A NN U AL R EPO RT 2015
D E A R S T O C K H O L D E R
2015 was a challenging year for XOMA and all of us who are stockholders, with
Servier’s Phase 3 EYEGUARD-B study of gevokizumab in patients with Behçet’s
disease uveitis failing to achieve its primary endpoint. While we were surprised
and disappointed by this unexpected finding, we didn’t let it stop us from moving
forward toward our ultimate goal of bringing new medicines to market to help
patients in need. Rather, while considered a setback, it was also an opportunity
to re-focus XOMA on another disease area with significant unmet medical needs
that we believe we can address – endocrinology.
Paul Rubin, M.D., Senior Vice President of Research and Development and Chief Medical Officer, made sure
we were prepared for the unexpected. Paul’s team recognized XOMA 358 could have a major impact on
hyperinsulinemia, a rare condition caused when the pancreas produces too much insulin. This led him to
challenge his scientific team to probe XOMA’s metabolic platform (XMet) and exceptionally deep antibody
libraries to identify other antibodies that could potentially treat endocrine disorders. In a short period of time,
his team identified several potential compounds. Today, our endocrine portfolio includes the following assets:
• XOMA 358 – in Phase 2 development to treat hyperinsulinemia
• XOMA 129 – an antibody fragment (Fab) from the XMetD program in preclinical development to treat
severe acute hypoglycemia (dangerously low blood sugar)
• XOMA 213 – which we brought back from Novartis and now are initiating Phase 2 development for
hyperprolactinemia conditions
• Research programs – antagonists against the parathyroid receptor (anti-PTH1R) and the
adrenocorticotropic hormone (anti ACTH)
These antibodies are differentiated from our previous development activities. They do not target one point
within a complex inflammatory response cascade that indirectly results in symptoms. Each of our endocrine
antibodies impacts a clinically validated biomarker directly related to a disease condition. For instance, we
know the body responds to insulin or prolactin production very predictably. Therefore, we should generate
clear answers from clinical study results with our endocrine antibodies, and we should have answers quickly.
In October 2015, we initiated our Phase 2 proof-of-concept program for XOMA 358. The first Phase 2 study
is enrolling patients experiencing hypoglycemia due to congenital hyperinsulinism (CHI), a rare disease in
which the beta cells of the pancreas secrete excessive insulin. This can cause hypoglycemia, which can
lead to brain damage or, in rare cases, death. CHI manifests in infancy and remains for a lifetime. A second
Phase 2 study will evaluate XOMA 358 in patients who experience hyperinsulinemia after undergoing bariatric
surgery. We expect the results of these two studies to provide us with important information about the safety,
pharmacokinetics, activity, dose response and duration of activity of XOMA 358 that will help us design the next
phase of development including Phase 3 trials. We will be working with regulatory authorities throughout this
process in an effort to expedite the development of this promising antibody.
In order to allow a focus on our endocrine platform,
Jim Neal, Senior Vice President and Chief Operating Officer,
led our actions to monetize our non-endocrine assets.
To fund clinical activities for XOMA 358, XOMA 129
and XOMA 213, we licensed several of our late-stage
non-core preclinical assets in deals that collectively
generated approximately $65 million in immediate non-
dilutive liquidity. All of our financial resources have been
redirected toward advancing our endocrine portfolio;
we closed the three remaining EYEGUARD studies in
September, and in early March 2016, we discontinued the
Phase 3 pyoderma gangrenosum program and initiated
licensing discussions for gevokizumab.
The transactions that Jim’s team completed included
a development and commercialization agreement with
Novartis, a recognized leader in oncology, for our TGF-
beta monoclonal antibody program in immuno-oncology.
Under the terms of the deal, we received a $37 million
upfront payment, potential milestone payments of up to
$480 million and, separately, deferred a $13.5 million debt
obligation for five years. Having partnered with Novartis
for a decade, we believe strongly it is the best company to
champion our TGF-beta antibody program and bring it to
market to help oncology patients.
Also, in December 2015 we entered into a licensing
agreement with Novo Nordisk, the world’s leader in
diabetes treatments, for our preclinical XMetA program
– a portfolio of antibodies designed to activate the
insulin receptor without the presence of insulin. This
is a potentially ground-breaking approach to diabetes
discovered by Paul’s team, which could also offer a new
therapeutic option for a rare endocrine disease. Under
the terms of the agreement, we received a $5 million
license fee and are eligible for an additional $290 million
in milestones. We retained commercialization rights to
any rare disease indications that arise from the XMetA
program.
As for our other legacy assets, we announced in
August 2015 our interest in selling our biodefense and
manufacturing operations, as we had recently completed
all manufacturing requirements under our existing
National Institutes of Allergy and Infectious Diseases
(NIAID) biodefense contracts. In November 2015, we sold
our biologics manufacturing facilities, equipment and
associated real estate to Agenus Inc. in a transaction
worth approximately $5 million in cash and $1 million in
stock. Additionally, we divested our biodefense program,
including our anti-botulinum assets, to Nanotherapeutics,
Inc.
Finally, with our transformation to an endocrine company,
we completed a reorganization to reflect our new direction.
We transferred or reduced staff from approximately 190 to
90 employees, all of whom are now focused exclusively
on advancing our endocrine portfolio.
Having taken these important actions, we believe we
have sufficient capital to fund operations through the first
quarter of 2017. This will allow us to continue to be laser
focused on advancing our deep pipeline of endocrine
assets, particularly XOMA 358, for which we expect data
later this year.
While 2015 was tough, we’ve learned from the challenges
we faced and taken the steps necessary for us to move
forward successfully. Each of our endocrine portfolio
assets has a clinically validated biomarker that is known
to directly impact a disease condition. We should begin to
have clear answers from the results of our studies in 2016.
In closing, I would like to recognize and thank the patients
and investigators in our studies. I am deeply appreciative
of our employees for their dedication to our mission
and vision throughout the particularly difficult period of
uncertainty and transition through which we’ve come. I
also want to thank you as stockholders for your continued
support. We look forward to keeping you apprised of
our progress during the year ahead as we continue to
advance our endocrine portfolio.
Sincerely,
John Varian
FORM 10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2015
OR
For the transition period from to
Commission File No. 0-14710
XOMA Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
2910 Seventh Street, Berkeley,
California 94710
(Address of principal executive offices,
including zip code)
52-2154066
(I.R.S. Employer
Identification No.)
(510) 204-7200
(Telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.0075 par value
Preferred Stock Purchase Rights
Name of each exchange on which registered
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:134) No (cid:95)
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes (cid:134) No (cid:95)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes (cid:95) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes (cid:95) No (cid:134)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. (cid:95)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated Filer (cid:134)
Accelerated Filer
(cid:95)
Non-Accelerated Filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act of 1934). Yes (cid:134) No (cid:95)
The aggregate market value of voting common equity held by non-affiliates of the registrant is $451,024,815 as of June 30, 2015.
Smaller reporting company
(cid:134)
(cid:134)
Number of shares of Common Stock outstanding as of March 7, 2016: 119,615,729
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company’s Proxy Statement for the Company’s 2016 Annual General Meeting of Stockholders are incorporated by reference into
Part III of this Report.
XOMA Corporation
2015 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business ...........................................................................................................................................................................
Item 1A. Risk Factors ......................................................................................................................................................................
Item 1B. Unresolved Staff Comments .............................................................................................................................................
Properties ..........................................................................................................................................................................
Item 2.
Legal Proceedings .............................................................................................................................................................
Item 3.
Item 4. Mine Safety Disclosures ...................................................................................................................................................
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities........
Item 6.
Selected Financial Data ....................................................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ...........................................
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ...........................................................................................
Financial Statements and Supplementary Data .................................................................................................................
Item 8.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ..........................................
Item 9A. Controls and Procedures ...................................................................................................................................................
Item 9B. Other Information .............................................................................................................................................................
PART III
Item 10. Directors, Executive Officers, and Corporate Governance ...............................................................................................
Item 11. Executive Compensation ..................................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .........................
Item 13. Certain Relationships and Related Transactions, and Director Independence ..................................................................
Item 14. Principal Accountant Fees and Services ...........................................................................................................................
1
15
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32
32
33
34
36
37
50
52
52
52
52
54
54
54
54
54
PART IV
55
Item 15. Exhibits and Financial Statement Schedules ....................................................................................................................
56
SIGNATURES..................................................................................................................................................................................
INDEX TO FINANCIAL STATEMENTS ...................................................................................................................................... F-1
INDEX TO EXHIBITS
This annual report on Form 10-K includes trademarks, service marks and trade names owned by us or others. “XOMA,” the
XOMA logo and all other XOMA product and service names are registered or unregistered trademarks of XOMA Corporation or a
subsidiary of XOMA Corporation in the United States and in other selected countries. EYEGUARD is an unregistered service mark of
a subsidiary of XOMA Corporation in the United States. All other trademarks, service marks and trade names included or
incorporated by reference in this annual report are the property of their respective owners.
PART I
Certain statements contained herein related to the anticipated size of clinical trials, the anticipated timing of initiation of clinical
trials, the expected availability of clinical trial results, the results of clinical trials, the timing of any application for regulatory
approval of our product candidates by the FDA or other regulatory authority, the sufficiency of our cash resources, the estimated
costs of clinical trials and the amounts of certain revenues and certain costs in comparison to prior years, 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, as amended (the “Exchange Act”). All statements, other than statements of historical fact are
statements that could be deemed forward looking statements. The words “believe,” “may,” “estimate,” “continue,” “could,”
“anticipate,” “assume,” “intend,” “expect,” “predict,” “potential” “should,” “would,” and similar expressions are intended to
identify forward-looking statements. 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: our product candidates are still being developed, and we
will require substantial funds to continue development which may not be available; we have received negative results from certain of
our clinical trials, and we face uncertain results of other clinical trials of our product candidates; if our therapeutic product
candidates do not receive regulatory approval, neither our third-party collaborators, our contract manufacturers nor we will be able
to manufacture and market them; we may not obtain orphan drug exclusivity or we may not receive the full benefit of orphan drug
exclusivity even if we obtain such exclusivity; even once approved, a product may be subject to additional testing or significant
marketing restrictions, its approval may be withdrawn or it may be voluntarily taken off the market; we may not be successful in
commercializing our products, which could also affect our development efforts; we are subject to various state and federal healthcare
related laws and regulations that may impact the commercialization of our product candidates and could subject us to significant
fines and penalties; and certain of our technologies are in-licensed from third parties, so our capabilities using them are restricted
and subject to additional risks. These and other risks, including those related to current economic and financial market conditions,
are contained principally in Item 1, Business; Item 1A, Risk Factors; Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations; and other sections of this Annual Report on Form 10-K. Factors that could cause or contribute
to these differences include those discussed in Item 1A, Risk Factors, as well as those discussed elsewhere in this Annual Report on
Form 10-K.
Forward-looking statements are inherently uncertain and you should not place undue reliance on these statements, which speak only
as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-
looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions to these
forward-looking statements after completion of the filing of this Annual Report on Form 10-K to reflect later events or circumstances
or to reflect the occurrence of unanticipated events.
Item 1.
Business
Overview
XOMA Corporation (“XOMA”), a Delaware corporation, is a development stage biotechnology company with a portfolio of
therapeutic antibodies. Our product candidates are the result of our expertise in developing new monoclonal antibodies, which have
created new opportunities to potentially treat a wide range of endocrine diseases. We discover and develop innovative antibody-based
therapeutics. Several of our antibodies have unique properties due to their interaction at allosteric sites on a specific protein rather than
at the orthosteric, or active, sites. The antibodies are designed to either enhance or diminish the protein’s activity as desired. We
believe allosteric modulating antibodies may be more selective and offer a safety advantage in certain disease indications when
compared to more traditional modes of action.
Our business efforts are focused on advancing the assets in our portfolio of compounds that could treat a variety of endocrine
diseases. Our product candidates are in various stages of development and are subject to regulatory approval before they can be
commercially launched.
We currently have five assets in our endocrine portfolio, two of which were developed as part of our proprietary XOMA
Metabolism (“XMet”) platform. We believe the XMet platform is highly novel as it targets the insulin receptor and has generated new
classes of fully human allosteric modulating monoclonal antibodies known as Selective Insulin Receptor Modulators (“SIRMs”). One
program of SIRMs produced by the XMet Platform is a negative allosteric modulator of the insulin receptor (“XMetD”). We intend to
advance the following two antibodies derived from the XMetD program, which presents potential new therapeutic approaches to the
treatment of diseases that involve insulin and result in severe hypoglycemia.
(cid:120)
(cid:120)
XOMA 358, a potential long-acting treatment for hyperinsulinemic hypoglycemia; and
XOMA 129, a potential rapid onset, short-acting treatment for severe acute hypoglycemia.
