Good day, ladies and gentlemen, and thank you for standing by. Welcome to the XOMA Limited fourth 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, Ms. Carol DeGuzman, Senior Director of Investor Relations. Ma’am, please go ahead.

Thank you, operator. Good afternoon and welcome to our call today. A short while ago, we issued a news release, which included our financial results for the quarter ended December 31st, 2010 and fiscal 2010 and a general business update. Our annual report on Form 10-K is being filed with the SEC this afternoon. Each document will be available on our Website, www.xoma.com. Today’s webcast can also be accessed via our Website and will be available for replay until the close of business on June 10th. Joining me on today’s call is Steven Engle, Chairman and Chief Executive Officer; and Fred Kurland, Vice President and Chief Financial Officer. Also with us today is Dr. Alan Solinger; our Vice President of Clinical Immunology. As we begin today’s call, we wish to remind all listeners that certain statements concerning anticipated levels of cash utilization, timing of initiation or availability of results of clinical trials, interim or other results of early-stage clinical trials are additional licensing opportunities, or that otherwise relate to future periods are few 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 anticipated levels of cash utilization may be other than as expected due to unanticipated changes in XOMA's research and development programs, unavailability of additional arrangements or higher-than-anticipated transaction costs; the timing of initiation or availability of results of clinical trials may be delayed or may never occur as a result of actions or inaction by our present…

Thank you, Carol, and thanks to all of you for joining us today for the opportunity to review XOMA’s recent progress. With the announcement of our multiple indication development and commercialization agreement with Servier for XOMA 052 in the opening days of 2011, XOMA starts the year off in a strengthened financial position and with a new world-class partner for XOMA 052 that we believe will help us realize the full clinical and commercial potential of this novel, multi-indication antibody. Let me remind you that Servier has provided upfront cash of $35 million that consist of $15 million and a EUR15 million loan in exchange for worldwide rights to XOMA 052 for the treatment of Type 2 diabetes and cardiovascular diseases and rights ex-U.S. and ex-Japan for all other indications. Importantly, Servier will fully fund the initial $50 million and 50% of further development expenses beyond the initial $50 million in Behcet's uveitis as well as all development funding in diabetes and cardiovascular disease. What is unique about this deal is that XOMA retained significant flexibility to reap the benefits of XOMA 052 and leave the XOMA 052 development and commercialization effort for Behcet's uveitis in the U.S., while reducing the fund XOMA requires to advance it for the treatment of multiple diseases driven by inflammation. Unlike many of the deals you may have seen, where the larger company essentially controls the development of license molecule worldwide, we are collaborating closely with Servier on the XOMA 052 development program and strategies. Based on recent partnership meetings, we are already moving forward with planning regulatory and clinical efforts for several indications including a Phase III clinical study in Behcet's uveitis, which is the first of the inflammatory disease indications we plan to pursue and the indication closes to potential commercialization. As…

