Good afternoon, ladies and gentlemen, and welcome to XOMA Corporation’s Third Quarter 2012 Financial Results and Corporate Update 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 call may be recorded. I would now like to turn the call over to your host for today, Ashleigh Barreto, Investor Relations at XOMA. You may begin.

Before we begin I must remind you that we will be making certain statements in this call including, but not limited to statements related to anticipated timing of initiation and completion of clinical trials, anticipated size of clinical trials, continued sales of approved products, regulatory approval of unapproved product candidates, anticipated restructuring charges, sufficiency of our cash resources, and anticipated levels of cash utilization or 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. And actual results may differ materially from those anticipated due to certain risks inherent in the biotechnology industry and for companies engaged in development of new products in a regulated market. Potential risk to XOMA, meeting these expectations are described in more detail in XOMA’s most recent filings on Form 10-K and in other SEC filings. Consider such risks carefully when considering XOMA’s prospects. Any forward-looking statement in this conference call represents XOMA’s view only as of the date of this call and should not relied upon as representing its view on any subsequent date. XOMA disclaims any obligation to update any forward-looking statement, except for required by applicable law. And with that I would now like to turn the call over to John Varian. John?

Hello everyone and thanks for joining us. We’re extremely excited to speak with you today, since we never felt more strongly that the pieces are now in place to position XOMA for success. We have what we believe to be a great drug gevokizumab, in numerous late stage clinical trials. These studies, which XOMA and the Servier team started on time, are progressing as planned. We believe their design will allow gevokizumab to demonstrate its potential as an import anti-inflammatory to treat serious diseases. With our recently completed financing, we believe we also now have the cash run rate to let all of those ongoing studies play out. The other key benefit of this financing is that we are now better able to avoid mortgaging the value of our other assets too soon, which should benefit XOMA and its shareholders in the long run. So we have a good drug, the right amount of cash and the team in place to aggressively execute on our plan. In a little over a year since joining XOMA, you've heard me repeatedly talk about creating value for XOMA and its shareholders. We’ve taken great strides to streamline XOMA and eliminate those activities that we didn’t think were value creating. We've also recently expanded gevokizumab’s clinical development activities. Since we believe it has the potential to be our greatest value creator. As you would hear in detail, from Paul, gevokizumab is being tested in a number of well thought out studies. Today I want to talk to you not only about value creation, but more specifically about our efforts towards value capture. XOMA is a company that has had great science for over 30 years. That continuously been a leader in antibody discovery and development, but has not always had a business model in…

Thanks, John. As demonstrated by our significant expansion of the gevokizumab development program over the past 12 months, we continue to aggressively study diseases that are directly linked to IL-1 overproduction. Last November, we announced we can conduct our Phase III program in the broader indication of non-infectious intermediate, posterior or pan-uveitis, which in the shortened form is NIU. We also launched the proof-of-concept program for gevokizumab in three distinct indications. this program is designed gevokizumab point us to the next global Phase III development program. Today, one year later, we are pleased to report everything is tracking according to our plans. We have three Phase III studies underway, EYEGUARD-A in patients with active NIU, EYEGUARD-B Servier study and the subset of NIU patients who suffer from Behçet's uveitis, and EYEGUARD-C, our study in patients whose NIU is critically controlled with corticosteroid. We have two to three Phase II proof-of-concept studies underway, moderate-to-severe inflammatory acne from which we expect to report top line data at the end of the year, and erosive osteoarthritis of the hand, which we expect to complete in the middle of next year. While we expect to do it, we already announced the indication of our third POC study gevokizumab captured the interest of an important organization who wanted to be our partner in this POC study. At their request, we’ll not announce the indication nor the organization until the final protocol has received final IRB approval. Let me start up by providing some background on NIU and the EYEGUARD program. With patients arrive at a physician’s office with active NIU, the first goal is to treat the exacerbation and control the symptoms. Our EYEGUARD-A study is designed to enroll 300 patients with active NIU, and a vitreous haze score of two or greater on the…