1
Our endocrine portfolio also includes what we believe is a Phase 2-ready product candidate, XOMA 213, targeting the prolactin
receptor as well as research-stage programs targeting the parathyroid receptor (“PTH1R”) and the adrenal corticotropic hormone
(“ACTH”).
Given our focus on endocrine diseases, we have determined that gevokizumab no longer fits our strategic focus and we have
decided to stop all development activities on the asset. As a result, we are closing the Phase 3 program in patients suffering from
pyoderma gangrenosum (“PG”) and will immediately pursue licensing discussions with potential interested parties.
Organization
We were incorporated in Delaware in 1981 and became a Bermuda-exempted company in December 1998. Effective December
31, 2011, we changed our jurisdiction of incorporation from Bermuda to Delaware and changed our name from XOMA Ltd. to
XOMA Corporation. When referring to a time or period before December 31, 1998, or when the context so requires, the terms
“Company” and “XOMA” refer to XOMA Corporation, a Delaware corporation, and when referring to a time or period after
December 31, 1998, and before December 31, 2011, such terms refer to XOMA Ltd., a Bermuda company.
Corporate Strategy
We are committed to establishing XOMA as a commercial organization in the United States with a portfolio of endocrine
therapies that were discovered by our scientists and developed internally. Our commercialization strategy will be to market products in
the United States through our own focused sales teams calling on specialist prescribers. We will likely seek development and
commercialization partners outside of the United States, as our product candidates could benefit patients around the world. For
indications requiring clinical studies that are prohibitively large or for the targeted patient populations are not treated by the specialist
provider, we will likely seek a development and commercialization partner, globally or regionally. Additionally, we may seek to
expand our pipeline by developing additional proprietary products and technologies and by entering into additional licensing and
collaborative arrangements with pharmaceutical and biotechnology companies.
Proprietary Products
As part of our strategy, we are focusing our technology and resources on advancing our emerging proprietary pipeline. Below is
a summary of our proprietary products:
(cid:120)
XOMA 358 is a fully human negative allosteric modulating insulin receptor antibody that was derived from our
proprietary XMet platform. We are investigating this antibody as a novel treatment for non-drug-induced, endogenous
hyperinsulinemic hypoglycemia (low blood glucose caused by excessive insulin produced by the body). There are several
rare disease indications that may benefit from XOMA 358 that are of greatest interest to us: congenital hyperinsulinism
(“CHI”), a hereditary disease resulting in lack of insulin regulation and profound hypoglycemia, and post-meal
hypoglycemia in post-bariatric surgery (“PBS”) patients. XOMA 358 has successfully completed Phase 1 testing, which
showed the antibody reduced insulin sensitivity and decreased glucose after exogenous insulin injection and it appeared to
be well tolerated, with no serious adverse events observed. The results were presented at the Endocrine Society's Annual
Meeting in March 2015. In June 2015, we were granted Orphan Drug Designation for XOMA 358 by the FDA for the
treatment of CHI. In October 2015, we initiated a single-dose Phase 2 proof-of-concept (“POC”) study of XOMA 358 in
patients with CHI. In addition, we intend to initiate a single-administration Phase 2 POC study in PBS patients who
experience hyperinsulinism. We believe a therapy that safely and effectively mitigates insulin-induced hypoglycemia has
the potential to address a significant unmet therapeutic need for these rare medical conditions associated with
hyperinsulinism.
2
(cid:120)
(cid:120)
XOMA 129 is a highly potent fragment of a monoclonal antibody (“Fab”) with negative allosteric modulation activity
against the insulin receptor. In animal model testing, it appears to have a fast-onset of action and short half-life.
Hypoglycemia is a serious medical condition in patients with Type 2 diabetes mellitus (“T2 DM”) and Type 1 diabetes
mellitus (“T1 DM”) and can occur as a result of insulin therapy, accidental insulin overdose or treatment with
sulfonylureas. Recurrent hypoglycemia leads to diminished recognition of the symptoms, which include palpitations,
tremors, anxiety, sweating, and hunger. This reduced sensitivity to hypoglycemic symptoms can lead to more prolonged
episodes and the advancement into acute severe hypoglycemia, which can result in confusion, loss of consciousness, and
seizure. Acute severe hypoglycemia often presents during the nocturnal hours in patients who are treated aggressively for
their T1 DM, which puts them at elevated risk for loss of consciousness and seizure. The medical community has long
been challenged with how to prevent patients from experiencing nocturnal acute severe hypoglycemia, yet there have not
been any significant breakthroughs in pharmaceutical development efforts or experiments in dietary practices. We are
conducting preclinical testing for XOMA 129 and intend to advance it into Phase 1 testing as soon as practicable. We
believe XOMA 129 could potentially offer clinicians a therapy that has rapid onset, improved efficacy and optimal
duration of therapy to treat patients with acute severe hypoglycemia wherein currently available therapies are inadequate.
XOMA 213 (formerly LFA 102) is a first-in-class allosteric inhibitor of prolactin action. It is a humanized IgG1-Kappa
monoclonal antibody that binds to the extracellular domain of the human prolactin receptor with high affinity at an
allosteric site. The antibody has been shown to inhibit prolactin-mediated signaling, and it is potent and similarly active
against several animal and human prolactin receptors. We discovered XOMA 213 under our collaboration with Novartis
AG (“Novartis,” formerly Chiron Corporation), and we exercised our right to bring the product back into our portfolio to
develop it for diseases of hyperprolactinemia. In particular, we are developing our product for prolactinoma, a condition
of benign tumors on the pituitary gland that leads to hyperprolactinemia-induced sexual dysfunction, infertility, and
osteoporosis, as well as anti-psychotic-induced hyperprolactinemia, a side effect seen in patients treated with commonly
used antipsychotics, antidepressants, and pain medications. For 20 percent of the 140,000 prolactinoma patients in the
United States, existing therapies are poorly tolerated or not amenable to treatment with existing therapy. Anti-psychotic-
induced hyperprolactinemia is a side effect seen in patients treated with commonly used antipsychotics, antidepressants,
and pain medications. As patients exhibit the same signs and symptoms as prolactinoma, compliance with anti-psychotic
therapies is poor. Currently available therapies to address these side effects can worsen psychosis. We intend to launch a
POC study for XOMA 213, which, if successful, will allow us to advance the compound into a Phase 2 study for
prolactinoma and potentially into anti-psychotic medication-induced hyperprolactinemia.
(cid:120)
Gevokizumab is a potent humanized monoclonal antibody with unique allosteric properties that has the potential to treat
patients with a wide variety of inflammatory diseases. Gevokizumab binds strongly to IL-1 beta, a pro-inflammatory
cytokine. By binding to IL-1 beta, gevokizumab modulates the activation of the IL-1 receptor, thereby preventing the
cellular signaling events that produce inflammation.
In December 2010, we entered into an agreement with Les Laboratories Servier to jointly develop and commercialize
gevokizumab in multiple indications. Under the terms of that agreement, Servier has worldwide rights to gevokizumab for
cardiovascular disease and diabetes indications (cardiometabolic field) and rights outside the United States and Japan to
all other indications.
On July 22, 2015, we announced the Phase 3 EYEGUARD-B study of gevokizumab in patients with Behçet’s disease
uveitis did not meet the primary endpoint of time to first acute ocular exacerbation. Due to these results and belief they
would be predictive of results in our other EYEGUARD studies of gevokizumab in patients with non-infectious uveitis
(“NIU”), in August we announced our intention to end the EYEGUARD global Phase 3 program prior to its planned
completion. Servier and we closed down the EYEGUARD clinical sites and, as anticipated, neither EYEGUARD-A nor
EYEGUARD-C produced positive results.
In September 2015, Servier notified XOMA of its intention to terminate the Amended and Restated Collaboration and
License Agreement, and return the worldwide gevokizumab rights to XOMA. Termination of the Agreement will be
effective on March 25, 2016.
In March 2016, we announced we are closing our Phase 3 study of gevokizumab in PG. A preliminary review of the data
from the study did not show a clear signal of activity in PG.
(cid:120)
Preclinical Product Pipeline: We are pursuing additional opportunities to further broaden our preclinical product
pipeline, including internal discovery programs focused on endocrine indications. One is an anti-PTH1R program.
Hyperparathyroidism results in significant hypercalcemia causing fatigue, loss of appetite, confusion, nausea, and muscle
weakness. While most can be treated surgically, 10 percent of the patient population does not respond to surgery. We
have identified PTH1R inhibitors and are in the process of attempting to identify a lead compound to move into pre-
clinical testing. Another research program is focused on ACTH. Inappropriate secretion of ACTH leads to excess
cortisol, which can lead to Cushing's disease. We have identified potent ACTH inhibitors and are testing for in vivo
activity in preclinical models.
3
Partnership and Licensed Products
Historically, we have provided research and development collaboration services for world-class organizations, including
Novartis, Novo Nordisk and Takeda, in pursuit of new antibody products. In more recent years, we have evolved our business focus
from a service provider model to a proprietary product development model. However, we expect that we will continue to capitalize on
partnered product arrangements as opportunities arise. Below is a list of such partnerships:
(cid:120)
(cid:120)
(cid:120)
Therapeutic Antibodies with Novartis In September 2015, we entered into a license agreement with Novartis
International Pharmaceutical Ltd. (“Novartis International”) for our transforming growth factor beta (TGF-beta) antibody
program. Novartis International will have worldwide rights to the TGF-beta program and will be solely responsible for the
development and commercialization of the antibodies. We may receive potential milestones and royalties on sales of
antibody products in the future.
In November 2008, we restructured our product development collaboration with Novartis, which was entered into in 2004
with Novartis (then Chiron Corporation). Under the restructured agreement, Novartis received control over the two
ongoing programs relating to CD40 and prolactin receptor. Control of the prolactin receptor antibody program was
returned to us in 2014. In September 2015, we and Novartis Vaccines and Diagnostics, Inc. (“NVDI”), executed an
amendment to their Amended and Restated Research, Development and Commercialization Agreement dated July 1,
2008, as amended, relating to anti-CD40 antibodies. The parties agreed to reduce the royalty rates that we are eligible to
receive on sales of Novartis’ clinical stage anti-CD40 antibodies. These royalties are tiered based on sales levels and now
range from a mid-single digit percentage rate to up to a low double-digit percentage rate.
Therapeutic Antibodies with Novo Nordisk In December 2015, we entered into an exclusive, worldwide, royalty-
bearing license with Novo Nordisk for the XMetA program of allosteric monoclonal antibodies that positively modulate
the insulin receptor. Novo Nordisk will have worldwide rights to the XMetA program and will be solely responsible for
the development and commercialization of antibodies and products, and we retained commercialization rights for all
indications considered rare. We may receive potential milestones and royalties on sales of antibody products in the future.
Therapeutic Antibodies with Takeda: Since 2006, Takeda has been a collaboration partner for therapeutic monoclonal
antibody discovery and development against multiple targets selected by them. In February 2009, we expanded our
existing collaboration to provide Takeda with access to multiple antibody technologies, including a suite of research and
development technologies and integrated information and data management systems. We may receive potential
milestones and royalties on sales of antibody products in the future.
Technologies
We have a unique set of antibody discovery, optimization and development technologies, including:
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ADAPT™ (Antibody Discovery Advanced Platform Technologies): proprietary phage display libraries integrated with
yeast and mammalian display to enable antibody discovery;
(cid:120) ModulX™: technology that enables identification of allosteric antibodies for positive or negative modulation of biological
pathways; and
(cid:120)
OptimX™: technologies used for optimizing biophysical properties of antibodies, including affinity, immunogenicity,
stability and manufacturability.
Technology Licenses
Below is a summary of certain proprietary technologies owned by us and available for licensing to other companies:
(cid:120)
Antibody Discovery Technologies: We use human antibody phage display libraries, integrated with yeast and
mammalian display, which we call ADAPT™ Integrated Display, in our antibody discovery programs. We offer access to
this platform, including novel phage libraries developed internally, as part of our collaboration business. We believe
access to ADAPT™ Integrated Display offers a number of benefits to us and our collaboration partners because it enables
us to combine the diversity of phage libraries with accelerated discovery due to rapid immunoglobulin (“IgG”)
reformatting and Fluorescence-Activated Cell Sorting (“FACS”) based screening using yeast and mammalian display.
This increases the probability of technical and business success in finding rare and unique functional antibodies directed
to targets of interest.
4
(cid:120) ModulX™ technology: ModulX™ technology allows modulation of biological pathways using monoclonal antibodies
and offers insights into regulation of signaling pathways, homeostatic control, and disease biology. Using ModulX™,
XOMA is generating product candidates with novel mechanisms of action that specifically alter the kinetics of interaction
between molecular constituents (e.g. receptor-ligand). ModulX™ technology enables expanded target and therapeutic
options and offers a unique approach in the treatment of disease.