Thanks, Steve, and welcome everybody to our quarterly call. XOMA had total revenues of $33.6 million in 2010, compared with $98.4 million in 2009. The decrease in revenues in 2010 compared with 2009 was due primarily to several one-time transactions in 2009, including $28.1 million for the expansion of the company's collaboration agreement with Takeda and $25 million for the sale of a royalty interest. XOMA had a net loss of $68.8 million, or $3.69 per share, for the year ended December 31st, 2010, compared with net income of $0.6 million, or $0.05 a share, for 2009. R&D expenses in 2010 increased to $77.4 million compared with $58.1 million in 2009, primarily reflecting increased spending on the Phase 2 clinical development of XOMA 052 in this past year. G&A expenses were essentially flat at $23.3 million in 2010 and $23.7 million in 2009. For the fourth quarter ended December 31st of 2010, XOMA had total revenues of $9.6 million and a net loss of $17.8 million, or $0.84 per share, compared with total revenues of $21.6 million and net income of $3 million, or $0.22 per share for the quarter ended December 31st, 2009. At year-end 2010, XOMA had cash and cash equivalents of $37.3 million, compared with $23.9 million at the end of 2009. As previously reported, in January of 2011, we received approximately $35 million in cash from Servier related to the companies' joint development and commercialization agreement for XOMA 052, including an upfront payment of $15 million and a EUR15 million loan, which is due in full in 2016. As Steve has described, the Servier agreement covers 100% of the first $50 million in costs for the Behcet's program and half of all costs after that, as well as directly funding all further development in cardiovascular disease and diabetes. Since XOMA 052 has accounted for approximately half of our historical burn rate, we expect a significant decline in our burn rate once we have completed the ongoing Phase 2 activities in the diabetes program. That burn rate has been fairly consistent at about 5 million per month although in the past few months, it has increased to accommodate the completion of the Phase 2 expenses. Consistent with our past practice, we will not be providing specific guidance on overall revenues or cash receipts for 2011, so as to best manage our ongoing business development discussions and other activities. We currently expect that cash used for operating activities in 2011 may range from $30 million to cash neutral. Operator, this concludes our prepared remarks, and please open the call for questions and answers.

(Operator instructions) And our first question comes from the line of Liana Moussatos of Wedbush Securities. Liana Moussatos – Wedbush Morgan Securities: Thanks for taking my questions. I have three. One is what was the Q4 and full year stock-based compensation? The second one is, what’s the difference between the six-month 2a data and the six-month 2b data that we are going to get later this month versus what we are going to see in Q2? And then focusing in on the modest A1c result from the 2a data, if we see that again in the 2b results, how should we think about that in terms of the mechanism of the action and what you think the use of XOMA 052 to be in Type 2 diabetes?

Liana, this is Fred. I am going to answer the first of your three questions. The stock-based compensation expense in the fourth quarter was almost exactly $1 million, and for the full year was almost exactly $5 million, I think it was $4.9 million to be precise. And even though, you may not have asked – the other large non-cash expense, it was depreciation, and for the full year, it’s not quite $6 million, $5.7 million, and approximately $1.5 million per quarter. Liana Moussatos – Wedbush Morgan Securities: Thank you.

Liana Moussatos – Wedbush Morgan Securities: What are the difference in the endpoints that we are going to see since they are both six months?

The endpoint should be very similar. We are expecting to do hemoglobin A1c and also the CRP information as well, and there may be a few other things, but fundamentally, the 2a study was designed to be done quicker and first. Obviously, what happened was the 2b ended up getting there much quicker, it’s at 60 sites. So, it’s not fairly surprising although the enthusiasm of physicians and patients and enrolling was quite good. So, but otherwise, we expect that we will get similar kinds of data recognizing that 2a as a single dose versus placebo whereas as the 2b of course has four different doses versus placebo. Liana Moussatos – Wedbush Morgan Securities: Okay.

And the only other item is what I was alluding to in there was that when we put out this top line data, we still expect it will be additional data, and that is because there are some things like the analysis of blood and so forth for pharmacokinetics and other things that will be going on for another month or two or three, somewhere in that order. And so, the rest of that kind of data from the 2b we would expect to see in the second quarter around that point, maybe the end of it or right around that point. And then on the other item, which was the – what happens if we continue to see the modest kind of delta and the change in the hemoglobin A1c level, I think from our point of view in U.S. relative to how do we think about that in terms of mechanism or action in going forward, in diabetes area and just to say before I get into that, of course, we expect this will have virtually no effect on Behcet's study that we are planning to start by the end of the year, this Phase 3 study, because we expect safety will continue on and obviously the two are not connected directly. Regarding the CRP again, we expect to move forward in our ongoing conversations about cardiovascular advantages of the drug, based on the continued positive CRP results as we saw in both the Phase 2a three-month data as well as the Phase 1 data. So, then that just leaves you with this question of how good it has got to be in the diabetes situation to drive us forward to run that next study and quite frankly, there are clearly several different outcomes that we are looking…

Absolutely, thank you.