Thanks, Paul. and hello everybody welcome to our call. In the third quarter of 2012, XOMA reported total revenues of $7.3 million compared with $16.2 million in the third quarter of 2011. The decrease in 2012 revenues is comprised of three elements. The first two are reduction in contract revenue and related expenses from NIAID government contracts of $3 million and from reimbursements received from Servier for gevokizumab related activities and expenses of $2.5 million. The third relates to our gevokizumab development agreement with Servier. We received a $15 million upfront non-refundable collaboration and license fee that was amortized into our income statement over a nine-month period in 2011. The portion of that amortization that hit the 2011 third quarter was $3.9 million. The third quarter of 2012 included $219,000 of ACEON sales. In January, we announced we had acquired rights to the perindopril franchise and in late March, we made our first XOMA labeled product shipment to distributors. Sales of ACEON in the first six plus months, we’ve been responsible for were just under $800,000. In February, we initiated the Phase III PATH trial, the PATH stands for, representing the perindopril and amlodipine for the treatment of hypertension. This is a three arm study evaluating a fixed dose combination of perindopril arginine and amlodipine for the treatment of hypertension. Through the agreements, we negotiated with Servier and our CRO, this study is cash flow neutral to XOMA. Servier has provided direct financial support for part of the trial and the balance will be paid from the profits that XOMA generates from U.S. ACEON sales. Whenever those profits come, any variability in the level of ACEON sales only affects the timings of when the trial will be paid for and when the profits for ACEON begin supplying us with cash.…

Thanks, Fred. With our recently completed financing, we have the cash run rate to allow all three pivotal studies of gevokizumab and non-infectious uveitis to readout as well as the three proof-of-concept studies intended to lead us to our next Phase III indication. Let me be absolutely clear, executing on these studies is our focus. but with this financing in place, we can also fully implement our business model, which is designed to better capture the value of XOMA’s discoveries. We will invest in the preclinical work necessary to retain a significant share of the value we believe XMetA and XMetS can bring for patients with both Type 1 and Type 2 diabetes. We will accelerate our plans with respect to XMetD, which could offer a non-surgical treatment to possibly treat very rare insulin receptor related diseases. We also hope to have a clinical plan to present to the FDA that moves gevokizumab into pivotal studies for one or more interesting potential ultra-orphan indication. In the next couple of months, we will be announcing the third indication on our Phase II proof-of-concept program and top line data from our first proof-of-concept study, the moderate-to-severe acne vulgaris study. We also expect Servier to initiate their first two hour of gevokizumab for a cardiovascular indication before year-end. In the first quarter, we will have results from the perindopril amlodipine fixed dose combination products for hypertension. We have a lot to do and we will work diligently to continue progressing along our expected timelines. With that, I’ll turn the call to the operator for questions. Operator?

(Operator Instructions) Our first question comes from Simos Simeonidis, Cowen and Company. Your line is open. Simos Simeonidis – Cowen & Co. LLC: Hi guys, thank you for taking the question. First of all, can either, anyone of you tell us in terms of how the initial EYEGUARD studies are enrolling, I guess they are off the ground already, but are you happy with the initial uptake?

Yeah, in fact, I think as we’re trying to point out that we don’t know officially how rapidly or voluntarily above the centers online, but in terms of patients per center, we are actually very happy with the way it’s going on right now. Simos Simeonidis – Cowen & Co. LLC: Okay.

Yeah, it’s very importantly, see most of the studies that’s been up and running since the end of June, is the EYEGUARD-A study. And then EYEGUARD-C and EYEGUARD-B actually, have just started in the last five to six weeks, so when Paul speaks to this, he is speaking of the EYEGUARD-A study.

Specifically right. Simos Simeonidis – Cowen & Co. LLC: Right, right. Paul, specifically for C, for EYEGUARD-C, I mean, could you talk about the protocol you are using and how it's going to be kept uniform across the study on different centres. The protocol for the tapering of the steroids, how is that going to be kept uniform?

We are actually, there is a fixed schedule that the investigators, have to follow that talks about, depending on where they are starting with their steroids, how frequently and how much they are allowed to reduce the steroid dose. In an order for these investigators to participate, they have to agree to this very rigid schedule. Simos Simeonidis – Cowen & Co. LLC: Okay, great. And then finally, final question, I will jump back in the queue. For XMetS and XMetA, can you give us an idea of what kind of signals are you looking to see or I don’t know, if you can talk about what stage of development you want to take them. But what are you looking to see before you can say that’s enough, now I can partner it. What are you hoping to get to before, you can be ready to hand it off to a partner?