(cid:120)
OptimX™ technologies:
Human Engineering™ (“HE™”): HE™ is a proprietary humanization technology that allows modification of non-
human monoclonal antibodies to reduce or eliminate detectable immunogenicity and make them suitable for medical
purposes in humans. The technology uses a unique method developed by us, based on analysis of the conserved structure-
function relationships among antibodies. The method defines which residues in a non-human variable region are
candidates to be modified. The result is an HE™ antibody with preserved antigen binding, structure and function that has
eliminated or greatly reduced immunogenicity. HE™ technology was used in development of gevokizumab and is used in
the development of certain other antibody products.
Targeted Affinity Enhancement™ (“TAE™”): TAE™ is a proprietary technology involving the assessment and guided
substitution of amino acids in antibody variable regions, enabling efficient optimization of antibody binding affinity and
selectivity. TAE™ generates a comprehensive map of the effects of amino acid mutations in the CDR region likely to
impact binding. The technology is utilized by XOMA scientists and has been licensed to a number of our collaborators.
(cid:120)
Flexible Manufacturing: This patented technology relates to a flexible arrangement of mobile clean rooms (“MCRs”)
within a manufacturing facility, with each MCR providing a portable, self-contained environment that allows for drug
development. The facility design allows MCRs to connect easily and quickly to a central supply of utilities such as air,
water, and electricity. This unique arrangement facilitates flexible manufacturing and eliminates change-over downtime.
This translates into significantly reduced capital expenditures, production costs, and maintenance costs while offering
meaningful time advantages over conventional manufacturing facilities. When MCRs are not in use, they can be easily
moved to cleaning/refurbishing areas and prepared MCRs can be "plugged in" for manufacturing. The flexible
manufacturing system can be applied to fields as diverse as pharmaceuticals, biologics, and electronics.
Financial and Legal Arrangements of Product Collaborations, Licensing and Other Arrangements
Collaboration and Licensing Agreements
Servier – Gevokizumab
In December 2010, we entered into a license and collaboration agreement (the “Collaboration Agreement”) with Servier to
jointly develop and commercialize gevokizumab in multiple indications. Under the terms of the Collaboration Agreement, Servier
obtained worldwide rights to cardiovascular disease and diabetes indications (cardiometabolic field) and rights outside the United
States and Japan to all other indications, including NIU, Behçet’s disease uveitis and other inflammatory and oncology indications.
XOMA retained development and commercialization rights in the United States and Japan for all indications other than cardiovascular
disease and diabetes. Each party had the right in certain circumstances to pursue development in indications not specified in the
agreement, and in such event, the other party had certain options to participate in such development, including reimbursement of a
portion of the developing party’s expenses.
We also entered into a loan agreement with Servier (the “Servier Loan Agreement”) that provided for an advance of up to €15.0
million. The loan was fully funded in January 2011, with the proceeds converting to approximately $19.5 million at the date of
funding. The loan is secured by an interest in XOMA’s intellectual property rights to all gevokizumab indications worldwide,
excluding certain rights in the United States and Japan. Interest is calculated at a floating rate based on a Euro Inter-Bank Offered Rate
(“EURIBOR”) and is subject to a cap. The interest rate is reset semi-annually in January and July of each year. The interest rate for the
initial interest period was 3.22% and was reset semi-annually ranging from 2.05% to 3.83%. Interest for the six-month period from
mid-January 2015 through mid-July 2015 was reset to 2.16%. Interest is payable semi-annually; however, the Servier Loan Agreement
provided for a deferral of interest payments over a period specified in the agreement. During the deferral period, accrued interest was
added to the outstanding principal amount for the purpose of interest calculation for the next six-month interest period. On the
repayment commencement date, all unpaid and accrued interest was paid to Servier, and thereafter, all accrued and unpaid interest
shall be due and payable at the end of each six-month period. In January 2016, we paid $0.2 million in accrued interest to Servier as
well as the principal amount then due as described below.
5
On January 9, 2015, Servier and we entered into Amendment No. 2 (“Loan Amendment”) to the Servier Loan Agreement. The
Loan Agreement was initially entered into on December 30, 2010 and subsequently amended by a Consent, Transfer, Assumption and
Amendment Agreement entered into as of August 12, 2013. The Loan Amendment extended the maturity date of the loan from
January 13, 2016 to three tranches of principal to be repaid as follows:€3.0 million on January 15, 2016, €5.0 million on January 15,
2017, and €7.0 million on January 15, 2018. In addition, the loan becomes immediately due and payable upon certain customary
events of default. At December 31, 2015, the outstanding principal balance under this loan was $16.4 million using the December 31,
2015 Exchange Rate of 1.091.
On September 28, 2015, Servier notified us of its intention to terminate the Collaboration Agreement, as amended and return the
gevokizumab rights to us. The termination will be effective on March 25, 2016, and does not result in a change to the maturity date of
our loan with Servier. As we will no longer be required to provide services to Servier under the Collaboration Agreement beyond the
effective date, we will amortize the remaining deferred revenue through March 25, 2016. As of December 31, 2015, the deferred
revenue – current associated with this collaboration was $0.6 million. All such deferred revenue is expected to be recognized in the
first quarter of 2016.
NIAID
In September 2008, we were awarded a third NIAID contract for $64.8 million under Contract No. HHSN272200800028C
(“NIAID 3”) to continue development of our anti-botulinum antibody product candidates, including XOMA 3AB and additional
product candidates directed against the B and E toxin serotypes. As part of the contract, we have developed, evaluated and produced
the clinical supplies to support an Investigational New Drug (“IND”) application filing with the FDA for XOMA 3AB. A Phase 1 trial
was completed on XOMA 3AB, with no product-related serious adverse events. Subsequently, XOMA manufactured XOMA 3B and
XOMA 3E, which are currently on stability and are in the process of IND preparation.
In October 2011, we announced we had been awarded a fourth NIAID contract for up to $28.0 million over five years under
Contract No. HHSN 272201100031C (“NIAID 4”) to develop broad-spectrum antitoxins for the treatment of human botulism
poisoning directed against the C and D toxin serotypes.
Takeda
In November 2006, we entered into a fully funded collaboration agreement with Takeda for therapeutic monoclonal antibody
discovery and development activities under which we agreed to discover and optimize therapeutic antibodies against multiple targets
selected by Takeda. Takeda agreed to make up-front, annual maintenance and milestone payments to us, fund our research and
development and manufacturing activities for preclinical and early clinical studies and pay royalties on sales of products resulting
from the collaboration. Takeda is responsible for clinical trials and commercialization of drugs after an IND submission and is
granted the right to manufacture once a product enters into Phase 2 clinical trials. We have completed a technology transfer and do
not expect to perform any further research and development services under this program. From 2011 through 2015, we received
milestone payments relating to one currently active program.
Under the terms of this agreement, we may receive milestone payments aggregating up to $19.0 million relating to one
undisclosed product candidate and low single-digit royalties on future sales of all products subject to this license. Our right to
milestone payments expires on the later of the receipt of payment from Takeda of the last amount to be paid under the agreement or
the cessation by Takeda of all research and development activities with respect to all program antibodies, collaboration targets and/or
collaboration products. Our right to royalties expires on the later of 13.5 years from the first commercial sale of each royalty-bearing
discovery product or the expiration of the last-to-expire licensed patent.
In February 2009, we expanded our existing collaboration to provide Takeda with access to multiple antibody technologies,
including a suite of research and development technologies and integrated information and data management systems. We may
receive milestones of up to $3.3 million per discovery product candidate and low single-digit royalties on future sales of all antibody
products subject to this license. Our right to milestone payments expires on the later of the receipt of payment from Takeda of the last
amount to be paid under the agreement or the cessation by Takeda of all research and development activities with respect to all
program antibodies, collaboration targets and/or collaboration products. Our right to royalties expires on the later of 10 years from the
first commercial sale of such royalty-bearing discovery product or the expiration of the last-to-expire licensed patent.
6
Novartis – Anti-CD40 Antibody
In November 2008, we restructured our product development collaboration with Novartis. Under the restructured agreement,
Novartis made a payment to us of $6.2 million in cash and reduced our existing debt by $7.5 million; agreed to fund all future research
and development expenses; agreed to pay potential milestones of up to $14.0 million and royalty rates ranging from low-double-digit
to high-teen percentage rates for certain antibody products binding to CD40 or prolactin receptor antibody programs; and has provided
us with options to develop or receive royalties on four additional programs. In exchange, Novartis received control over the CD40 and
prolactin receptor antibody programs, as well as the right to expand the development of these programs into additional indications
outside of oncology. Novartis has initiated clinical studies to test CFZ533, an anti-CD40 antibody arising from its collaboration with
XOMA, in de novo renal transplantation, Primary Sjögren's Syndrome and in moderate to severe myasthenia gravis. Novartis has
returned control of the prolactin receptor antibody program, XOMA 213, to us and we are evaluating options for its continued
development. In 2013, we received a $7.0 million milestone relating to one currently active program. Our right to milestone payments
expires at such time as no collaboration product or former collaboration product is being developed or commercialized anywhere in
the world and no royalty payments on these products are due. Our right to royalty payments expires on the later of the expiration of
any licensed patent covering each product or 10 years from the launch of each product.
In September 2015, we and Novartis Vaccines and Diagnostics, Inc. (“NVDI”), executed an amendment to their Amended and
Restated Research, Development and Commercialization Agreement dated July 1, 2008, as amended, relating to anti-CD40 antibodies.
The parties agreed to reduce the royalty rates that we are eligible to receive on sales of Novartis’ clinical stage anti-CD40 antibodies.
These royalties are tiered based on sales levels and now range from a mid-single digit percentage rate to up to a low double-digit
percentage rate.
In connection with the collaboration between XOMA and Novartis (then Chiron Corporation), a secured note agreement was
executed in May 2005. The note agreement is secured by our interest in the collaboration and was due and payable in full in June
2015. On June 19, 2015, we and Novartis Vaccines Diagnostics, Inc. (“NVDI”), who assumed the note agreement, agreed to extend
the maturity date of our secured note agreement from June 21, 2015 to September 30, 2015, which was then subsequently extended to
September 30, 2020. At December 31, 2015, the outstanding principal balance under this note agreement totaled $13.7 million and
was included in our long-term portion of interest bearing obligations in our consolidated balance sheet as of December 31, 2015.
Pursuant to the terms of the arrangement as restructured in November 2008, we will not make any additional borrowings on the
Novartis note.
Novartis – Anti-TGF(cid:533) Antibody
In September 2015, we and Novartis International Pharmaceutical Ltd. (“Novartis International”) entered into a license
agreement (the “License Agreement”) pursuant to which we granted Novartis International an exclusive, worldwide, royalty-bearing
license to our anti-transforming growth factor beta (“TGF-beta”) antibody program. Under the terms of the License Agreement,
Novartis International obtained worldwide rights to the TGF-beta antibody program and is solely responsible for the development and
commercialization of antibodies and products containing antibodies arising from the TGF-beta antibody program.
Under the License Agreement, we received a $37 million upfront fee. We are eligible to receive up to a total of $480 million in
development, regulatory and commercial milestones. We also are eligible to receive royalties on sales of licensed products, which are
tiered based on sales levels and range from a mid-single digit percentage rate to up to a low double-digit percentage rate. Novartis
International’s obligation to pay royalties with respect to a particular product and country will continue for the longer of the date of
expiration of the last valid patent claim covering the product in that country, or ten years from the date of the first commercial sale of
the product in that country.
The License Agreement contains customary termination rights relating to material breach by either party. Novartis International
also has a unilateral right to terminate the License Agreement on an antibody-by-antibody and country-by-country basis or in its
entirety on one hundred eighty days’ notice.
Pfizer
In August 2007, we entered into a license agreement (the “2007 Agreement”) with Pfizer Inc. (“Pfizer”) for non-exclusive,
worldwide rights for our patented bacterial cell expression technology for research, development and manufacturing of antibody
products. Under the terms of the 2007 Agreement, we received a license fee payment of $30.0 million in 2007.
7
From 2011 through 2015, we have received milestone payments, and we were also eligible for additional milestone payments
and low single-digit royalties on future sales of all products subject to this license. In addition, we were also eligible to receive
potential milestone payments aggregating up to $1.7 million for each additional qualifying product candidate. Our right to milestone
payments would expire on the later of the expiration of the last-to-expire licensed patent or the tenth anniversary of the effective date.