Thank you. And our next question comes from the line of Christopher James from MLV. Christopher James – MLV: Hi good afternoon, and thanks for taking my questions. Congrats again on a productive 2010 start to 2011.

Thank you, Chris. Christopher James – MLV: My first question, according to your guidance about Behcet's start in the second half of this year, do you have an idea when you are going to meet with the FDA or to discuss the design of the Phase 3, or have you corresponded with the agencies in the U.S. or EU yet, or do you need to before you start the study?

So, we do need to get the agreement between the FDA and ourselves as well as with the EMEA because as we envision these studies, we expect that they will be worldwide nature, and that’s driven by the fact that Behcet’s patients are located around the globe. So, we do imagine that, and therefore we would want to be able to get agreement across the major agencies, and that might include Japan as well to the kind of trial design that would be necessary for approval. So, with that in mind, we obviously are moving forward to set up conversations with the regulatory agencies and to hold those conversations, and you can imagine, we will do one before the other, and we will try to get them to conform to each other as we go through it. And all of that has been part of the conversations that we have had with our corporate partner, Servier, and it has been very, very helpful having them on board already in our thinking as well as their helping making things move forward. So, I can’t give you a specific schedule simply to say that those things need to be agreed to before we start the study. Obviously, other parts of what we are doing are to begin to determine which sites we will use and other things on an operational basis as far as running the trial. And so, all of those things are actually already running in parallel. And so, we will be going through this process and we will get back to you as we get through and determine what the trial design as and so forth. Christopher James – MLV: Sure. That was actually – that was my second question, thanks.

Thank you. Christopher James – MLV: You may not be able to answer this, but in terms of design, what are you thinking about in terms of number of patients’ dose and the obvious prohibitive factor being enrollment, what are you thinking about as a strategy to potentially speed that up?

Right, well, obviously we would like to as quickly as possible. This is an area of high unmet medical need to these patients, and so, we want to move quickly to be able to help them. On the other hand, what we have said is that at this point, given the lack of information we have that is the fact that we don’t know how the regulators are thinking fully yet and we haven’t actually sat down with them and gotten an agreement on the design, we think it will be about two years to be able to complete the study or studies. And so, that’s kind of the timeframe we are thinking about if you start by the end of the year, then you can see what kind of timeframe we are on. To your question directly about the design and so forth, there are several designs that we are thinking about and there are not uncommon in the way things are done either in the uveitis area where we have been able to study other trials that have been run, and clearly Behcet's uveitis is a type of uveitis, and so, you are talking about measurements of vision and so forth as outcome measures. And these things have been used before. So, we are not inventing things in terms of thinking about uveitis. In terms of the number of patients and so forth, I am afraid we just don’t feel comfortable yet saying much about that. We obviously have our ideas about what we would like, but until we get finished talking to the agency, it’s really hard to call that. And the same thing for the number of studies, that’s another issue of will we run 1, will be run 2, and so there are several things in there. And the last point is, is that even as we get all of this information, it will be somewhat tempered. We do not want to tip our hand to our competitors. And so, as we go through this process, we will try to provide you with what information we can if there will be some limitations. Christopher James – MLV: Thanks Steve, actually pretty helpful. You mentioned, final question, you mentioned gout earlier, have you done any work in gout or do you plan on doing any work in gout?