Sure. I think that what we would like to see is validation of therapeutic index advantages that we’ve seen in lower species, in the higher species. So for example, in rodents, we have shown especially XMetA is a little bit farther along than XMetS. but we have shown that we can have the desired effect on glucose and have a very favorable therapeutic index as it pertains to the side effects that you might see from a glucose lowering agent. So what we’d like to see is this validated in a higher species, and also have a really good understanding of dose response, duration of response, robustness of response. and therefore, we can have a good predictive index of how to run our clinical trials. And we think that with that in hand, in higher species, which should be collective than a lot of the questions that would be asked from the potential partner would have already been answered. Simos Simeonidis – Cowen & Co. LLC: Okay. Thank you very much for taking the questions.

Sure.

Thank you. Our next question comes from Liana Moussatos, Wedbush. Your line is open. Liana Moussatos – Wedbush Securities Inc.: Second question and congratulations on your pipeline progress.

Hi, Liana. Liana Moussatos – Wedbush Securities Inc.: I just want to follow-up on Simos’ question about the XMet programs, about for A&S, about when do you think you can complete all the steps to the point that you think you could partner it, you think in next year or 2014, or and then, can you clarify the steps for XMetD to get it to filing in IND and timing. and then for gevokizumab and the two ultra-orphan indications, also similar question on steps and then timing to IND?

Thank you, Liana. I’ll start with the XMetA and S timing. And then I’ll let Paul talk about XMetD and gevokizumab. So for XMetA and for XMetS, we think that the work that Paul has described again taking it forward further and trying to replicate what we’ve seen that some of the lower species into a higher species, which again should be more predictive of what we would see in humans. That’s probably depending on the compound, a 12 to 18-month process that will be ongoing. as Paul said, XMetA is a little further along; XMetS we’ve seen very strong results also. but it’s a little bit further behind and we’re taking it through each of these steps. So we would think that within 12 to 18 months that we would have those data, I think that would answer the key questions. And then there is a period of time that’s needed to actually get the partnership done. So it’s been interesting with A and S both we’ve had the exactly the right companies looking at those compounds, they are very appealing to those companies. And it is just in order to extract the right amount of value, we have to have a competitive situation while we’ve got all the key questions answered that each of the companies are most important that each of the companies, so that we can create a competitive situation and really unlock the value for those compounds for XOMA. So it is going to be a little bit in the IRB holder. but when we think about what are the core questions we think should be answered, it’s probably a 12 to 18-month period to get those questions answered.

Good. And then as it pertains to XMetD, right now, we’ve done a few things. we have done both initial cellular models, plus we have data from animal in vivo studies that have proved the concept. And we’re fairly comfortable that this drug actually performs in these routed models of the actual diseases, and the signal is clearly there. So we’re in the process of optimizing the manufacturing process, and once we do that, we can make the product start preliminary tox, then go into formal tox. While we are doing those steps, we’re in the process of convening actually three separate advisory groups with relevant experts throughout the world. And all these groups are ongoing and we’ve had multiple conversations. One group that’s more geared toward the pediatric condition of congenital hyperinsulinism, another group that is very adverse in taking care of patients with insulinoma, and our third group of experts that have the knowledge as it pertains to this hypoglycemic syndrome that occurs after gastric bypass. Those three groups were meeting quickly with; they’re trying to determine the best clinical strategies to go forward. and in each one of these cases, we’re also trying to create a regulatory strategy in conjunction with both these experts as well as appropriate ultra-orphan regulatory experts. Once we have preliminary tox data, we will then be able to take all this up, the clinical surgery plus the tox information and scheduled on request to pre-IND meeting. And once that pre-IND meeting occurs, then we could finish our IND enabling GLP tox, and once that started, we can initiate the clinical trial. So if we put that all in place for expert team, we’re probably talking about somewhere around 18 months. You could see there’s a lot of steps involved. Liana Moussatos – Wedbush Securities Inc.: Okay. And for XMetA and as you envision partnering them together or separately?

Yeah, it’s a great question. We would like to envision that we would talk to them separately. What we have found to-date is, as we talk to companies, they really do want to look at them as a package. even though their mechanism is quite a bit different, I think that in the long-term, it’s most likely, we’ll end up partnering both to one company under one deal. Liana Moussatos – Wedbush Securities Inc.: And then for the two ultra-orphan for gevokizumab, what are the steps and timing to IND?