Our right to royalties would expire upon the expiration of the last-to-expire licensed patent. In December 2015, we entered into a
settlement and amended license agreement with Pfizer, pursuant to which we granted Pfizer a fully-paid, royalty-free, worldwide,
irrevocable, non-exclusive license rights to XOMA’s patented bacterial cell expression technology for phage display and other
research, development and manufacturing of antibody products for cash payment by Pfizer of $3.8 million in full satisfaction of all
obligations to us under the August 27, 2007 License Agreement between XOMA Ireland Limited and Pfizer Inc, including but not
limited to potential milestone, royalty and other fees under the 2007 Agreement.
In August 2005, we entered into a license agreement with Wyeth (subsequently acquired by Pfizer) for non-exclusive,
worldwide rights for certain of XOMA’s patented bacterial cell expression technology for vaccine manufacturing. Under the terms of
this agreement, we received a milestone payment in November 2012 relating to TRUMENBA®, a meningococcal group B vaccine
marketed by Pfizer. We receive a fraction of a percentage of sales of TRUMENBA as royalties. Our right to royalties expires on a
country-by-country basis upon the later of the expiration of the last-to-expire licensed patent or 10 years from the first commercial sale
of TRUMENBA.
Novo Nordisk
In December 2015, we entered into a license agreement with Novo Nordisk A/S (“Novo Nordisk ”) pursuant to which we have
granted to Novo Nordisk an exclusive, world-wide, royalty-bearing license to XOMA’s XMetA program of allosteric monoclonal
antibodies that positively modulate the insulin receptor (the “XMetA Program”), subject to our retained commercialization rights for
rare disease indications. Novo Nordisk has an option to add these additional rights to its license upon payment of an option fee.
Novo Nordisk will have worldwide rights to the XMetA Program and will be solely responsible for its expenses for the
development and commercialization of antibodies and products containing antibodies arising from the XMetA Program, subject to the
our retained rights described above. We have transferred certain proprietary know-how and materials relating to the XMetA Program
to Novo Nordisk. Under the agreement, we received a $5.0 million, non-creditable, non-refundable, upfront payment. Based on the
achievement of pre-specified criteria, we are eligible to receive up to $290.0 million in development, regulatory and commercial
milestones. We are also eligible to receive royalties on sales of licensed products, which are tiered up to a high single digit percentage
rate based on sales levels. Novo Nordisk’s obligation to pay development and commercialization milestones will continue for so long
as Novo Nordisk is developing or selling products under the agreement, subject to the maximum milestone payment amounts set forth
above. Novo Nordisk’s obligation to pay royalties with respect to a particular product and country will continue for the longer of the
date of expiration of the last valid patent claim covering the product in that country, or ten years from the date of the first commercial
sale of the product in that country.
The agreement contains customary termination rights relating to material breach by either party. Novo Nordisk also has a
unilateral right to terminate the agreement in its entirety on ninety (90) days’ notice.
Sale of Manufacturing Facility and Biodefense Assets
On November 4, 2015, we entered into an asset purchase agreement (the “Nanotherapeutics Purchase Agreement”) with
Nanotherapeutics, pursuant to which Nanotherapeutics agreed, subject to the terms and conditions set forth in the Nanotherapeutics
Purchase Agreement, to acquire our biodefense business and related assets (including, subject to regulatory approval, certain contracts
with the U.S. government), and to assume certain liabilities of XOMA (the “Transaction”). As part of the Transaction, the parties
will, subject to the terms and conditions of the asset purchase agreement and the satisfaction of certain conditions, enter into an
intellectual property license agreement (the “License Agreement”), pursuant to which we agree to license to Nanotherapeutics, subject
to the terms and conditions set forth in the License Agreement, certain intellectual property rights related to the purchased assets.
Under the License Agreement, we are eligible for up to $4.5 million of cash payments upon Nanotheraputics’ execution of a contract
with the Defense Threat Reduction Agency. In addition, we are eligible to receive 15% royalties on net sales of products.
8
On November 5, 2015, we entered into an asset purchase agreement (the “Agenus Purchase Agreement”) with Agenus West,
LLC, a wholly-owned subsidiary of Agenus Inc. (“Agenus”), pursuant to which Agenus agreed, subject to the terms and conditions set
forth in the Agenus Purchase Agreement, to acquire our pilot scale manufacturing facility in Berkeley, California, together with
certain related assets, including a license to certain intellectual property related to the purchased assets, and to assume certain
liabilities of XOMA, in consideration for the payment to us of up to $5.0 million in cash and the issuance to us of shares of Agenus’s
common stock having an aggregate value of up to $1.0 million. The Agenus Purchase Agreement closed on December 31, 2015. At
closing, we received cash of $4.7 million, net of the assumed liabilities of $0.3 million. In addition to the cash consideration, we
received 109,211 shares of common stock of Agenus with an aggregate value of $0.5 million. The remaining common stock of
Agenus will only be received upon our satisfaction of certain operational matters, which we may or may not be able to satisfy.
Financing Agreements
Hercules Loan and Security Agreement
In February 2015, we entered into a Loan and Security Agreement with Hercules, (the “Hercules Loan Agreement”) under
which we borrowed $20.0 million. We used a portion of the proceeds received under the Hercules Loan Agreement to repay the
outstanding principal, final payment fee, prepayment fee, and accrued interest of $5.5 million under our loan agreement with General
Electric Capital Corporation.
The interest rate under the Hercules Loan Agreement will be calculated at a rate equal to the greater of either (i) 9.40% plus the
prime rate as reported from time to time in The Wall Street Journal minus 7.25%, and (ii) 9.40%. Payments under the Hercules Loan
Agreement are interest only until one month prior to the Amortization Date, defined as July 1, 2016. The interest only period will be
followed by equal monthly payments of principal and interest amortized over a 30 month schedule through the scheduled maturity
date of September 1, 2018 (the “Hercules Loan Maturity Date”). The entire principal balance, including a balloon payment of
principal, as applicable, will be due and payable on the Hercules Loan Maturity Date. In addition, a final payment equal to $1.2
million will be due on the Hercules Loan Maturity Date, or such earlier date specified in the Hercules Loan Agreement. Our
obligations under the Hercules Loan Agreement are secured by a security interest in substantially all of our assets, other than our
intellectual property.
If we prepay the loan prior to the Hercules Loan Maturity Date, we will pay Hercules a prepayment charge, based on a
prepayment fee equal to 3.00% of the amount prepaid, if the prepayment occurs in any of the first 12 months following the closing
date, 2.00% of the amount prepaid, if the prepayment occurs after 12 months from the closing date but prior to 24 months from the
closing date, and 1.00% of the amount prepaid if the prepayment occurs after 24 months from the closing date.
The Hercules Loan Agreement includes customary affirmative and restrictive covenants, but does not include any financial
maintenance covenants, and also includes standard events of default, including payment defaults. Upon the occurrence of an event of
default, a default interest rate of an additional 5% may be applied to the outstanding loan balances, and Hercules may declare all
outstanding obligations immediately due and payable and take such other actions as set forth in the Hercules Loan Agreement. In
connection with the Hercules Loan Agreement, we issued a warrant to Hercules that is exercisable for an aggregate of up to 181,268
shares of XOMA common stock at an exercise price of $3.31 per share (the “Hercules Warrant”). The Hercules Warrant may be
exercised on a cashless basis and is exercisable for a term beginning on the date of issuance and ending on the earlier to occur of five
years from the date of issuance or the consummation of certain acquisitions of XOMA as set forth in the Hercules Warrant. The
number of shares for which the Hercules Warrant is exercisable and the associated exercise price are subject to certain proportional
adjustments as set forth in the Hercules Warrant.
Research and Development
Our research and development expenses currently include costs of personnel, supplies, facilities and equipment, consultants,
third-party costs and other expenses related to preclinical and clinical testing. In 2015, our research and development expenses were
$70.9 million, compared with $80.7 million in 2014 and $74.9 million in 2013.
Our research and development activities can be divided into those related to our internal projects and those related to
collaborative and contract arrangements, which are reimbursed by our collaborators. In 2015, research and development expenses
relating to internal projects were $50.2 million, compared with $51.3 million in 2014 and $47.5 million in 2013. In 2015, research and
development expenses related to collaborative and contract arrangements were $20.6 million, compared with $29.5 million in 2014
and $27.4 million in 2013.
9
Competition
The biotechnology and pharmaceutical industries are subject to continuous and substantial technological change. Competition
in antibody-based technologies is intense and is expected to increase as new technologies emerge and established biotechnology firms
and large chemical and pharmaceutical companies continue to advance in the field. A number of these large pharmaceutical and
chemical companies have enhanced their capabilities by entering into arrangements with or acquiring biotechnology companies or
entering into business combinations with other large pharmaceutical companies. Many of these companies have significantly greater
financial resources, larger research and development and marketing staffs, and larger production facilities than ours. Moreover,
certain of these companies have extensive experience in undertaking preclinical testing and human clinical trials. These factors may
enable other companies to develop products and processes competitive with or superior to ours. In addition, a significant amount of
research in biotechnology is being carried out in universities and other non-profit research organizations. These entities are becoming
increasingly interested in the commercial value of their work and may become more aggressive in seeking patent protection and
licensing arrangements. Furthermore, many companies and universities tend not to announce or disclose important discoveries or
development programs until their patent position is secure or, for other reasons, later. As a result, we may not be able to track
development of competitive products, particularly at the early stages. There can be no assurance that developments by others will not
render our products or technologies obsolete or uncompetitive.
Without limiting the foregoing, we are aware of the following competitors for the product and candidate shown in the table
below. This table is not intended to be representative of all existing competitors in the market:
Product/Candidate
XOMA 358 ........................................ Biodel Inc
Competitors
S-cubed Limited
Xeris Pharmaceuticals
Government Regulation
The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial
requirements upon the clinical development, pre-market approval, manufacture, marketing, import, export and distribution of
biopharmaceutical products. These agencies and other regulatory agencies regulate research and development activities and the
testing, approval, manufacture, quality control, safety, effectiveness, labeling, storage, recordkeeping, advertising and promotion of
products and product candidates. Failure to comply with applicable FDA or other regulatory requirements may result in Warning
Letters, civil or criminal penalties, suspension or delays in clinical development, recall or seizure of products, partial or total
suspension of production or withdrawal of a product from the market. The development and approval process requires substantial
time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely
basis, if at all. We must obtain approval of our product candidates from the FDA before we can begin marketing them in the United
States. Similar approvals are also required in other countries.
Product development and approval within this regulatory framework is uncertain, can take many years and requires the
expenditure of substantial resources. The nature and extent of the governmental review process for our product candidates will vary,
depending on the regulatory categorization of particular product candidates and various other factors.
The necessary steps before a new biopharmaceutical product may be sold in the United States ordinarily include:
(cid:120)
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preclinical in vitro and in vivo tests, which must comply with Good Laboratory Practices (“GLP”);
submission to the FDA of an IND which must become effective before clinical trials may commence, and which must be
updated annually with a report on development;
completion of adequate and well controlled human clinical trials to establish the safety and efficacy of the product
candidate for its intended use;
submission to the FDA of a biologic license application (“BLA”), which must often be accompanied by payment of a
substantial user fee;
FDA pre-approval inspection of manufacturing facilities for current Good Manufacturing Practices, or GMP, compliance
and FDA inspection of select clinical trial sites for Good Clinical Practice (“GCP”), compliance; and
FDA review and approval of the BLA and product prescribing information prior to any commercial sale.
10
The results of preclinical tests (which include laboratory evaluation as well as preclinical GLP studies to evaluate toxicity) for a
particular product candidate, together with related manufacturing information and analytical data, are submitted as part of an IND to
the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period,
raises concerns or questions about the conduct of the clinical trial, including concerns that human research subjects will be exposed to
unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial
can begin. IND submissions may not result in FDA authorization to commence a clinical trial. A separate submission to an existing
IND must also be made for each successive clinical trial conducted during product development. Further, an independent institutional
review board (“IRB”), for each medical center proposing to conduct the clinical trial must review and approve the plan for any clinical
trial before it commences at that center and it must monitor the study until completed. The FDA, the IRB, or the sponsor may suspend
a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable
health risk. Clinical testing also must satisfy extensive GCP regulations and regulations for informed consent and privacy of
individually identifiable information.
Clinical trials generally are conducted in three sequential phases that may overlap or in some instances, be skipped. In Phase 1,
the initial introduction of the product into humans, the product is tested to assess safety, metabolism, pharmacokinetics and
pharmacological actions associated with increasing doses. Phase 2 usually involves trials in a limited patient population to evaluate the
efficacy of the potential product for specific, targeted indications, determine dosage tolerance and optimum dosage and further
identify possible adverse reactions and safety risks. Phase 3 and pivotal trials are undertaken to evaluate further clinical efficacy and
safety often in comparison to standard therapies within a broader patient population, generally at geographically dispersed clinical
sites. Phase 4, or post-marketing, trials may be required as a condition of commercial approval by the FDA and may also be
voluntarily initiated by us or our collaborators. Phase 1, Phase 2 or Phase 3 testing may not be completed within any specific period of
time, if at all, with respect to any of our product candidates. Similarly, suggestions of safety, tolerability or efficacy in earlier-stage
trials do not necessarily predict findings of safety and effectiveness in subsequent trials. Furthermore, the FDA, an IRB, or we may
suspend a clinical trial at any time for various reasons, including a finding that the subjects or patients are being exposed to an
unacceptable health risk. Clinical trials are subject to central registration and results reporting requirements, such as on
www.clinicaltrials.gov.