Yes. We have done pre-clinical work in gout. We are not at all surprised that our friends at Novartis have done so well, not at all surprised. And we believe that without human data of course at this point, we believe that their IL-1 inhibitor is doing as well, it seems to be doing in humans that it is very likely that XOMA Type 2 can do the same kind of effect. Obviously we have to run the clinical trials to demonstrate that, but we know something about the binding affinity of the drugs and the comparative usage of dosing and so forth. Of course, there has been no head to head. But from our point of view, it’s a very interesting area, and as you remember, two-and-a-half years ago, we were thinking about gout as well as other indications, and we decided since both Novartis and Regeneron were going into this area, that we felt the best thing to do was to let them do that part and spend their money there, while we went after diabetes and things like Behcet's which we eventually did. And so, with that in mind, we feel there is a great opportunity here, and what we are waiting for is to get our corporate partner onboard. And so, as you might imagine, that is on the list of indications to review and to come to a decision on with our corporate partner. And finally, you remember that as part of our deal, of course, that we and essentially a regional deal for the inflammatory indications, which is all indications except for those cardiovascular and diabetes. So, we have the ability to move forward and with the gout situation, if we both choose to, and at that point, of course, it accrues to that side. So, we are interested and I think right now, it’s a matter of we got a great corporate partner to have this conversation with and let’s see what they think. Christopher James – MLV: Thanks again, Steve. Thanks very much.

Absolutely.

Thank you. And our next question comes from the line of Matt Kaplan from Ladenburg Thalmann. Matt Kaplan – Ladenburg Thalmann: Hi guys, thanks for taking my questions.

Hi Matt, thanks.

Hi, Matt. Matt Kaplan – Ladenburg Thalmann: Just some follow-up on Liana’s and Chris’ questions. Starting off with Behcet's, is your meeting that you have or trying to plan with the FDA and EMEA, is there anything you are waiting for that you need to develop with respect to data before you can request that meeting or is that something you can – trying to get a sense in terms of the timing of those two meetings?

Sure. And so, just a quick answer is, no, we feel we have all the information we need to have those discussions, and we are working to have them sooner than later. They are linear in the sense that we expect one will happen before the other, but as far as what we need to go in there, we are very comfortable with the data that we already have. And I think the other thing you are going to assume is we are always talking to regulatory agencies, but we are talking about here is actually going in with a protocol design to sit down with them and get their review and their thoughts. Matt Kaplan – Ladenburg Thalmann: Is this something you will get a request in FDA on, do you think?

An FDA is always a possibility as to one of the things that we do, and I think trying to have the agency lined up around that, and again, it’s a discussion with our corporate partners, both the regulatory experts on our team and outside. And I think those kinds of questions are the things that are being discussed right now. Matt Kaplan – Ladenburg Thalmann: Do you think you can get these studies up and going or study up and going before the fourth quarter?

I find it hard to put a fine point on it. We said second half of the year, I do think that we are talking about more in the fourth quarter than in the third quarter. And that’s just because I don’t have any idea, could everything go perfect tomorrow morning and in the next few weeks, everything gets done sure. But we very carefully said second half of the year, and my guess is, it’s late in the year and not earlier in that period. Matt Kaplan – Ladenburg Thalmann: Great, fair enough. And then, just jumping over to diabetes, just to follow-up on some of Liana’s questions. With respect to the differences in terms of the Phase 2a and Phase 2b studies, can you talk a little bit about the patient characteristics, maybe based on characteristics from the two studies? I know one of the phase was done in the U.S., obviously Phase 2b and the other one was done in Mexico. Any differences in the patient population?

Hi Matt, this is Alan. First of all, we do not have the unblinded Phase 1 data from the 2b trial. That will come out as Steve had mentioned, later this quarter. So, we really can’t do a head-to-head there. However, there are many features between the two trials that are very similar. Both trials have metformin stable dosing at baseline, but there are multiple features that we will have to look at, and we are anticipating these are going to be very important to our decision-making. And they are different from the Phase 1 trials on purpose, we are looking at people on a background standard of care that is consistent across all of the patients as opposed to a trial where the patients were just allowed to stay on their current background therapies in Phase 1.