Okay. We are in a good position clinically plus in terms of the status of the compound, because we already have manufacturing complete, tox complete. we have quite a large human clinical safety database. So it really is a function of trying to design and then implement clinical trials. Now on both cases, of the ones that we’re studying there ultra-orphan indications and we’ve looked very closely at the plans that were executed for the approval of both canakinumab and ARCALYST for the treatment of CAPS. So in that situation, they were able to get approval of the compound really with a single pivotal trial that had between the 30 and 40 patients in it. So obviously, we will try to look closely what they did and try to duplicate those steps. We have had extensive conversation with the experts, we’ve put the literature. and I think we have a good sense of what these clinical trials should look like. And then once we finalize those protocols, we have open INDs with the FDA for both dermatology as well as rheumatology division. So once we have a program, we can request the meeting and we don’t have to submit a full IND, it's only the clinical program, and then we can initiate those trials. Liana Moussatos – Wedbush Securities Inc.: Timing?

It really is a function of how quickly we can undergo those things, and we believe that without saying specifically when we get them done, it’s really important that these plans are executed and fileable prior to when we finished the non-infectious uveitis program. Liana Moussatos – Wedbush Securities Inc.: Okay. So 2014, thinking for potential IND or not IND?

We’ve talked about sort of when it’s – we think that initiating the clinical trials, it’s possible assuming that we get the right feedback from FDA sometime early in 2013. And then we hope that these studies can occur over about a 12 to 14 month period.

yeah, it’s important to Liana that we are feeling our ways through at this point where it was very important that we are able to do to the financing. So we could aggressively go forward on this, Paul and the team have been talking to these experts and identified these ideas over time, but for us to be able to go forward, we need to make sure that we have the money to do so. So now, with the plans coming together with the money in place, we can now get to FDA, and ask if the study designs that we would think would be appropriate to say agree with that. And then once we have the outcome from that meeting or those meetings, that’s when I think we’ll be able to be much more definitive. But as Paul said, it’s got to be quick or it doesn’t make sense. So we’re definitely going through this move as quickly as we can.

One thing we are doing is we are aggressively trying to locate the patients right now. We’re doing whatever we can to find qualified patients really on a worldwide basis. Liana Moussatos – Wedbush Securities Inc.: All right, thank you very much. That’s correct.

Okay, thank you.

Thank you. Our next question comes from Jason Kantor, Credit Suisse. Your line is open. James Rae – Credit Suisse Securities LLC: This is Jim Rae, calling in for Jason. Thank you for taking the questions.

Sure. Thank you. James Rae – Credit Suisse Securities LLC: You mentioned that you will not release the indication for the gevokizumab proof-of-concept study until the final IRB is approved. is it a rough estimate when this could occur?

It should be in the next four to six weeks to be honest, but we expect it to come very soon, it’s been through the initial IRB interaction, it just that until the final signoff has occurred; they’ve asked us not to identify them, and the indication. But we’re at the end of the process, and we think we’re very close to it.

But it’s the home stretch.

And when you see it both the institution involved and you see the indication, it will make a lot of sense to you, both it’s taken us a while and also that the indication will make sense to you for gevokizumab. James Rae – Credit Suisse Securities LLC: Okay. And you also mentioned that just sort of from a partner for this indication. so if you already entered to agreement for this indication?

No. I think, it may be the words we chose, they decided to partner with us in the clinical development, but it’s not a commercial organization that we’re working with. In the U.S., we own 100% rights for gevokizumab. And that’s indication that we’re going after and it’s covered under our Servier agreement, were they owned rights outside of the U.S. and Japan. So that we’re partnered with, for the clinical study of it, but it’s not a commercial relationship. So that was poor choice of words on our part. James Rae – Credit Suisse Securities LLC: Okay, okay. And then lastly, and regarding the ACEON fixed dose combination program, and assuming that data is positive in the first quarter of next year. can you provide any timelines in terms of how long would take to file, and we might have the approval. and also, what are your internal estimates for the opportunity?

Yeah. Let me answer the first part of that at least. we are taking the steps that we can, getting ready to be able to file the NDA as quickly as possible once we have the data in hand. And so we have met with FDA previously before we would launch this last study, to get their input as to and their agreements that there should be the final study required for approval. So with the results of this study, we can move forward with the filing of the NDA. So very soon after obtaining the data, that’s when we would work toward getting the NDA together and getting it filed. The NDA review process for this sort of study and indication is probably a 12-month review process. James Rae – Credit Suisse Securities LLC: Okay.

