all depends on getting the corporate partner on board and as well as getting the feedbacks we need from both the US and EMA regulatory authorities. Matt Kaplan – Ladenburg Thalmann: In other words, you’ll –

And, one of the things we are doing very actively is, now that we’ve gotten orphan drug designation in the US and EMA, that really allows us to have very meaningful discussions with them about the requirements necessary for this particular orphan indication. So we do plan to move ahead in terms of planning, so that as we – so that we actually have everything lined up so to speak and ready to go. So I want to just make sure that we’re continuing that whole planning phase during these discussion periods with potential partners. Matt Kaplan – Ladenburg Thalmann: Okay. Just so I am clear, in other words, you will get a partner on board, you're not going to invest in those studies on your own, but you will do all the planning upfront?

Exactly, Matt. I mean, we feel in these economic conditions, and they’ve certainly worsened over the last couple of months as everybody is aware that it doesn’t make sense to move forward until we get somebody else paying for this. Matt Kaplan – Ladenburg Thalmann: And then a final question and I'll jump back in queue. You mentioned in your prepared remarks that you expect second half revenues from tech licensing agreements. Could you give us a sense in terms of the magnitude of those? And then, you also mentioned that you expect, I guess, $20 million in biodefense revenues, I think it was, in 2010. How much of those will be in the second half year?

Matt, this is Fred. Let me answer the first part first. The – we expect technology licensing revenues very much along the lines of what we experienced in the second half of last year. As you may recall, we announced in the fourth quarter of last year, two license agreements. One with Arana, the subsidiary of Cephalon, another with a Japanese company, Kaketsuken, in which total revenues that were reported were $14 million. And, while we’re not suggesting that it’ll be precisely that amount, it’s going to be – we expect it to be in that range. The – on the biodefense as you may have noted, the total revenue thus far this year in the first half of the year is – I think it’s about $6 million or $7 million. We expect there to be a total of about $20 million by the end of the year. In other words, we expect there to be a growing revenues. We think it’s not going to be equal amounts in each quarter. We – The agreement that budgets have already been agreed to with the government and we expected there to be an increase of that activity in the second half of the year. So we still are expecting the full $20 million with the balance which would be $12 million to $13 million in the second half of the year. Matt Kaplan – Ladenburg Thalmann: And do you expect to see those revenues pretty much offset by increases in R&D on a one-to-one basis in the second half or –?

Well, it’s actually little bit better than that. The – our biodefense relationship is – we’re happy to say is slightly more than self funding. Not only does the revenue from the government absorb the direct costs, there’s also – because we’re using our manufacturing infrastructure for those operations, we get the chance to absorb, otherwise, unabsorbed overhead. So it actually helps in our overall cash flow and reduces our net burn. Matt Kaplan – Ladenburg Thalmann: And since we are talking about numbers, you ended the quarter it looks like with an average number of shares, 250 million. Subsequently you completed some financing. What's your current share balance?

It’s 317 million, Matt. I'm glad you asked. We ended the quarter at 261 and a fraction. And, since that time, between the equity sales associated with our ATM facility, as well as the equity line of credit, the total has been now brought up to 317 million. Matt Kaplan – Ladenburg Thalmann: And how much more do you have left on the equity line of credit?

It is completed. It is completed. Matt Kaplan – Ladenburg Thalmann: Great. Thanks for taking my question.

Great. Thank you, Matt.

At this time, I’m showing no further questions, and I’d like to turn it over to Steve Engle, for any wrap-up.

Yes, well, thanks everybody for being with us. And, we just wanted to say that, we continue with the orphan drug approval, both in the US and in Europe, to move XOMA 052 forward in multi-indications, and that, plus the work that we’ve accomplished in getting the trial completed puts us right on target for our plans in the first quarter. So we’re – we think this is a very excitement time as a result of that. We also think the increase in the biodefense revenues and the potential to eventually move that into a stock piling situation, again creates another very exciting and an interesting situation. We look forward to seeing many of you at the Rodman & Renshaw Healthcare Conference in New York next month and at our other meetings throughout the rest of the year. Thank you very much.

Operator, this concludes our call.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may all disconnect. Everyone have a great day.