XOMA Royalty Corp. (XOMA) Q3 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the XOMA’s Quarterly Conference Call. At this time, all lines are in a listen-only mode. Later, we will conduct question-and-answer session and instructions will be given at those times. (Operator instructions) As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to your host today Carol DeGuzman, Senior Director, Investor Relations. Please begin.

Thank you, operator, and good afternoon everyone. A short while ago, we issued two news releases, one regarding our financial results for the third quarter of 2011, and one regarding our expanded plans for the development of gevokizumab, which is the official name for XOMA 052 as designated by the U.S. Adopted Names Council. Today’s webcast includes a slide presentation, which you are invited to view along with the audio. You can access the slide now at the Investor’s tab of our website www.xoma.com. The audio replay and slides also will be available on the website through approximately February 9, 2012. In addition, our quarterly report, Form 10-Q has been filed with the Securities and Exchange Commission this afternoon, and also will be available on our website. Joining me on today’s call is John Varian, our Interim Chief Executive Officer; Fred Kurland, our Vice President and Chief Financial Officer; and Dr. Paul Rubin, our Vice President, Clinical Development and Chief Medical Officer. As we begin today’s call we wish to remind you that certain statements contained herein and that will be made orally today concerning regulatory consideration of proposed clinical trial and filing plans, anticipated size of clinical trials, anticipated timing of initiation of clinical trials and expected availability of clinical trial results, 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, regulators may reject clinical trial and filing plans or find them inadequate at anytime based on medical scientific safety or other reasons. Clinical trials may not be of anticipated size of trials that are not initiated or due to enrollment issue such as unavailability of patients, competing product candidates or unanticipated safety issues. The timing of initiation or of availability of results of clinical trials maybe delayed or may never occur as a result of actions or inaction by regulators or our present or future collaboration partners. Complications in the design implementation or third party approval of clinical trials, complications in the collection or interpretation of statistical data or unanticipated safety issues and final results of clinical trials may in any event not be consistent with preclinical or interim results. These and other risks, including those related to the generally unstable nature of current economic and financial market conditions; the results of discovery and pre-clinical 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; and analysis or interpretation by, or submission to, these entities or other scientific data; changes in the status of existing collaborative or licensing relationships; the ability of collaborators, licensees and other third parties to meet their obligations and/or discussion and decision making, XOMA’s ability to meet the demands of the United States government agency with which it has entered into its government contracts; competition; market demand for products; scale-up, manufacturing and marketing capabilities; availability of additional licensing or collaboration opportunities; international operations; share price volatility; XOMA’s financing needs and opportunities; uncertainties regarding the status of biotechnology patents; uncertainties as to the costs of protecting intellectual property; and risks associated with XOMA’s status as a Bermuda company are described in more detail in XOMA's most recent filing on Form 10-K and in other SEC filings. Consider such risks carefully when evaluating XOMA’s prospects. I’ll now turn the call over to John Varian.

Good afternoon and thanks for joining us. I really appreciate having the opportunity to speak with many of you for the first time on our call today. Fred will give you a quick review of the financial results for the third quarter followed by a brief Q&A. Then we’ll spend the bulk of our time together on our gevokizumab news today, and how that fits into our overarching strategy to build significant value in XOMA. That discussion will be followed by an additional Q&A session. Fred?

Thank you, John, and welcome everybody to our call. I’ll make this brief so we have plenty of time for the gevokizumab discussion. In the third quarter ended September 30, 2011, XOMA had total revenues of $16.2 million, compared with $10.9 million in the third quarter of 2010. Third quarter 2011 revenue includes $5.9 million from Servier under our collaboration agreement for gevokizumab. XOMA had a net loss of $6.5 million or $0.20 a share for the third quarter of 2011, compared with a net loss of $13.6 million or $0.69 a share for the same period in 2010. At September 30, of this XOMA had cash and cash equivalents of $45.7 million, compared with $37.3 million at December 31, 2010. Research and development expenses were $15.9 million in the 2011 third quarter, compared with $21.3 million in the 2010 third quarter. The decrease in R&D expenses in the 2011 period primarily reflects decreased spending on XOMA 052 related clinical trials. Selling, general, and administrative expenses were $7.3 million and $6.2 million in the 2011 and 2010 third quarters respectively. In the 2011 third quarter, these SG&A expenses included a one-time $2 million accrued expense for severance related costs. Please note also that, $700,000 of this one-time $2 million expense was a non-cash charge related to stock options. During the first nine months of 2011, and in accordance with guidance previously provided, net cash used in operations was $21 million, compared with $42.9 million for the same period in 2010. In the 2011 third quarter, XOMA raised $2.5 million through the sale of 1.2 million shares under its existing ATM agreement with MLV. XOMA has 34.2 million shares outstanding as of November 7, 2011. Operator, we will open the floor now to questions specific to the financial results. After that Q&A, I’ll turn the call back to John to discuss the gevokizumab update.