When it comes to internal estimates for the product, we do think that product has the good potential. we do know that Servier, who is our partner, sells this exact same fixed dose combination outside of the U.S. and that it generates sales of about $150 million a year outside the U.S., and that’s growing, it’s only been lost couple or few years ago and it’s been growing quickly. So we don’t make any prediction around what the potential might be in the U.S. But we do think that there is good solid potential for this fixed dose combination. But let me just say that we will not as a company, as XOMA, we will not directly commercialize this product in the U.S. ourselves. When we have the data in the hand from the study that’s ongoing, we would look to use those data to go and seek out a commercial partner, which probably a third-party to actually commercialize the products in U.S. And our goal would be to keep a portion of the value from that commercialization effort. So we will not directly commercialize the fixed dose combination in U.S. Our business is focused on the therapeutic antibodies broadly and gevokizumab specifically. James Rae – Credit Suisse Securities LLC: Okay. Thank you for taking the questions.

Sure, thank you, good question.

Thank you. Our next question comes from Matt Kaplan, Ladenburg Thalman.

Hi, Matt. Matthew Kaplan – Ladenburg Thalmann & Co.: Hi, guys.

Hi, Matt. Matthew Kaplan – Ladenburg Thalmann & Co.: Thanks for taking my question. A number of them have been asked and answered right. Just a couple of follow-ups on the XMet programs, what’s your sense in terms of the cost of these programs going forward, before you partnered them? Are you able to enter a partnership?

So we can’t break it down exactly to XMetA and XMetS. What we did in the recently filed prospectus related to our offering, we estimate what would cost for that effort, the XMetD effort and the gevokizumab ultra-orphan effort. And I think we had a total of Fred has given me 15, he is holding up his fingers three times in a row, that's why I remember $15 million was our estimate the collective cost of that. I would say that the XMetA and XMetS work is not more than a third of that at most so… Matthew Kaplan – Ladenburg Thalmann & Co.: And…

Or they can be very impactful we think, this amount of work, we think can be very impactful for the value we could generate. Matthew Kaplan – Ladenburg Thalmann & Co.: So the most of that is for the gevokizumab the ultra-orphan is what…

Well, in XMetD, manufacturing and tox studies. Matthew Kaplan – Ladenburg Thalmann & Co.: Sure. And with respect to the Servier, the final Servier study in the cardiovascular indication, can you tell us more about that? Any sense of timing on that?

Yeah well, we can tell about the time again, and we expect them to start the first study in cardiovascular indications before the end of this year, and so that's terrific. When it comes to their longer term plans around cardiovascular, Paul has been working with them and our team has been working with the Servier team. They are expert in cardiovascular, that's their real forte. And so, they get to the side, and they actually own cardiovascular on a worldwide basis, but we have the right to buy it back. At any point during the development, including the after Phase 3 for the U.S. and Japanese markets latter on. So we have a role in it, but they are really leading the effort. So we can't talk specifically about the long-term plans for cardiovascular, but what I can tell you is that it is a very expensive and well fallout a long-term plan to try to generate substantial value from gevokizumab in cardiovascular. But it’s, developing a drug like this for cardiovascular indication is really expensive, will take a long time and generate a great deal of potential opportunity. So we’re glad to have it in their hands, and we’re glad that they’re getting started and they’re being very aggressive about it. Matthew Kaplan – Ladenburg Thalmann & Co.: Great. congrats on the progress in the quarter.

Okay. Thank you.

Thank you. At this time, I’m not showing any further questions. I would like to turn the call back to Mr. John Varian for closing remarks.

Well, thank you everyone for joining the call. We have covered a lot of information, and just kind of end where I started. we really have never felt more stronger that we have the pieces in place, position us for success. And with gevokizumab, we think we’ve got a really good drug, we’ve got the right amount of cash now to take it forward, and we’ve got a great team, and we’re going to execute as hard as we can again start plan. And we look forward to talking to you again soon. Thank you everyone.

Thank you. Ladies and gentlemen, thank you for participating in today’s conference. This does concludes program, and you may all disconnect. Have a great day.