The results of preclinical studies, pharmaceutical development and clinical trials, together with information on a product’s
chemistry, manufacturing, and controls, are submitted to the FDA in the form of a BLA, for approval of the manufacture, marketing
and commercial shipment of the biopharmaceutical product. Data from clinical trials are not always conclusive and the FDA may
interpret data differently than we or our collaborators interpret data. The FDA also may convene an Advisory Committee of external
advisors to answer questions regarding the approvability and labeling of an application. The FDA is not obligated to follow the
Advisory Committee’s recommendation. The submission of a BLA is required to be accompanied by a substantial user fee, with few
exceptions or waivers. The user fee is administered under the Prescription Drug User Fee Act, which sets goals for the timeliness of
the FDA’s review. A standard review period is twelve months from submission of the application, while priority review is eight
months from submission of the application. The testing and approval process is likely to require substantial time, effort and resources,
and there can be no assurance that any approval will be granted on a timely basis, if at all. The FDA may deny review of an
application by refusing to file the application or not approve an application by issuance of a complete response letter if applicable
regulatory criteria are not satisfied, require additional testing or information, or require risk management programs and post-market
testing and surveillance to monitor the safety or efficacy of the product. Approval may occur with significant Risk Evaluation and
Mitigation Strategies, or REMS, which limit the clinical use in the prescribing information, distribution or promotion of a product.
Once issued, the FDA may withdraw product approval if ongoing regulatory requirements are not met or if safety problems occur after
the product reaches the market.
Orphan drugs are those intended for use in rare diseases or conditions. As a result of the high cost of development and the low
return on investment for rare diseases, certain governments provide regulatory and commercial incentives for the development of
drugs for small disease populations. In the United States, the term ‘‘rare disease or condition’’ means any disease or condition that
affects fewer than 200,000 people in the United States. Applications for U.S. orphan drug status are evaluated and granted by the
Office of Orphan Products Development (“OOPD”) of the FDA and must be requested before submitting a BLA. In the United States,
orphan drugs are subject to the standard regulatory process for marketing approval but are exempt from the payment of user fees for
licensure, may receive market exclusivity for a period of seven years and some tax benefits, and are eligible for OOPD grants. If a
product with orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such
designation, the product is entitled to orphan product exclusivity, which means the FDA may not approve any other applications to
market the same drug or biological product for the same indication, except in very limited circumstances, for seven years.
Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or
obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan product
exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval of the same drug or
biological product as defined by the FDA or if our product candidate is determined to be contained within the competitor’s product for
the same indication or disease. If a drug or biological product designated as an orphan product receives marketing approval for an
indication broader than what is designated, it may not be entitled to orphan product exclusivity.
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Products manufactured or distributed pursuant to FDA approvals are subject to continuing regulation by the FDA, including
manufacture, labeling, advertising, distribution, promotion, recordkeeping, annual product quality review and reporting requirements.
Adverse event experience with the product must be reported to the FDA in a timely fashion and pharmacovigilance programs to
proactively look for these adverse events are mandated by the FDA. Manufacturers and their subcontractors are required to register
their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and
certain state agencies for compliance with ongoing regulatory requirements, including cGMPs, which impose certain procedural and
documentation requirements upon us and our third-party manufacturers. Following such inspections, the FDA may issue notices on
Form 483 and Warning Letters that could cause us to modify certain activities. A Form 483 notice, if issued at the conclusion of an
FDA inspection, can list conditions the FDA investigators believe may have violated cGMP or other FDA regulations or guidance.
Failure to adequately and promptly correct the observations(s) can result in further regulatory enforcement action. In addition to Form
483 notices and Warning Letters, failure to comply with the statutory and regulatory requirements can subject a manufacturer to
possible legal or regulatory action, such as suspension of manufacturing, seizure of product, injunctive action or possible civil
penalties. We cannot be certain that we or our present or future third-party manufacturers or suppliers will be able to comply with the
cGMP regulations and other ongoing FDA regulatory requirements. If we or our present or future third-party manufacturers or
suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, not approve our products, and require
us to recall a product from distribution or withdraw approval of the BLA for that product. Failure to comply with ongoing regulatory
obligations can result in delay of approval or Warning Letters, product seizures, criminal penalties, and withdrawal of approved
products, among other enforcement remedies.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. These
regulations include standards and restrictions for direct-to-consumer advertising, industry-sponsored scientific and educational
activities, promotional activities involving the internet, and off-label promotion. While physicians may prescribe for off-label uses,
manufacturers may only promote for the approved indications and in accordance with the provisions of the approved label. The FDA
has very broad enforcement authority under the Federal Food, Drug, and Cosmetic Act, and failure to abide by these regulations can
result in penalties, including the issuance of a warning letter directing entities to correct deviations from FDA standards, and state and
federal civil and criminal investigations and prosecutions.
Federal and state healthcare laws, including fraud and abuse and health information privacy and security laws, are also
applicable to our business. We could face substantial penalties and our business, results of operations, financial condition and
prospects could be adversely affected. The laws that may affect our ability to operate include: the federal Anti-Kickback Statute,
which prohibits soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or
recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities
from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that
are false or fraudulent; and the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created new
federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements
relating to healthcare matters and was amended by the Health Information Technology and Clinical Health Act (“HITECH”), and its
implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually
identifiable health information. State law equivalents of each of the above federal laws exist, many of which differ from each other in
significant ways and may not have the same effect, thus complicating compliance efforts.
International Regulation
In addition to regulations in the United States, we are subject to a variety of foreign regulations governing clinical trials and
commercial sales and distribution of any future products. Whether or not we obtain FDA approval for a product, we must obtain
approval by the comparable regulatory authorities of foreign countries before we can commence clinical trials or market the product in
those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for
FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly
from country to country.
Patents and Trade Secrets
Patent and trade secret protection are important to our business and our future will depend in part on our ability to obtain
patents, maintain trade secret protection and operate without infringing on the proprietary rights of others. As a result of our ongoing
activities, we hold and have filed applications for a number of patents in the United States and internationally to protect our products
and important processes. We also have obtained or have the right to obtain exclusive licenses to certain patents and applications filed
by others. However, the patent position of biotechnology companies generally is highly uncertain and consistent policy regarding the
breadth of allowed claims has not emerged from the actions of the U.S. Patent and Trademark Office (“Patent Office”) with respect to
biotechnology patents. Accordingly, no assurance can be given that our patents will afford protection against competitors with similar
technologies or others will not obtain patents claiming aspects similar to those covered by our patent applications.
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On January 6, 2015 we were awarded U.S. Patent No. 8,926,976 covering insulin receptor-activating antibodies having the
functional properties of the lead antibody in our XMetA program, subsequently licensed to Novo Nordisk. On December 17, 2015 the
European Patent Office issued a decision to grant European Patent 2 480 254 covering insulin receptor-activating antibodies having
the functional properties of XOMA 358, the lead antibody in XOMA’s XMetD program. Additional patent applications covering our
insulin receptor antibody programs are pending in the U.S. and certain other countries.
We have exclusive worldwide rights to a family of patents relating to our prolactin receptor antibody program, XOMA 213,
following return of the program by Novartis. Issued patents in the family include US Patent No. 7,867,493 and EP 2 059 535.
We have established a portfolio of patents in the United States, Europe and certain other countries for our gevokizumab
program. U.S. Patent Nos. 7,531,166 (which expires in 2027) and 7,582,742 cover gevokizumab and other antibodies and antibody
fragments with similar binding properties for IL-1 beta, as well as nucleic acids, expression vectors and production cell lines for the
manufacture of such antibodies and antibody fragments. US Patent No. 9,206,252 relates to pharmaceutical compositions of
gevokizumab and other antibodies and antibody fragments with similar binding properties for IL-1 beta. U.S. Patent Nos. 7,744,865,
7,744,866 and 7,943,121 relate to additional IL-1 beta binding antibodies and binding fragments. U.S. Patent Nos. 7,695,718,
8,101,166, 8,586,036, 8,545,846, 8,377,429 and 9,163,082 relate to methods of treating Type 2 diabetes or Type 2 diabetes-induced
diseases or conditions with high affinity antibodies and antibody fragments that bind to IL-1 beta, including gevokizumab. U.S.
Patent No. 8,637,029 relates to methods of treating gout with certain doses of IL-1 beta binding antibodies or binding fragments. U.S.
Patent No. 7,695,717 relates to methods of treating certain IL-1 related inflammatory diseases, including rheumatoid arthritis and
osteoarthritis, with gevokizumab and other antibodies and antibody fragments with similar binding properties for IL-1 beta. U.S.
Patent No. 7,829,093 relates to methods of treating diabetes mellitus (“Type 1”) with gevokizumab or other IL-1 beta antibodies and
fragments having similar binding properties. U.S. Patent No. 7,829,094 relates to methods of treating certain cancers with
gevokizumab or other IL-1 beta antibodies and fragments having similar binding properties, with the cancer being selected from
multiple myeloma, acute myelogenous leukemia and chronic myelogenous leukemia. U.S. Patent No. 7,988,968 relates to methods of
treating certain IL-1 beta related coronary conditions, including myocardial infarction, with gevokizumab or other IL-1 beta antibodies
and fragments having similar binding properties. U.S. Patent No. 8,377,442 relates to methods of treating certain IL-1 beta related
conditions, including inflammatory eye disease or uveitis, with gevokizumab or other IL-1 beta antibodies and fragments having
similar binding properties. U.S. Patent Nos. 8,551,487 and 9,139,646 relate to methods of treating refractory uveitis with IL-1 beta
binding antibodies and binding fragments. Also, patents have been granted by the European Patent Office and certain other countries
for gevokizumab, as well as nucleic acids, expression vectors and production cell lines for the manufacture of gevokizumab.
In October 2015, we announced that we had exclusively licensed the global development and commercialization rights to our
TGF(cid:533) antibody program to Novartis. The licensed intellectual property includes US Patent Nos. 8,569,464 and 9,145,458 covering
XOMA’s lead TGF(cid:533) antibodies and methods of use thereof.
We established a portfolio of patents related to our bacterial expression technology, including claims to methods for expression
and secretion of recombinant proteins from bacteria, including immunoglobulin gene products, and improved methods and cells for
expression of recombinant protein products. We have granted more than 60 licenses to biotechnology and pharmaceutical companies
to use the Company’s patented and proprietary technologies relating to bacterial expression of recombinant pharmaceutical products.
The last-to-expire patent licensed under the majority of these license agreements is Canadian patent 1,341,235, which is expected to
expire in May 2018.
In addition, we have developed a portfolio of patents and applications related to improvements to our bacterial expression
technology, and to our display libraries. U.S. Patent Nos. 7,094,579, 7,396,661, 7,972,811, 7,977,068 and 8,476,040 relate to
particular eukaryotic signal sequences and their use in methods for prokaryotic expression of polypeptides and for preparing
polypeptide display libraries. WO 2012/106615 relates to the use of cytoplasmic fkpA and skp chaperones to enhance recombinant
protein expression in bacteria. U.S. Patent Nos. 8,546,307 and 8,546,308 relate to novel triple tag sequences, phage display antibody
libraries with such sequences, and methods of screening the libraries. WO 2011/038301 relates to novel methods of screening for
kinetic modulating antibodies and WO 2012/092323 relates to display of antibodies or antibody fragments using a PDZ domain
display system.
We also have established a portfolio of patents related to our mammalian expression technology, including U.S. Patent Nos.
7,192,737, 7,993,915, 7,794,976 and 8,497,096, which relate to methods of producing recombinant proteins using particular vectors,
including expression vectors comprising multiple copies of a transcription unit encoding a polypeptide separated by at least one
selective marker gene.
We have been granted patents related to our Targeted Affinity Enhancement (TAE)™ technology, including U.S. Patent No.
9,102,711 and EP 2 242 843 directed to methods of mutating nucleic acids using certain primer sets.