Thank you. (Operator Instructions) Our first question comes from Christopher James with MLV & Company. Please go ahead with your question. Christopher James – MLV & Company: Hi, good afternoon and thanks for talking my questions. I didn’t realize that we were going to start with the financial questions. Do you mind if I just have a few questions on gevokizumab?

No. This is John. I’d really prefer it if we queue you up for that Q&A section just because I think it’s important to get the fuller discussion out before we try to answer questions because I think we will kind on step on ourselves if we try to it that way, so if you mind, I’d appreciate that. Christopher James – MLV & Company: Sure. I will jump back in the queue then.

Thank you so much.

Our next question comes from Ritu Baral with Canaccord. Please go ahead with your question.

Hi. This is [Frances] on for Ritu. On the same way, I will wait till after to ask my questions about XOMA 052.

Thank you.

I’m not showing any other questions in the queue at this time.

Okay. Well, that’s actually fine. So again thanks Fred for that.

Okay.

So as a XOMA Board member for the past two plus years, you develop a view of the company. My view was, XOMA is a company that has produced great science, but it has not benefited as much as it should have from its own discoveries. Several years ago, the board and management commit to take steps to change that. The solution to doing so is to retain certain commercial rights to your potential products in the territories, offer physician groups where you can sell your own products and maintain our key to lion share of their value. A key step towards accomplishing this goals was the relationship we entered into Servier at the beginning of this year. Servier is unique, and that it is a greater than $5 billion multi-national pharmaceutical company that is willing to allow a partner like XOMA to maintain rights in U.S. market in many indications. Remember that XOMA fully owns rights in U.S. and Japan to the ophthalmologic as well as all the other non-diabetes and cardiovascular indications for gevokizumab. The next step is for us to select the right indications gevokizumab, where we can have confidence that drug will work and where we can drive commercialization in those indications to specialty physician groups. Several months ago, I transitioned into my role one, the day-to-day operations to XOMA. I’ve spent a great deal of time listening to the team, and charging them to think bigger. As you’ll see on slide five, we are now implementing these ideas on ways to expand the value of gevokizumab for all stakeholders based on science as well as an analysis of the market opportunities. The result of our analysis gave us the confidence to pursue a much broader opportunity in our first Phase III program. Based on our interactions, we came to understand that the FDA recognizes Behçet's uveitis as part of the spectrum of diseases that fall under the designation of non-infectious uveitis affecting the intermediate or posterior segments of the eye, which we refer to as non-infectious uveitis. This realization made it logical to expand our Phase III program from the estimated 7500 patients in the U.S., we Behçet's uveitis to the estimated 150,000 patients with non-infectious uveitis. This way we both continue our commitment to the Behçet's population and retain the opportunity to obtain an orphan designation, while significantly expanding our commercial opportunity. Servier was part of and supports the decision to expand the global program, and they will continue to pursue the Behçet's uveitis opportunity, which has a significantly large population in the territories for Servier has commercial rights. Now, because of its mechanism of action, gevokizumab has the potential to treat a wide variety of diseases, all of which have a significant body of scientific literature linking IL-1 beta to the disease. Gevokizumab was designed to lower the inflammatory activity of that normally high levels of IL-1 beta, while still allowing a response to invasion by outside pathogens. Reflecting on our findings to-date, we believe it could have an efficacy and safety profile that makes it the preferred treatment of choice. So in addition to commencing a Phase III program in non-infectious uveitis, we intend to conduct a series of proof-of-concept studies. We reflect indications where the trials can be completed quickly and efficiently, and give us definitive signals of clinical activity. The indications we are considering are clinically independent from each other. Therefore, results we obtain from any one study should have a limited relationship to results from another study. These studies will be relatively inexpensive, but could be very impactful. Ultimately, we believe we can build shareholder value rapidly and cost effectively by demonstrating efficacy in any of these studies as they represent sizable commercial opportunities. We will begin to rule them out by this year-end, and depending on the study, we expect data reach within 6 to 12 months of enrolling the first patient [need] study. Now, I’m pleased to turn the call over to Dr. Paul Rubin, our recently appointed Vice President and Chief Medical Officer. Paul is a highly seasoned executive with expertise in bringing more than a dozen products and including those involving inflammatory diseases to a market (inaudible) at Sepracor, Glaxo-Wellcome, Abbott Laboratories and Critical Therapeutics. Paul and I work very closely together since I joined the day-to-day operations here at XOMA. I’m confident in his views and to his ability to help us build the value of gevokizumab. They are based upon a previous history of developing successful commercial drugs and an understanding of the biologic applications for gevokizumab. He has made a significant impact on XOMA since he arrived in June, as you will see in here over the next 15 minutes. Paul?