And maybe at the risk of operating without a medical licensee, I would just add to Alan’s very clear comments here, that as you alluded to the Phase 2a study was a single site study, 74 patients enrolled, and was not done in the United States, whereas the 2b study is a multisite situation with around 60 sites. And you are talking 420 patients. And again, the data that we presented a few weeks ago was only for the three-month period, whereas what we are about to talk about is the six-month. So, we consider this data, there is always a lot of different issues going on, having multiple sites gives you a blending across a lot of situations instead of having a single site. And of course, the 60 sites within the U.S. versus being outside the U.S. and we don’t know if those differences are big or small as Alan said, it’s hard to judge since we don’t know baselines and things like that. But I do think there are factors in the discussion and I am sure we will be looking at those as we get through this. The other thing we are missing of course is the six-month results from the 2b, and I think many of you know, in these diabetes studies, certain things can happen that can make the earlier data less valuable. We all recognize A1c, measure is a measure over the hemoglobin, maybe 120-day period in which it has to be modified in order to get a true reading. And so, reading it in the first three months is not necessarily going to give you the best reading. Secondly, that when you are dealing with something like this, you also have the issue of the placebo patients, and as you all know,…

Thanks Matt. It’s a good question and a difficult one really to answer, because there are many factors here. I think that what we are dealing with is a situation like Steve mentioned. There are multiple factors here. We are looking at the turnover rate of hemoglobin that’s been glycosylated, that’s had sugars added to it, and we are also dealing with much more homogeneity in the patients because of background therapy, especially when compared to the Phase 1 trial. However, we are very convinced that our theory as to how this drug works is holding up quite nicely as far as its anti-inflammatory effect, its effect on insulin secretion by the beta cells as well as its effect on the peripheral resistance. Many of those follow very different time courses in kinetics, and I think of six-month trial is the kind of thing that you will see, because then you can compare if you have to with the other drugs on the market, because most of those drugs that are currently on the market really have not reported three-month data. Their reports are all at the level of six months or so, certainly greater than three months. So, the six-month time point for comparison is a much more appropriate one, and we should have that data as we mentioned in the near future. Matt Kaplan – Ladenburg Thalmann: Thanks a lot guys.

Absolutely. I will just add one of the things. If you look at the Phase 1 data, even though it’s very short, out at the day 84, you have a tremendous increase in the A1 levels, and the placebo group, and so, even in that very small, short study, you could already see what was happening which was the patients went from situation where they were at, at day 54, they were basically sitting at baseline to quite a bit larger. So, things just keep shifting. Anyway, we are very excited about the beta that is coming.

Thank you. Our next question comes from the line of Bart Classen of Summer Street Partners. Bart Classen – Summer Street Partners:

Thank you very much. We appreciate those questions, Bart. On the subgroup analysis question and the 2a results that we had at three months, you won’t be surprised that we have taken a number of different cuts to the data. The problem is, is that there aren’t enough patients and there isn’t enough time yet in that situation. So, even though we can see different things and can achieve things out if you will, until we have more patients more data, we are not really comfortable making our firm statement once way or the other. But the kind of hypothesis you are looking for or you were talking about is the kind of thing that we are looking at as well, that is the patients with higher A1c levels respond better to drug and do they have better changes with respect to their original baseline disease. So, those are things that we are looking at. I think on the question of what might come out of other studies by the other companies. First of all, I would say, we will be delighted to see whatever it is, because we think more data is better here. It’s new mechanism of action and using antibodies as a new approach to this, and so even though we have seen positive results from the New England Journal of Medicine study with (inaudible) with diabetic patients in a three-month period, we still are looking to get as much data as we can to understand things. Maybe part of the answer is, do we think there are differences between our drug and the other drugs that might affect that one way or the other, and as you know, I am sure our drug has a 300 femtomolar binding affinity which is tremendously high binding affinity, and we believe based on what’s been published by our friends out there is that we have a very high relative binding affinity, which we think is beneficial. How that will translate into clinical outcomes, it’s harder to call as you might not be surprised. And so, their data I think will be helpful. Will it be determinative, I would be surprised. It usually isn’t when you are developing drugs. You really need to run your own studies to understand where you are, but it will be helpful in terms of continuing to elucidate what’s going on in this area. Bart Classen – Summer Street Partners: Thanks so much for answering the questions.