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In November 2013, we were awarded U.S. Patent No. 8,584,349, entitled "Flexible Manufacturing System." This patent is
directed to a flexible system of movable manufacturing bays, adapted to easily and quickly connect to a central supply of utilities such
as air, water, and electricity. This unique arrangement facilitates flexible design and eliminates change-over downtime, which
translates into significantly reduced capital expenditures, production costs, and maintenance costs. The flexible manufacturing system
can be applied to fields as diverse as pharmaceuticals, biologics, and electronics. In October 2014 we announced that the Texas A&M
University System agreed to a non-exclusive license to this technology.
If certain patents issued to others are upheld or if certain patent applications filed by others issue and are upheld, we may require
certain licenses from others in order to develop and commercialize certain potential products incorporating our technology. There can
be no assurance that such licenses, if required, will be available on acceptable terms.
Where appropriate, we also rely on trade secrets to protect aspects of our technology. However, trade secrets are difficult to
protect. We protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants
and collaborators. These parties may breach these agreements, and we may not have adequate remedies for any breach. Our trade
secrets may otherwise become known or be independently discovered by competitors. To the extent that we or our consultants or
collaborators use intellectual property owned by others, we may have disputes with our collaborators or consultants or other third
parties as to the rights in related or resulting know-how and inventions.
Financial Information about Geographic Areas
We believe, because the pharmaceutical industry is global in nature, international activities will be a significant part of our
future business activities, and when and if we are able to generate income, a portion of that income may be derived from product sales
and other activities outside the United States. One of our strategic goals is to establish XOMA as a commercial organization in the
United States.
We have determined that we operate in one business segment as we only report operating results on an aggregate basis to the
chief operating decision maker of the XOMA Corporation. Our property and equipment is held primarily in the United States.
Financial information regarding the geographic areas in which we operate and segment information is included in Note 14 to the
December 31, 2015, Financial Statements: Concentration of Risk, Segment and Geographic Information.
Concentration of Risk
In 2015, Novartis International accounted for 67 percent of our total revenue. NIAID and Servier accounted for 51 percent and
28 percent, respectively, of our total revenue in 2014. Servier, NIAID and Novartis accounted for 43 percent, 26 percent, and 20
percent respectively, of our total revenue in 2013. At December 31, 2015, Five Prime, NIAID, Servier and Centocor accounted for 39
percent, 25 percent, 18 percent and 10 percent, respectively, of the accounts receivable balance. NIAID, Servier and Oncobiologics
accounted for 44 percent, 34 percent and 12 percent, respectively, of our total accounts receivable balance at December 31, 2014.
None of these parties represent a related party to XOMA and the loss of one or more of these customers could have a material effect
on our business and financial condition.
Employees
As of March 7, 2016, we employed 86 full-time employees at our facilities, principally in Berkeley, California, none of whom
are unionized. Our employees primarily are engaged in clinical, process development, research and product development, and in
executive, business development, finance and administrative positions.
Available Information
For information on XOMA’s investment prospects and risks, please contact Investor Relations and Corporate Communications
at (510) 204-7200 or by sending an e-mail message to investorrelations@xoma.com. Our principal executive offices are located at
2910 Seventh Street, Berkeley, California 94710, U.S.A. Our telephone number is (510) 204-7200.
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The following information can be found on our website at http://www.xoma.com or can be obtained free of charge by contacting
our Investor Relations Department:
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Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act will be available as soon as
reasonably practicable after such material is electronically filed or otherwise furnished to the SEC. All reports we file with
the SEC also can be obtained free of charge via EDGAR through the SEC’s website at http://www.sec.gov.
Our policies related to corporate governance, including our Code of Ethics applying to our directors, officers and
employees (including our principal executive officer and principal financial and accounting officer) that we have adopted
to meet the requirements set forth in the rules and regulations of the SEC and its corporate governance principles, are
available.
The charters of the Audit, Compensation and Nominating & Governance Committees of our Board of Directors are
available.
We intend to satisfy the applicable disclosure requirements regarding amendments to, or waivers from, provisions of our Code
of Ethics by posting such information on our website.
Item 1A. Risk Factors
The following risk factors and other information included in this annual report should be carefully considered. The risks and
uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us also may
impair our business operations. If any of the following risks occur, our business, financial condition, operating results and cash flows
could be materially adversely affected.
Risks Related to our Financial Results and Capital Requirements
We have sustained losses in the past, and we expect to sustain losses in the foreseeable future.
We have been and are developing numerous product candidates, and as a result have experienced significant losses. As of
December 31, 2015, we had an accumulated deficit of $1.1 billion.
For the year ended December 31, 2015, we had a net loss of approximately $20.6 million and for the year ended December 31,
2014, we had a net loss of approximately $38.3 million.
Our ability to achieve profitability is dependent in large part on the success of our development programs, obtaining regulatory
approval for our product candidates and licensing certain of our preclinical compounds, all of which are uncertain. Our product
candidates are still being developed, and we do not know whether we will ever achieve sustained profitability or whether cash flow
from future operations will be sufficient to meet our needs.
We have devoted most of our financial resources to research and development, including our non-clinical development activities
and clinical trials. Our product candidates are still being developed, and we do not know whether we will ever achieve sustained
profitability or whether cash flow from future operations will be sufficient to meet our needs. To date, we have financed our
operations primarily through the sale of equity securities and debt, and collaboration and licensing arrangements. The size of our
future net losses will depend, in part, on the rate of future expenditures and our ability to generate revenues. We expect to continue to
incur substantial expenses as we continue our research and development activities for our product candidates. If our product
candidates are not successfully developed or commercialized, or if revenues are insufficient following marketing approval, we will not
achieve profitability and our business may fail. Our ability to achieve profitability is dependent in large part on the success of our
development programs, obtaining regulatory approval for our product candidates and licensing certain of our preclinical compounds,
all of which are uncertain. Our success is also dependent on obtaining regulatory approval to market our product candidates through
current and future collaborations, which may not materialize or prove to be successful.
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Because our product candidates are still being developed, we will require substantial funds to continue; we cannot be certain that
funds will be available, and if they are not available, we may be forced to delay, reduce, or eliminate our product development
programs or to take actions that could adversely affect an investment in our common stock and we may not be able to continue
operations.
We will need to commit substantial funds to continue development of our product candidates, and we may not be able to obtain
sufficient funds on acceptable terms, or at all. Any additional debt financing or additional equity that we raise may contain terms that
are not favorable to our stockholders or us. If we raise additional funds through collaboration and licensing arrangements with third
parties, we may be required to relinquish some rights to our technologies or our product candidates, grant licenses on terms that are
not favorable to us or enter into a collaboration arrangement for a product candidate at an earlier stage of development or for a lesser
amount than we might otherwise choose.
Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not
available on a timely basis, we may:
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terminate or delay clinical trials for one or more of our product candidates; reduce or eliminate certain product
development efforts or commercialization efforts;
further reduce our headcount and capital or operating expenditures; or
curtail our spending on protecting our intellectual property.
We finance our operations primarily through our multiple revenue streams resulting from discovery and development
collaborations, the licensing of our antibody technologies, debt and through sales of our common stock.
Based on our cash, cash equivalents and marketable securities of $66.3 million at December 31, 2015, anticipated spending
levels, anticipated cash inflows from collaborations, licensing transactions, funding availability included under our loan agreements,
and other sources of funding that we believe to be available, we anticipate that we will have adequate capital to fund operations
through at least December 31, 2016. Any significant revenue shortfalls, increases in planned spending on development programs,
more rapid progress of development programs than anticipated, or the initiation of new clinical trials, as well as the unavailability of
anticipated sources of funding, could shorten this period or otherwise have a material adverse impact on our ability to finance our
continued operations. Progress or setbacks by potentially competing products also may affect our ability to raise new funding on
acceptable terms.
We do not know when or whether:
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operations will generate meaningful funds;
additional agreements for product development funding can be reached;
strategic alliances can be negotiated; or
adequate additional financing will be available for us to finance our own development on acceptable terms, or at all.
If adequate funds are not available, we will be required to delay, reduce the scope of, or eliminate one or more of our product
development programs and further reduce personnel-related costs.
We may not realize the expected benefits of our cost-saving initiatives.
Reducing costs is a key element of our current business strategy. On August 21, 2015, we, in connection with our efforts to
lower operating expenses and preserve capital while continuing to focus on our product pipeline, implemented a workforce reduction,
which led to the termination of 38 employees and the elimination of 20 open positions. We terminated an additional five employees
on September 29, 2015 and an additional nine employees on October 20, 2015.
We recorded an aggregate restructuring charge of approximately $2.9 million related to severance, other termination benefits
and outplacement services in connection with the workforce reduction. In addition, we recognized an additional restructuring charge
of $0.8 million in total contract termination costs in the second half of 2015, which primarily include costs in connection with the
discontinuation of the EYEGUARD studies.
If we experience excessive unanticipated inefficiencies or incremental costs in connection with restructuring activities, such as
unanticipated inefficiencies caused by reducing headcount, we may be unable to meaningfully realize cost savings and we may incur
expenses in excess of what we anticipate. Either of these outcomes could prevent us from meeting our strategic objectives and could
adversely impact our results of operations and financial condition.
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We are subject to foreign currency exchange rate risks.
We are subject to foreign currency exchange rate risks because substantially all of our revenues and operating expenses are paid
in U.S. Dollars, but we incur certain expenses, as well as interest and principal obligations with respect to our loan from Servier in
Euros. To the extent the U.S. Dollar declines in value against the Euro, the effective cost of servicing our Euro-denominated debt will
be higher. Changes in the exchange rate result in foreign currency gains or losses. There can be no assurance foreign currency
fluctuations will not have a material adverse effect on our business, financial condition, liquidity or results of operations.
Our ability to use our net operating loss carry-forwards and other tax attributes will be substantially limited by Section 382 of the
U.S. Internal Revenue Code.
Section 382 of the U.S. Internal Revenue Code of 1986, as amended, generally limits the ability of a corporation that undergoes
an “ownership change” to utilize its net operating loss carry-forwards (“NOLs”) and certain other tax attributes against any taxable
income in taxable periods after the ownership change. The amount of taxable income in each taxable year after the ownership change
that may be offset by pre-change NOLs and certain other pre-change tax attributes is generally equal to the product of (a) the fair
market value of the corporation’s outstanding shares (or, in the case of a foreign corporation, the fair market value of items treated as
connected with the conduct of a trade or business in the United States) immediately prior to the ownership change and (b) the long-
term tax exempt rate (i.e., a rate of interest established by the U.S. Internal Revenue Service (“IRS”) that fluctuates from month to
month). In general, an “ownership change” occurs whenever the percentage of the shares of a corporation owned, directly or
indirectly, by “5-percent shareholders” (within the meaning of Section 382 of the Internal Revenue Code) increases by more than 50
percentage points over the lowest percentage of the shares of such corporation owned, directly or indirectly, by such “5-percent
shareholders” at any time over the preceding three years.
Based on an analysis under Section 382 of the Internal Revenue Code (which subjects the amount of pre-change NOLs and
certain other pre-change tax attributes that can be utilized to an annual limitation), we experienced ownership changes in 2009 and
2012, which substantially limit the future use of our pre-change NOLs and certain other pre-change tax attributes per year. As of
December 31, 2015, we have excluded the NOLs and research and development credits that will expire as a result of the annual
limitations. To the extent that we do not utilize our carry-forwards within the applicable statutory carry-forward periods, either
because of Section 382 limitations or the lack of sufficient taxable income, the carry-forwards will also expire unused. As a result of
changes in our stockholder base during the third quarter of 2015, based on an initial analysis of available data, we concluded that an
ownership change under Section 382 has not occurred beyond the ownership changes in 2009 and 2012. Accordingly, our utilization
of the 2012 post-change net operating loss and credit carry-forwards should not be limited.
Risks Related to the Development and Commercialization of our Current and Future Product Candidates
If our therapeutic product candidates do not receive regulatory approval, we will be unable to market them.
Our product candidates (including XOMA 358) cannot be manufactured and marketed in the United States or any other
countries without required regulatory approvals. The U.S. government and governments of other countries extensively regulate many
aspects of our product candidates, including:
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clinical development and testing;
manufacturing;
labeling;
storage;
record keeping;
promotion and marketing; and
importing and exporting.
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In the United States, the Food and Drug Administration (“FDA”) regulates pharmaceutical products under the Federal Food,
Drug, and Cosmetic Act and other laws, including, in the case of biologics, the Public Health Service Act. At the present time, we
believe many of our product candidates (including XOMA 358) will be regulated by the FDA as biologics. Initiation of clinical trials
requires approval by health authorities. Clinical trials involve the administration of the investigational new drug to healthy volunteers
or to patients under the supervision of a qualified principal investigator. Clinical trials must be conducted in accordance with FDA and
International Conference on Harmonization Good Clinical Practices and the European Clinical Trials Directive, as applicable, under
protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated.