Thanks for that kind of introduction, John, and good afternoon everyone. I’ll spend the next few minutes on the role of IL-1 beta in inflammatory diseases. Beginning here on slide six, to set the foundation for the rest of my presentation. IL-1 beta plays essential role in the medimmune system’s acute phase inflammatory response. Its presence is ubiquitous throughout the body, and it’s critically important to the body’s natural defense mechanisms to fight infection as well as other non-infectious foreign antigens. Moving on to slide 7, you could see there are three IL-1 inhibitors approved in the United States for the treatment of rheumatoid arthritis and cryopyrin-associated periodic syndrome both systemic inflammatory diseases. Response to these drugs have also shown the product’s efficacy and the number of clinical trials conducted in other inflammatory indications. The (inaudible) of these compounds has been used for over 15 years, so physicians acknowledge their efficacy and know how to use them safely. As you see in our slide 8, there is plethora of data in the literature showing IL-1 beta’s involvement in a number of diseases. The strength of this correlation ranges from clear benefit demonstrated after using drugs that block IL-1 beta, I believe down to theoretical evidence based up on animal models. The results we have generated from our Behçet's uveitis study and our Type 2 diabetes studies clearly demonstrate gevokizumab’s ability to control inflammation, suggesting the compound could be a very attractive therapy for a number of inflammatory diseases, while IL-1 beta is contributing factor. On the next slide, slide 9, you see that in the 500 patients who have received gevokizumab to-date, we’ve seen no opportunistic infections in patients treated for up to six months. Lack of opportunistic infection is an important criteria for any biologic with a potential to alter the immune system. To-date the compound’s adverse event profile has been similar to placebo. If the observed safety profile continues to be demonstrated as we expand our database, gevokizumab will compare very favorably to other market and biologics. Going to slide 10, when we look at the findings from our 400 plus patient Type 2 diabetes study, became further confident in gevokizumab’s anti-inflammatory activity and safety profile. Although the primary endpoint of this study, reduction in hemoglobin A1c did not differentiate from placebo in this patient population, we did observe a statistically significant benefit on one specific marker of inflammation, C-reactive protein as represented in this graph. Similar results were seen in additional study of diabetics performed in Mexico, combined these studies validate the fact that our drug to the modulation of IL-1 beta, clearly has an affect on this inflammatory marker. This finding validates our strategy of continuing to evaluate the use of gevokizumab and other inflammatory diseases as I will explain later. Turning now to Slide 11. We conducted an open-labeled study in seven Behçet's uveitis patients. Prior to treatment with gevokizumab, the patients had documented histories of frequent and severe disease exacerbations, typically three or four events per year. After a single injection, each had a rapid response, and their uveitis exacerbation resolved anywhere from 1 to 14 days. As you can see here on Slide 12, and several of them responded and become retreatment, their disease cleared. Subsequently, four of seven of these patients have now received once monthly treatment be a subcutaneous injections for approximately one year. To-date, we are pleased with the results in these patients as flares have been essentially quiescent throughout the time of dosing. We learned from the three patients who are no longer receiving gevokizumab that prevention of disease worsening is related to maintaining a specific therapeutic broad level of the drug. All four patients who continue to be successfully maintained on the drug have blood levels that are above this threshold. We’ve been able to use this knowledge to help with dose selection and trial design going forward. Now turning to Slide 13. I would now like to turn to the expansion of the gevokizumab global Phase III program. In United States, we’re receiving FDA approval for the treatment of non-infectious uveitis. Outside of the United States, there is the option to file as a single NIU, which is the abbreviation for non-infectious uveitis indication or as two separate indications. As indicated on slide 14, the term uveitis broadly refers to the inflammatory diseases that affect the portion of the eye known as the uvea, which is the middle of three layers that surround the eye. People with uveitis may experience decreased vision, pain, light sensitivity, and floaters. Uveitis may be caused by an infection that is commonly treated with an antimicrobial agent, or by an unknown pathogen triggering inflammation, later etiology is called non-infectious uveitis. We are focusing today solely on non-infectious uveitis. The most common form of non-infectious uveitis affects the front of the eye and is known as anterior uveitis. It usually is treated with eye drops or other topically administered drugs. Other forms include intermediate uveitis, posterior uveitis, and pan-uveitis. These types differ from anterior disease as they all include involvement of the till the back portions of the eye. Posterior uveitis refers to inflammation in the retina and the choroid. Pan-uveitis refers to inflammation of all three major parts of the eye. Behçet's uveitis is a well-known form of pan-uveitis. Due to the swelling of tissues critical condition intermediate, posterior, and pan-uveitis, which collectively make up non-infectious uveitis can lead to blindness if not treated. The only FDA-approved treatment for non-infectious, intermediate, posterior, and pan-uveitis is corticosteroid therapy. These may be given orally or systemically, injected directly into the eye or surrounding areas, or delivered via slow-release polymers that are inserted into the eye. Now the fact that physicians use other non-FDA approved drugs in addition to corticosteroid to treat non-infectious uveitis underscores the need for new treatment options. As you can see on slide 15, non-infectious uveitis has multiple etiologies. However, for the purposes of diagnosis, they’re all lumped with same indication and all are treated similarly. In each etiology