Absolutely, thank you.

Thank you. And our final question for today comes from the line of Jason Kantor from the Royal Bank of Canada. Jason Kantor – Royal Bank of Canada: You make it sound very official and exciting, the Royal Bank of Canada.

Thank you, Jason. Jason Kantor – Royal Bank of Canada: Thanks for squeezing me here at the end. So, lot of my questions have been answered, but can we just talk about like a real upside homerun scenario, I mean, what is your path forward if you show a very, very clear and robust six months results on HbA1c and some of the secondary readouts? I mean, is there additional partnership in the wings, is there how quickly would you move it forward, what sort of planning moving that harder?

So, I think that moving forward, both we and Servier would be very interested moving forward rapidly. They obviously already have a lot of capability around the world to do the necessary Phase 3 type of study, that would be the next step. I can say that both companies have Phase 3 and beyond plans for the drug, and we have been reviewing those and discussing those. So, at this point, as far as the beta goes, everybody is just waiting to see what’s coming at this point. In terms of moving forward, the partnership and developing the next trial and so forth, I think we are prepared to move forward. The other side is, a, you are alluding to is potential partnering of the drug and the other in the region that we own, which is the United States and Japan, and there I think as far as diabetes goes, this will be very helpful to that discussion as well. So, I do think if we see the kind of drops that we think are possible, then we would expect to move forward more quickly. You wouldn’t be surprised that the major players we talked about last year who were interested but maybe we are thinking, they would wait until after the Phase 2b results were available. As Paul said in the last month or two, glad to see the 2a, but we really want to see these 2b results. So, we feel like getting some people are there, and they recognize this may be the next major new therapy for diabetes. And that we have the rights to United States and Japan. So, we see those as moving forward more quickly as a result of these conversations. And we would hope given that there are several players at the table, that they can move forward fairly rapidly. Jason Kantor – Royal Bank of Canada: And you may have mentioned it, I might have missed it, but could you talk about any opportunities you are seeing to develop for additional revenue coming in from antibody licensing deals in relative near term?

Sure, and I think we have talked about it as a this year item. So, when you say relative near term, I think we are talking about this year, and I can’t put more specificity to the timing of it. But if you look at the amount of money that was spent by big pharma and middle pharma and so forth last year, there was a lot of money spent on technology as you highlighted in your recent report, and we discussed. And so, there is a lot of interest. If anything in the last year, antibodies have become even more important. Antibodies of course are safer, but they are also being shown to be in a more effective way to get to some of these diseases and with the reduction in costs they are going on, because of higher and higher affinity antibodies and the other such as XOMA 052 and the other ways that antibodies are being improved is by some of the other antibody companies. I don’t see any into that, and I think it also all goes to the issue that the probability of succeeding as a result of some of the recent studies like the test studies, which you identified in your report on the area all indicates that the probability of sitting with antibodies are virtually double what they are with small molecule and big pharma knows this now, and it continues to accumulate data saying, boy this is the way to go. And today, with a very important day, antibody-wise as well, because we saw the approval of the first new drug in 50 years for Lupus and it is an antibody that’s being approved. So, if anybody wants to keep counting as to how much revenue is being generated by antibodies, today…

Thank you.

Thank you. And that concludes our question-and-session for today. I would like to turn the conference back over to management for any further remarks.

Thank you, operator, and thanks to all of you for joining us today on our call. We also hope to see many of you at either the Ross Growth Conference in southern California next week, in which we will make a presentation, or in mid-April at the BioCentury Future Leaders in New York City. Operator, that concludes our remarks for today.

Thank you. Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may now disconnect. Everyone have a great day.