Other national, foreign and local regulations also may apply. The developer of the drug must provide information relating to the
characterization and controls of the product before administration to the patients participating in the clinical trials. This requires
developing approved assays of the product to test before administration to the patient and during the conduct of the trial. In addition,
developers of pharmaceutical products must provide periodic data regarding clinical trials to the FDA and other health authorities, and
these health authorities may issue a clinical hold upon a trial if they do not believe, or cannot confirm, that the trial can be conducted
without unreasonable risk to the trial participants. Based on our interactions with the FDA, XOMA 358 clinical testing is currently
limited to single-dose studies in adults. Data has been generated which will be submitted to request expanded testing as part of our
clinical development plan. We cannot assure you that U.S. and foreign health authorities will not issue a clinical hold with respect to
any of our clinical trials in the future.
The results of the preclinical studies and clinical testing, together with chemistry, manufacturing and controls information, are
submitted to the FDA and other health authorities in the form of a New Drug Application (“NDA”) for a drug, and in the form of a
Biologic License Application (“BLA”) for a biological product, requesting approval to commence commercial sales. In responding to
an NDA or BLA, the FDA or foreign health authorities may grant marketing approvals, request additional information or further
research, or deny the application if it determines the application does not satisfy its regulatory approval criteria. Regulatory approval
of an NDA, BLA, or supplement is never guaranteed. The approval process can take several years, is extremely expensive and can
vary substantially based upon the type, complexity, and novelty of the products involved, as well as the target indications. FDA
regulations and policies permit applicants to request accelerated approval or priority review pathways for products intended to treat
certain serious or life-threatening illnesses in certain circumstances. If granted by the FDA, these pathways can provide a shortened
timeline to commercialize the product, although the shortened timeline is often accompanied by additional post-market requirements.
Although we may pursue the FDA’s accelerated approval or priority review programs, we cannot guarantee the FDA will permit us to
utilize these pathways or the FDA’s review of our application will not be delayed. Moreover, even if the FDA agrees to an accelerated
approval or priority review of any of our applications, we ultimately may not be able to obtain approval of our application in a timely
fashion or at all. The FDA and foreign health authorities have substantial discretion in the drug and biologics approval processes.
Despite the time and expense incurred, failure can occur at any stage, and we could encounter problems that cause us to abandon
clinical trials or to repeat or perform additional preclinical, clinical or manufacturing-related studies.
Changes in the regulatory approval policy during the development period, changes in, or the enactment of additional regulations
or statutes, or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an
application. State regulations may also affect our proposed products.
The FDA and other regulatory agencies have substantial discretion in both the product approval process and manufacturing
facility approval process, and as a result of this discretion and uncertainties about outcomes of testing, we cannot predict at what point,
or whether, the FDA or other regulatory agencies will be satisfied with our or our collaborators’ submissions or whether the FDA or
other regulatory agencies will raise questions that may be material and delay or preclude product approval or manufacturing facility
approval. In light of this discretion and the complexities of the scientific, medical and regulatory environment, our interpretation or
understanding of the FDA’s or other regulatory agencies’ requirements, guidelines or expectations may prove incorrect, which also
could delay further or increase the cost of the approval process. As we accumulate additional clinical data, we will submit it to the
FDA and other regulatory agencies, as appropriate, and such data may have a material impact on the approval process.
Given that regulatory review is an interactive and continuous process, we maintain a policy of limiting announcements and
comments upon the specific details of regulatory review of our product candidates, subject to our obligations under the securities laws,
until definitive action is taken.
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We have received negative results from certain of our clinical trials, and we face uncertain results of other clinical trials of our
product candidates.
Drug development has inherent risk, and we are required to demonstrate through adequate and well-controlled clinical trials that
our product candidates are effective, with a favorable benefit-risk profile for use in their target profiles before we can seek regulatory
approvals for their commercial use. It is possible we may never receive regulatory approval for any of our product candidates. Even if
a product candidate receives regulatory approval, the resulting product may not gain market acceptance among physicians, patients,
healthcare payors and the medical community. In March 2011, we announced our 421-patient Phase 2b trial of gevokizumab in Type 2
diabetes did not achieve the primary endpoint of reduction in hemoglobin A1c (“HbA1c”) after six monthly treatments with
gevokizumab compared to placebo. In June 2011, we announced top-line trial results from our six-month 74-patient Phase 2a trial of
gevokizumab in Type 2 diabetes, and there were no differences in glycemic control between the drug and placebo groups as measured
by HbA1c levels. In March 2014, we reported that despite early positive results in our gevokizumab proof-of-concept study in patients
with erosive osteoarthritis of the hand (“EOA”) and elevated C-reactive protein, the top-line data at Day 168 in that study, as well as
data at Day 84 in patients with EOA and non-elevated CRP, were not positive. In July 2015, we announced that Servier’s
EYEGUARD-B Phase 3 study of gevokizumab in patients with Behçet’s disease uveitis did not meet its primary endpoint. In
addition, neither EYEGUARD-A nor EYEGUARD-C produced positive results. In March 2016, we decided to close our Phase 3
studies of gevokizumab in pyoderma gangrenosum. A preliminary review of the available data did not show a clear signal of activity
in PG.
Many of our product candidates, including XOMA 358, require significant additional research and development, extensive
preclinical studies and clinical trials and regulatory approval prior to any commercial sales. This process is lengthy and expensive,
often taking a number of years. As clinical results frequently are susceptible to varying interpretations that may delay, limit or prevent
regulatory approvals, the length of time necessary to complete clinical trials and to submit an application for marketing approval for a
final decision by a regulatory authority varies significantly. As a result, it is uncertain whether:
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our future filings will be delayed;
our preclinical and clinical studies will be successful;
we will be successful in generating viable product candidates;
we will be able to provide necessary data;
results of future clinical trials will justify further development; or
we ultimately will achieve regulatory approval for our product candidates.
The timing of the commencement, continuation and completion of clinical trials may be subject to significant delays relating to
various causes, including failure to complete preclinical testing and earlier-stage clinical trials in a timely manner, engaging contract
research organizations and other service providers, scheduling conflicts with participating clinicians and clinical institutions,
difficulties in identifying and enrolling patients who meet trial eligibility criteria and shortages of available drug supply. Patient
enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the
eligibility criteria for the trial, the existence of competing clinical trials and the availability of alternative or new treatments.
Regardless of the initial size or relative complexity of a clinical trial, the costs of such trial may be higher than expected due to
increases in duration or size of the trial, changes in the protocol pursuant to which the trial is being conducted, additional or special
requirements of one or more of the healthcare centers where the trial is being conducted, or changes in the regulatory requirements
applicable to the trial or in the standards or guidelines for approval of the product candidate being tested or for other unforeseen
reasons. In addition, we conduct clinical trials in foreign countries, which may subject us to further delays and expenses as a result of
increased drug shipment costs, additional regulatory requirements and the engagement of foreign clinical research organizations, and
may expose us to risks associated with foreign currency transactions insofar as we might desire to use U.S. Dollars to make contract
payments denominated in the foreign currency where the trial is being conducted.
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All of our product candidates are prone to the risks of failure inherent in drug development. Preclinical studies may not yield
results that satisfactorily support the filing of an Investigational New Drug application (“IND”) (or a foreign equivalent) with respect
to our product candidates. Even if these applications would be or have been filed with respect to our product candidates, the results of
preclinical studies do not necessarily predict the results of clinical trials. Similarly, early stage clinical trials in healthy volunteers do
not predict the results of later-stage clinical trials, including the safety and efficacy profiles of any particular product candidates. For
example, the Phase 3 EYEGUARD-B trial of gevokizumab failed to achieve success on its primary endpoint measures. In addition,
there can be no assurance the design of our clinical trials is focused on appropriate indications, patient populations, dosing regimens or
other variables that will result in obtaining the desired efficacy data to support regulatory approval to commercialize the drug.
Moreover, FDA officials or foreign regulatory agency officials may question the integrity of our data or otherwise subject our clinical
trials to additional scrutiny when the clinical trials are conducted by principal investigators who serve, or previously served, as
scientific advisors or consultants to us and receive cash compensation in connection with such services. Preclinical and clinical data
can also be interpreted in different ways. Accordingly, FDA officials or officials from foreign regulatory authorities could interpret the
data differently than we or our collaboration or development partners do, which could delay, limit or prevent regulatory approval.
Administering any of our products or potential products may produce undesirable side effects, also known as adverse effects.
Toxicities and adverse effects that we have observed in preclinical studies for some compounds in a particular research and
development program may occur in preclinical studies or clinical trials of other compounds from the same program. Such toxicities or
adverse effects could delay or prevent the filing of an IND (or a foreign equivalent) with respect to such products or potential products
or cause us to cease clinical trials with respect to any drug candidate. In clinical trials, administering any of our products or product
candidates to humans may produce adverse effects. These adverse effects could interrupt, delay or halt clinical trials of our products
and product candidates and could result in the FDA or other regulatory authorities denying approval of our products or product
candidates for any or all targeted indications. The FDA, other regulatory authorities, our collaboration or development partners or we
may suspend or terminate clinical trials at any time. Even if one or more of our product candidates were approved for sale, the
occurrence of even a limited number of toxicities or adverse effects when used in large populations may cause the FDA or other
regulatory authorities to impose restrictions on, or stop, the further marketing of such drugs. Indications of potential adverse effects or
toxicities that may occur in clinical trials and that we believe are not significant during the course of such clinical trials may actually
turn out later to constitute serious adverse effects or toxicities when a drug has been used in large populations or for extended periods
of time. Any failure or significant delay in completing preclinical studies or clinical trials for our product candidates, or in receiving
and maintaining regulatory approval for the sale of any drugs resulting from our product candidates, may severely harm our reputation
and business.
Products and technologies of other companies may render some or all of our products and product candidates noncompetitive or
obsolete.
Developments by others may render our products, product candidates, or technologies obsolete or uncompetitive. Technologies
developed and utilized by the biotechnology and pharmaceutical industries are changing continuously and substantially. Competition
in antibody-based technologies is intense and is expected to increase in the future as a number of established biotechnology firms and
large chemical and pharmaceutical companies advance in these fields. Many of these competitors may be able to develop products and
processes competitive with or superior to our own for many reasons, including that they may have:
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significantly greater financial resources;
larger research and development and marketing staffs;
larger production facilities;
entered into arrangements with, or acquired, biotechnology companies to enhance their capabilities; or
extensive experience in preclinical testing and human clinical trials.
These factors may enable others to develop products and processes competitive with or superior to our own or those of our
collaborators. In addition, a significant amount of research in biotechnology is being carried out in universities and other non-profit
research organizations. These entities are becoming increasingly interested in the commercial value of their work and may become
more aggressive in seeking patent protection and licensing arrangements. Furthermore, many companies and universities tend not to
announce or disclose important discoveries or development programs until their patent position is secure or, for other reasons, later; as
a result, we may not be able to track development of competitive products, particularly at the early stages. Positive or negative
developments in connection with a potentially competing product may have an adverse impact on our ability to raise additional
funding on acceptable terms. For example, if another product is perceived to have a competitive advantage, or another product’s
failure is perceived to increase the likelihood that our product will fail, then investors may choose not to invest in us on terms we
would accept or at all.
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The examples below pertain to competitive events in the market, but are not intended to be representative of all existing
competitive events.
We are developing XOMA 358, a fully human negative allosteric modulating insulin receptor antibody, as a novel treatment for
non-drug-induced, endogenous hyperinsulinemic hypoglycemia (low blood glucose caused by excessive insulin produced by the
body). Certain other companies are developing products based on improved versions of glucagon, a hormone naturally secreted by the
pancreas that counteracts the effects of insulin by raising blood glucose levels.
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Biodel Inc. is developing a formulation of glucagon designed to remain stable in solution for a longer period than existing
commercial formulations. FDA has granted orphan drug designation for Biodel's glucagon for the prevention of
hypoglycemia in the CHI population
S-cubed Limited is developing a synthetic form of glucagon. It is expected to be given under the skin using a special
infusion pump. The European Medicines Agency (“EMA”) has granted orphan drug designation for S-cubed glucagon for
the treatment of CHI patients.
Xeris Pharmaceuticals is developing a soluble glucagon. The FDA and EMA have granted orphan drug designation for
Xeris' soluble glucagon for the prevention of severe, persistent hypoglycemia in patients with CHI.
We may be unable to price our products effectively or obtain adequate reimbursement for sales of our products, which would
prevent our products from becoming profitable.
If we or our third-party collaborators or licensees succeed in bringing our product candidates to the market, they may not be
considered cost effective, and reimbursement to the patient may not be available or may not be sufficient to allow us to sell our
products on a competitive basis. In both the United States and elsewhere, sales of medical products and treatments are dependent, in
part, on the availability of reimbursement to the patient from third-party payors, such as government and private insurance plans.