there is a strong link to interleukin-1 beta, so it makes scientific sense to try gevokizumab in these conditions. In all cases, the condition of the eye upon inspection as well as upon observation of tissue under the microscopes is similar, therefore leading us to conclude that even with different causes, the end result to the eye is the same. Slide 16 demonstrates that non-infectious uveitis is copy attention of other pharmaceutical companies. Most of the other drugs in development are reformulations of old drugs, however there is one other biologic that is targeting the disease. HUMIRA, which is a TNF inhibitor is important control of inflammation and is being developed for non-infectious uveitis. Gevokizumab’s mechanism of action is dissimilar from HUMIRA’s and successful development of our compound will provide an important option to the treating physician. In addition, continued demonstration of a favorable safety profile for gevokizumab can offer an important alternative. Presently, the only FDA-approved treatments for NIU corticosteroid-based. Non-infectious uveitis patients either receive very high oral doses of steroids or have been extended release polymer containing steroids injected into the eye. While these are generally successful in treating the disease, they do carry significant risks or in the case of polymers can result in ocular discomfort. These facts repositions in patients in search of new treatment options. As previously shown, we’ve exposed close to 500 patients to gevokizumab and its safety profile seems to be encouraging. To-date, the injections have been very well tolerated in its potency of 300 femtomolar binding affinity allows for a low dose single injection. Turning to the next slide, 17, we’re confident to the rationale supporting the expansion of the program to seeking FDA label for gevokizumab in States. For treatment in patients with non-infectious uveitis affecting intermediate and/or posterior segments of the eye. Our open-label trial of gevokizumab in Behçet's uveitis will be a rapid and significant improvement of the disease. Behçet's is viewed as a subset of non-infectious uveitis, and is located on the severe end of the spectrum. Ultimately, Behçet's uveitis is treated with exactly the same medications as those NIU subsets that are viewed as lot severe. There is significant additional support for the role of IL-1 beta and the development NIU. Inflammation in general including that of the uvea clearly is related to inflammatory cytokine, and IL-1 beta is an important cytokine above in initiating the inflammatory cascade. It is driven by the presence of inflammatory cells like macrophages, which are present in the inflammation of the uvea. Macrophages both produce and release IL-1 beta as part of the inflammatory process. Blocking IL-1 has been shown to prevent the development of non-infectious uveitis in multiple animal models of the disease. Furthermore, in a syndrome called CINCA, which is congenital and inflammatory in nature, and Anakinra one of the FDA approved IL-1 blockers has been reported to control the uveitis associated with the disease, providing further evidence of the role of IL-1 beta in human uveitis, and the utility of IL-1 blockade. Finally, many of the cause of etiologies of non-infectious uveitis stem from rheumatic disease that are also intimately related to the presence of IL-1 beta. To summarize our plan going forward, as you can see in Slide 18, we recently participated in an end of Phase II with FDA to discuss our revised development strategy for gevokizumab in non-infectious uveitis. Based on these discussions, we intend to use the results of two planned studies, one in non-infectious uveitis and the other in Behçet's subset of NIU, to form the basis of the BLA. The final clinical development program will fulfill the FDA requirements for safety and efficacy, as well as the requirement for treating 300 patients for six months with the dose to be marketed. As this program is intended to be global in scope, the final protocol will await feedback from the European Medicines Agency. After this final end product is received, we believe the trial could initiate by the second quarter of 2012 and take 18 to 24 months to produce top line results. Moving to Slide 19. Now, that I’ve given you as full of an assessment as I can on IL-1 beta mediation, non-infectious uveitis, and why we’re confident to expand the gevokizumab Phase III program, I’ll briefly unveil plans to expand the value of XOMA’s most advanced asset. We know gevokizumab has potential beyond the uveitis indications, and we are committed to expanding the value of our primary assets in an efficient manner. As is shown on Slide 20, we will launch a proof-of-concept program, which we can rapidly identify other diseases that could be treated successfully with our compound. We will be doing a series of these proof-of-concept trials, but we expect it will give us a definitive signal of clinical activity in a short period of time. The indications we are choosing are clinically independent, so the success or failure of any one is not linked to the success or failure of any or the others. We see this as a good way to mitigate risk, all proof-of-concept trials would be conducted in diseases with large medical needs and where treatment with a biologic could be wanted. Well, there are many diseases that have IL-1 beta components, we established a strict set of criteria as you could see on the next slide that were created to meet not only the medical needs, but also XOMA’s business needs. In addition to having an obvious scientific rationale, we must be able to obtain a data read-out in a relatively short period of time. We will look at diseases where the end point has been validated and where we can design a study powered for a definitive response without being overly expensive. All indications will use existing formulations and will not require prototype studies prior to initiation. We have identified several indications that fit all of these criteria, which we are presently narrowing down. We intend to run this thing concurrently until the data from the first study on May, 2012, the second near year-end and the third in the first half of 2013. We believe this program give us multiple opportunities to show the benefit of gevokizumab for a very low investments. We expect to announce the first indication next month. With that, I will turn the call back to John.

Thank you for that, Paul. As you’ve heard, we are taking a new approach to increasing the value of gevokizumab. We’re expanding our Phase III program to non-infectious uveitis, reflects our analysis of the expanded market potential for gevokizumab. As Paul described, our Behçet study was our proof-of-concept study in non-infectious uveitis patients who suffer from one of the most severe forms of the disease. Success in that patient population gives us confidence that we have a good chance of success in treating the broad spectrum of non-infectious uveitis. Both Servier and we have sufficiently high levels of confidence that gevokizumab will work in all forms of non-infectious uveitis to move it into the global development plan. Moving on to slide 24, as I said in opening comments, XOMA has not benefited fully as we believe it should from the commercial success of drugs that it has invented. We’re changing that, is important for us to retain a greater portion of the value of our assets in markets that we can address with a small sales force. By moving into noninfectious uveitis, we believe we have significantly expanded the value of gevokizumab in our first Phase III program. We also believe our newly launched proof-of-concept program will deliver as we get the results from the initial study. Ultimately, XOMA is committed to marketing gevokizumab to U.S. physicians treating non-infectious uveitis. We will be able to market gevokizumab with a small force of highly educated sales reps supported by cost effective marketing activities. As non-infectious uveitis is an orphan indication, it is treated by a narrow prescriber base, the majority of whom are grouped in treatment centers. We believe we can be successful in transitioning XOMA from a development company to a commercial organization with this product and this indication. I want to share with you a couple of data points from our analysis. As you can see from slide 25, the worldwide Behçet's population is distributed disproportionately between the U.S. and the rest of the world. Of the total number of people suffering from Behçet's, approximately 50% have the Behçet's uveitis. Our analysis led us to two very important conclusions. First, 7,500 patients in the U.S. would not guarantee, we can complete our Phase III registration study in the U.S. on the timeline we wanted. Second, and even more importantly, the FDA have used Behçet's uveitis as one end of the whole noninfectious uveitis spectrum. So we have increased the value of gevokizumab by moving the compound to noninfectious uveitis. As you can see on Slide 26, the entire uveitis population in the U.S. is estimated to be 750,000 patients. The vast majority of these patients have anterior uveitis, which is treated pretty well with corticosteroid eye drops. An estimated 20% of the entire uveitis population or 150,000 patients have noninfectious and non-anterior uveitis, which is eligible for systemic therapy. So we have increased our potential available patient population more than 20 fold. Importantly, Behçet's uveitis and noninfectious uveitis as we have categorized it are both orphan indications. And we will be filing for orphan status in the coming months. Based on some fairly recent designations for other drug to treat noninfectious uveitis, we are comfortable we will receive this designation. Moving to Slide 27, what we represent today is the first big step in our fresh look analysis to build value at XOMA. We will be applying the same effort to each of our programs. Our analyses include the XMet program, our biodefense program, our preclinical compounds and our technologies that are available for licensing. As we are committed to maintaining U.S. commercial rights to certain indications for our compounds, we are interviewing CEO candidates to bring commercial experience to the executive team. As you have heard from Paul, we certainly have the medical expertise well represented through his leadership. Finally, as part of the fresh look, we will be determining how to allocate our capital to support our key programs, where we have the strongest opportunity to build significant shareholder value and deliver commercially viable drugs for patient populations in need of new treatment options. With that, I’ll open the call for questions. Operator, would you please prompt for questions.

Thank you. (Operator Instructions) I have a question from Matt Kaplan with Ladenburg Thalmann. Please go ahead with your question. Matthew Kaplan – Ladenburg Thalmann & Co.: Hi, guys, can you hear me?

Yes. Hi, Matt. Matthew Kaplan – Ladenburg Thalmann & Co.: Hi. Thanks for taking my questions. And interesting new strategy you have in terms of developing of 052, it’s easier to pronounce gevokizumab so. A question with respect to that, what data do you have beyond the Behçet's patients for NIU that gives you a level of confidence to expand into a Phase II trial kind of directly without testing it more broadly before you enter Phase III for NIU? Maybe I guess, a question for Paul.

Sure. It is an obvious question and I think it’s best to answer with a series of data points. First of as we mentioned, the Behçet's uveitis is actually a subset of noninfectious uveitis and consider part of the whole. So physicians as well as regulatory agencies already kind of grouped this as part of the same disease spectrum. Again, when you look at this it certainly acts at the same disease spectrum and the type of inflammation responsible is very similar independent of what the etiology is. So when we could look at is that they are all part of the same syndrome. There are a lot of animal studies or animal models on noninfectious uveitis, where you can clearly demonstrate that IL-1 beta plays an important role on both the initiation and the onset of the disease. And that this could be blocked with things such as Kineret, so certainly an animal model of the disease you see that drugs that modulate IL-1 beta are very affective. Physicians that we speak would say they treat the diseases identically, so any drug in the past has worked in one disease are one subset of the disease, Behçet's also works in a broader range of noninfectious uveitis. So we take these in total, coupled with the fact that we’ve seen a response in our study that at lease in talking to the experts who’d be very difficult to explain by a random event. We had seven patients with known severe history of exacerbations that all cleared in a relatively short period of time, A) showing that does it affect inflammation of the eye, B) showing that it gets to the inflamed eye. So when you put these on contexts and put these all together it just seems a logical step to go ahead and do the study that we intend to do. Matthew Kaplan – Ladenburg Thalmann & Co.: I guess kind of follow-up in that. Terrific results in kind of a homogeneous population what’s called Behçet's molecular results there? How homogeneous or heterogeneous are the patients that have NIU that present, with I guess posterior and intermediate?

although their etiologies are diverse, the clinical science and symptoms are fairly consistent that in all cases although you will see varying magnitudes of each individual sign that they are present with the same types of signs and that infiltrates in the eye, inflammation of the uvea resulting ultimately in a clouding of the fluid of the eye known as vitreous haze and they occur of a different stance in all forms of the disease. So in any case, we are attempting to clear the same type of inflammation. Matthew Kaplan – Ladenburg Thalmann & Co.: Great, great. One other question, and then I will jump back into the queue. Talk about Servier and your partnership with Servier, how does this impact that partnership and how much support will they provide to the NIU indication beyond Behçet's?

So this is John, so Servier has agreed to include the NIU study in the existing Behçet's financial arrangement. This is because we believe the chance at the plan today not being useful for European purposes is extremely remote. So they have agreed that it will be included in the same exact arrangement that you're aware of around Behçet's is one of the studies in that arrangement. Matthew Kaplan – Ladenburg Thalmann & Co.: No, initially they were going to pay for, I guess the first 50 million, you're going to split it 50-50 afterwards. How much do you expect the NIU study to cost?

So we won’t answer the specific cost of any particular study, but the financial arrangement that we have that you are aware of the $50 million and then the 50-50 split is exactly the same with the NIU study, just part of that global development plan. Matthew Kaplan – Ladenburg Thalmann & Co.: Can you comment on perhaps just the overall cost of the entire program?

I don’t think we have in the past, Fred, and I don't believe that we will do that.

That's right, but one thing that I can add to John’s comment, Matt, is that and then we said this before, people have asked us when do you expect that the first 50 would be passed so that when would XOMA start bearing some element, some portion of the burden, and we’ve been consistent and continue to be, that will occur some time in 2012, it’s hard to say exactly when because it will all depend up on the pace of spending and the pace of progress on the trial. Matthew Kaplan – Ladenburg Thalmann & Co.: All right. Well, thanks for taking my questions, this look like a very interesting strategy.

Thank you.

Our next question comes from Richard Lau with Wedbush. Please go ahead with your question. Richard Lau – Wedbush Morgan Securities: Hey guys, thanks for taking my questions. Understanding that 052 end up working in Behçet's, it’s likely to also working NIU, does happen that the Behçet's trial is positive, while the NIU, isn’t, could you guy still file in the U.S. for just Behçet's or will that trial be too smaller?

I think obviously depends on to what extent we have success in the NIU trial, but any event that the NIU trial were to fail, we can still plan Behçet’s but it’s likely we have to do a confirmatory trial. Richard Lau – Wedbush Morgan Securities: Okay. Thanks. And just real quickly on your XMet program, do you guys have any sort of timing in mind of when we might see an IND filing for a candidate out there?

This is John. So as you know it’s an extremely exciting program, and as we’ve continue to present at scientific conferences, the excitement around that program has continued to build. So when we look at that program because of the indication that it is in, in diabetes, I think that it’s very important that we take that program forward with a pharmaceutical company as part of the development long-term. And so we are focused on not only moving toward, the efforts towards filing an IND, but also we’re working hard to find the right company that might partner that program with us. Diabetes is one of the most daunting area to develop a drug in, it’s one of the most expensive areas, but it’s absolutely one of the best market opportunities that exist today. If you look at the demographics it’s a place that every major pharmaceutical company should be and wants to be. And so, it’s a program where I think the timing of the IND is going to also be tied to the timing of a partnership that we would do around that program. I can’t predict exactly when that will happen, but what I can say is that we’re getting good interest in that, we are working hard in that space. And so, I think again we want to have the right company being part of it. And Paul, would you like to add something to that?

Yeah, I think that program in our diabetes antibodies is generally exciting, and in addition to the traditional way to evaluate these, which is to look at effects of hemoglobin A1c, these antibodies also have the potential to reduce insulin requirements and that may offer an alternative mode of development that we’re exploring as well which conceivably shorten the cycle. Richard Lau – Wedbush Morgan Securities: Okay, great. Thanks guys.

Our next question comes from Ritu Baral with Canaccord Genuity. Please go ahead with your question.

Hi, this is [Frances Swong] on for Ritu. I’ve had a question about the proof-of-concept studies, so the Servier partnership covers diabetes and Behçet's and NIU, would you guys be responsible for the full cost of the proof-of-concept studies?

So the way our deal works with Servier is both, we and they have the opportunity to do proof-of-concept studies in each of our territories. We as we are announcing today are planning to do that, we believe they in discussions with them are thinking about the same things in their territories. The way it works is, each of the companies does the work and is responsible for again these small studies in our case. And then there is opportunity there and the success there, then the other party has the option or right to buy back into that indication to each other’s proof-of-concept study and then take forward in each of our own territories. So what happens is each party does these, are very healthy for each of us to do we believe, and as we find new path to go then we go forward together.

Okay. Thanks. And my next question is given the controversy infants with Servier Management, how do you feel about their commitment to your partnership?

They could not, okay, just to say, in the 10 weeks I've been in this role. I have spent a great deal of time with some of the top people at Servier and the people really managing our relationship. They could not be more committed and more focused on our relationship with them, I'm sure other companies have relationships are feeling the same thing. We are getting absolute attention from them. They are committed to building their business. And the noise in the background is, we are not seeing a bit of it.

Okay. Thanks.

And in fact just to add to that, I mean if you look at kind of what we’re rolling out today, they have been absolutely on point with us, pushing us and helping us to go forward in this NIU indication. Let's say, important point. The proof-of-concept indication, even though we are the ones who actually do those, and they do their own. They are moving forward in those and they are encouraging us to move forward in ours. And so in addition to that and the cardiovascular work that they are doing, we see that they are fully committed to our program, and we have the relationship gets stronger and better all the time.

So they are running their own proof-of-concept studies as well?

They have the ability to, and we believe that they will, but again, it’s something where they are considering different proof-of-concept studies, just like we have the opportunity to do here.

Okay. Thank you.

Sure.

Our next question comes from Jason Kantor with RBC Capital Markets. Please go ahead with your question. Jason Kantor – RBC Capital Markets: Hi, thanks. Congratulations on the progress and welcome to all the new team members. Much of my stuff has been answered, just a nuance, you said that the FDA give you feedback that Behçet’s was not probably itself an indication to go after without a broader population, did you decide to go into NIU based on that feedback or how did you made that decision based on the science and the larger patient opportunity and then approach to the FDA?

I think that first of all, FDA believes, it’s my impression and what we’ve heard is that Behçet is a subset of non-infectious uveitis. They would have allowed us to pursue Behçet as an individual indication, if we saw desire, but they also felt that because this is a subset, we would have the option and they were in concurrence of looking at the broader indication including Behçet’s patients. So the thought was because of the lower number of patients with Behçet in the United States, it make sense to pursue the broader indication and then we initiated a dialog with FDA and they agreed that this is a logical way to proceed. Jason Kantor – RBC Capital Markets: Okay. And then in terms of the clinical data that you’ve shown in the seven patients, all was pretty exciting, there were couple of comments that you made though, I just want more clarity on one; you said that apparently the people who were off study because they didn’t have the right blood levels and ammonia? What’s the source of variability in blood levels and then you when describe the clinical benefit for the others, you said that their flairs have been essentially quiet, and is that something you can quantify, that sounds very kind of fussy, have that people relapse their flairs, is there a measure that you can point to?

We actually have a definition of flair and when we try to apply that in the patients that have continued on drug, we haven't observed, at least we are hearing that there has been no observed flairs and the patients have continue on the product. The ones that dropped out, there were a number of reasons, but overall, lack of response appear to be related to subadequate levels of the compound. Jason Kantor – RBC Capital Markets: But what's the source of subadequate, you said that was kind of inform you in dosing, so…

We actually measure the blood levels of the drug and then we can correlate the effect of the drug as a function of how much drug they had in their plasma. Jason Kantor – RBC Capital Markets: All right, but why were they low and …

Again, we were present at the time of dosing, so it could have been related to dosing errors, dilution errors. It's hard to know except to say that when we measured in their blood it wasn’t there. Jason Kantor – RBC Capital Markets: Right, but in the Phase III, you said this was somehow informing you as to how to dose that are in the places, what you are going to do differently?

We now have a target concentration that we could apply saying that above, which we believe should enhance the probability of success. So we know what this magnitude is, we now how the drug response in terms of clearance in the body, so we can then predict what an appropriate dose or dose level should be. Jason Kantor – RBC Capital Markets: Let’s see you're going to go to higher doses, is that, I mean, I'm just looking for a simple answer?

We are going to be evaluating doses that cover this level. Jason Kantor – RBC Capital Markets: So it will be a dose range in Phase III?

Yeah, in our trials in general and I think we are obligated to do dose ranging? Jason Kantor – RBC Capital Markets: Okay. And then you mentioned that HUMIRA is also in development for uveitis, I mean there was a time when you know IL-1 inhibitors and TNF inhibitors were kind of neck and neck in NRA, and we also don’t know how that went. So is there something different about uveitis where we should feel like to go, or I go up on HUMIRA or you should be at least on par with them in this indication?

Well, it’s hard to extrapolate what happened in rheumatoid arthritis, but we can say that certainly when we look at uveitis, the strength of the connection between IL-1 beta and the disease seems to be very strong, and that’s really all we can comment. Jason Kantor – RBC Capital Markets: And then just one last question, you said you’re going to reveal in a month the new indication that you’re going to go out first, that’s clearly well in advance of starting that study, so I guess, I’m wondering what’s the gating factor there, do you know it, can you tell it to us now, and what’s going to change in a month from now, so is there some event that we should be looking for?

So Jason, what we are doing, this is John, what we are doing right now is, we have again several indications that we’re looking at and running through the criteria that Paul was talking about. We are very close to pulling the trigger on one of those that we think would be the appropriate one. We know we will be able to that before year-end, and I think that it’s just best for us to talk about it as we do so. We are trying very hard to, as you can tell as we rollout this new effort here in the Phase III study. We did it after we’ve actually had the interaction with the FDA. We want to make sure as a company that we talk about things at the point when we have great deal of certainty around those. And so, again in the next month or so, we’ll be talking about the first of the proof-of-concept studies. And we feel very confident, it will be one of a couple, but we will talk about that at the point in time when we actually start the study. Jason Kantor – RBC Capital Markets: Thank you.

You are welcome Jason.

Our next question comes from Richard Lau with Wedbush. Please go ahead with your question. Richard Lau – Wedbush Morgan Securities: Hi, guys. Thanks for taking my follow-up. Just a quick clarifying question, in the past you guys have talked about Servier maybe initiating Phase II trial in cardiovascular diseases, sort of mid-next year, is that still the plan, in addition to the proof-of-concept trails you guys announced, you are planning to run?

Yes. What we know is that it remains in the – there is of course a Joint Steering Committee and that’s where they talk about all the different programs that are ongoing and in that plan – that continues to be their plan. Richard Lau – Wedbush Morgan Securities: Okay. Great. Thank you.

Sure.

I’d like to turn the call back over to John Varian for closing comments.

Well, Richard, you can do the closing comments if you like to, but I’ll go ahead and do it. So thanks everyone on being on the call, we really appreciate you are being part of this. And for me and my – my first call in this roll and I think Paul Rubin really getting his chance to speak to investors broadly for the first time. It’s been very helpful for us to be able to do this. We are very excited about these new decisions we’ve made. We are very focused on this fresh look that we’ve talked about. This is a major step. And again, look at our core asset and making sure that we are applying the right level of effort and resource to that asset. So thanks for being part of the call and we will talk to individually hopefully very soon.

Thank you. Ladies and gentlemen, thanks for your participation in today’s conference. This does conclude the conference. You may now disconnect. Good day.