Third-party payors are increasingly challenging the prices charged for pharmaceutical products and services. Our business is affected
by the efforts of government and third-party payors to contain or reduce the cost of healthcare through various means. In the United
States, there have been and will continue to be a number of federal and state proposals to implement government controls on pricing.
In addition, the emphasis on managed care in the United States has increased and will continue to increase the pressure on the
pricing of pharmaceutical products. We cannot predict whether any legislative or regulatory proposals will be adopted or the effect
these proposals or managed care efforts may have on our business.
We do not know whether there will be, or will continue to be, a viable market for the products in which we have an ownership or
royalty interest.
Even if products in which we have an interest receive approval in the future, they may not be accepted in the marketplace. In
addition, we or our collaborators or licensees may experience difficulties in launching new products, many of which are novel and
based on technologies that are unfamiliar to the healthcare community. We have no assurance healthcare providers and patients will
accept such products, if developed. For example, physicians and/or patients may not accept a product for a particular indication
because it has been biologically derived (and not discovered and developed by more traditional means) or if no biologically derived
products are currently in widespread use in that indication. Similarly, physicians may not accept a product if they believe other
products to be more effective or more cost effective or are more comfortable prescribing other products.
Furthermore, government agencies, as well as private organizations involved in healthcare, from time to time publish guidelines
or recommendations to healthcare providers and patients. Such guidelines or recommendations can be very influential and may
adversely affect product usage directly (for example, by recommending a decreased dosage of a product in conjunction with a
concomitant therapy or a government entity withdrawing its recommendation to screen blood donations for certain viruses) or
indirectly (for example, by recommending a competitive product over our product). Consequently, we do not know if physicians or
patients will adopt or use our products for their approved indications.
Even approved and marketed products are subject to risks relating to changes in the market for such products. Introduction or
increased availability of generic versions of products can alter the market acceptance of branded products. In addition, unforeseen
safety issues may arise at any time, regardless of the length of time a product has been on the market.
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We are exposed to an increased risk of product liability claims.
The testing, marketing and sales of medical products entails an inherent risk of allegations of product liability. In the past, we
were party to product liability claims filed against Genentech Inc. and, even though Genentech agreed to indemnify us in connection
with these matters and these matters have been settled, there can be no assurance other product liability lawsuits will not result in
liability to us or that our insurance or contractual arrangements will provide us with adequate protection against such liabilities. In the
event of one or more large, unforeseen awards of damages against us, our product liability insurance may not provide adequate
coverage. A significant product liability claim for which we were not covered by insurance or indemnified by a third party would have
to be paid from cash or other assets, which could have an adverse effect on our business and the value of our common stock. To the
extent we have sufficient insurance coverage, such a claim would result in higher subsequent insurance rates. In addition, product
liability claims can have various other ramifications, including loss of future sales opportunities, increased costs associated with
replacing products, a negative impact on our goodwill and reputation, and divert our management’s attention from our business, each
of which could also adversely affect our business and operating results.
If we and our partners are unable to protect our intellectual property, in particular our patent protection for our principal
products, product candidates and processes, and prevent its use of the covered subject matter by third parties, our ability to compete
in the market will be harmed, and we may not realize our profit potential.
We rely on patent protection, as well as a combination of copyright, trade secret, and trademark laws to protect our proprietary
technology and prevent others from duplicating our products or product candidates. However, these means may afford only limited
protection and may not:
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prevent our competitors from duplicating our products;
prevent our competitors from gaining access to our proprietary information and technology; or
permit us to gain or maintain a competitive advantage.
Because of the length of time and the expense associated with bringing new products to the marketplace, we and our
collaboration and development partners hold and are in the process of applying for a number of patents in the United States and abroad
to protect our product candidates and important processes and also have obtained or have the right to obtain exclusive licenses to
certain patents and applications filed by others. However, the mere issuance of a patent is not conclusive as to its validity or its
enforceability. The U.S. Federal Courts, the U.S. Patent & Trademark Office or equivalent national courts or patent offices elsewhere
may invalidate our patents or find them unenforceable. The America Invents Act introduced post-grant review procedures subjecting
U.S. patents to post-grant review procedures similar to European oppositions. U.S. patents owned or licensed by us may therefore be
subject to post-grant review procedures, as well as other forms of review and re-examination. A decision in such proceedings adverse
to our interests could result in the loss of valuable patent rights which would have a material adverse effect on our business. In
addition, the laws of foreign countries may not protect our intellectual property rights effectively or to the same extent as the laws of
the United States. If our intellectual property rights are not protected adequately, we may not be able to commercialize our
technologies, products, or services, and our competitors could commercialize our technologies, which could result in a decrease in our
sales and market share that would harm our business and operating results. Specifically, the patent position of biotechnology
companies generally is highly uncertain and involves complex legal and factual questions. The legal standards governing the validity
of biotechnology patents are in transition, and current defenses as to issued biotechnology patents may not be adequate in the future.
Accordingly, there is uncertainty as to:
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whether any pending or future patent applications held by us will result in an issued patent, or whether issued patents will
provide meaningful protection against competitors or competitive technologies;
whether competitors will be able to design around our patents or develop and obtain patent protection for technologies,
designs or methods that are more effective than those covered by our patents and patent applications; or
the extent to which our product candidates could infringe on the intellectual property rights of others, which may lead to
costly litigation, result in the payment of substantial damages or royalties, and/or prevent us from using technology that is
essential to our business.
We established a portfolio of patents, both United States and foreign, related to our bacterial cell expression technology,
including claims to novel promoter sequences, secretion signal sequences, compositions and methods for expression and secretion of
recombinant proteins from bacteria, including immunoglobulin gene products. Most of the more important licensed European patents
in our bacterial cell expression patent portfolio expired in July 2008 or earlier. The last of the more important licensed United States
patents in our bacterial cell expression (“BCE”) patent portfolio expired in December 2014. The last-to-expire patent licensed under
the majority of our BCE license agreements is Canadian patent 1,341,235, which is expected to expire in May 2018.
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If certain patents issued to others are upheld or if certain patent applications filed by others issue and are upheld, we may require
licenses from others to develop and commercialize certain potential products incorporating our technology or we may become
involved in litigation to determine the proprietary rights of others. These licenses, if required, may not be available on acceptable
terms, and any such litigation may be costly and may have other adverse effects on our business, such as inhibiting our ability to
compete in the marketplace and absorbing significant management time.
Due to the uncertainties regarding biotechnology patents, we also have relied and will continue to rely upon trade secrets, know-
how and continuing technological advancement to develop and maintain our competitive position. All of our employees have signed
confidentiality agreements under which they have agreed not to use or disclose any of our proprietary information. Research and
development contracts and relationships between us and our scientific consultants and potential customers provide access to aspects of
our know-how that are protected generally under confidentiality agreements. These confidentiality agreements may be breached or
may not be enforced by a court. To the extent proprietary information is divulged to competitors or to the public generally, such
disclosure may affect our ability to develop or commercialize our products adversely by giving others a competitive advantage or by
undermining our patent position.
Litigation regarding intellectual property can be costly and expose us to risks of counterclaims against us.
We may be required to engage in litigation or other proceedings to protect our intellectual property. The cost to us of this
litigation, even if resolved in our favor, could be substantial. Such litigation also could divert management’s attention and resources.
In addition, if this litigation is resolved against us, our patents may be declared invalid, and we could be held liable for significant
damages. In addition, we may be subject to a claim that we are infringing another party’s patent. If such claim is resolved against us,
we or our collaborators may be enjoined from developing, manufacturing, selling or importing products, processes or services unless
we obtain a license from the other party.
Such license may not be available on reasonable terms, thus preventing us from using these products, processes or services and
adversely affecting our revenue.
Risks Related to Government Regulation
We may not obtain orphan drug exclusivity, or we may not receive the full benefit of orphan drug exclusivity even if we obtain
such exclusivity.
The FDA has awarded orphan drug status for XOMA 358 for congenital hyperinsulinism. Under the Orphan Drug Act, the first
company to receive FDA approval for a drug for the designated orphan drug indication will obtain seven years of marketing
exclusivity, during which time the FDA may not approve another company’s application for the same drug for the same orphan
indication unless the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. Even
though we have obtained orphan drug designation for certain product candidates for certain indications and even if we obtain orphan
drug designation for our future product candidates or for other indications, due to the uncertainties associated with developing
pharmaceutical products, we may not be the first to obtain marketing approval of our product candidates for any particular orphan
indication, or we may not obtain approval for an indication for which we have obtained orphan drug designation. Further, even if we
obtain orphan drug exclusivity for a product, that exclusivity may not protect the product effectively from competition because
different drugs can be approved for the same indication. Even after an orphan drug is approved, the FDA can subsequently approve
another drug for the same orphan indication if the FDA concludes that the later drug is safer, more effective or makes a major
contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug, nor
gives the drug any advantage in the regulatory review or approval process.
Even after FDA approval, a product may be subject to additional testing or significant marketing restrictions, its approval may be
withdrawn or it may be removed voluntarily from the market.
Even if we receive regulatory approval for our product candidates, we will be subject to ongoing regulatory oversight and
review by the FDA and other regulatory entities. The FDA, the EMA, or another regulatory agency may impose, as a condition of the
approval, ongoing requirements for post-approval studies or post-approval obligations, including additional research and development
and clinical trials, and the FDA, EMA or other regulatory agency subsequently may withdraw approval based on these additional
trials.
Even for approved products, the FDA, EMA or other regulatory agency may impose significant restrictions on the indicated
uses, conditions for use, labeling, advertising, promotion, marketing and/or production of such product. In addition, the labeling,
packaging, adverse event reporting, storage, advertising, promotion and record-keeping for our products are subject to extensive
regulatory requirements.
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Furthermore, marketing approval of a product may be withdrawn by the FDA, the EMA or another regulatory agency or such a
product may be withdrawn voluntarily by the company marketing it based, for example, on subsequently arising safety concerns. The
FDA, EMA and other agencies also may impose various civil or criminal sanctions for failure to comply with regulatory requirements,
including withdrawal of product approval.
Healthcare reform measures and other statutory or regulatory changes could adversely affect our business.
The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory
proposals to change the healthcare system in ways that could affect our ability to sell our products, if approved, profitably. Among
policy makers and payers in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems
with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the
pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.
We expect that the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation
Act (collectively the “ACA”), as well as other healthcare reform measures that may be adopted in the future, may result in more
rigorous coverage criteria and in additional downward pressure on the price that we may receive for any approved product. An
expansion in the government’s role in the U.S. healthcare industry may cause general downward pressure on the prices of prescription
drug products, lower reimbursements for providers, reduce product utilization and adversely affect our business and results of
operations. Moreover, certain politicians, including presidential candidates, have announced plans to regulate the prices of
pharmaceutical products. We cannot know what form any such legislation may take or the market’s perception of how such legislation
would affect us. Any reduction in reimbursement from government programs may result in a similar reduction in payments from
private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to
generate revenue, attain profitability, or commercialize our current product candidates and/or those for which we may receive
regulatory approval in the future.
We are subject to various state and federal healthcare related laws and regulations that may impact the commercialization of our
product candidates or could subject us to significant fines and penalties.
Our operations may be directly or indirectly subject to various state and federal healthcare laws, including, without limitation,
the federal Anti-Kickback Statute, the federal False Claims Act and state and federal privacy and security laws. These laws may
impact, among other things, the commercial operations for any of our product candidates that may be approved for commercial sale.
The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing
remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for
a good or service for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs.
Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving
remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. The Anti-Kickback Statute is
broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Penalties for
violations of the federal Anti-Kickback Statute include criminal penalties and civil sanctions such as fines, penalties, imprisonment
and possible exclusion from Medicare, Medicaid and other federal healthcare programs.
The federal False Claims Act prohibits persons from knowingly filing, or causing to be filed, a false claim to, or the knowing
use of false statements to obtain payment from the federal government. Suits filed under the False Claims Act, known as “qui tam”
actions, can be brought by any individual on behalf of the government and such individuals, commonly known as “whistleblowers”,
may share in any amounts paid by the entity to the government in fines or settlement. The filing of qui tam actions has caused a
number of pharmaceutical, medical device and other healthcare companies to have to defend a False Claims Act action. When an
entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by
the government, plus civil penalties for each separate false claim. Various states also have enacted laws modeled after the federal
False Claims Act.
The Federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), created new federal criminal statutes that
prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters. The
health care fraud statute prohibits knowingly and willfully executing a scheme to defraud any health care benefit program, including
private payors. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or
making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits,
items or services. HIPAA, as amended by the Health Information Technology and Clinical Health Act (“HITECH”), and its
implementing regulations, also impose certain requirements relating to the privacy, security and transmission of individually
identifiable health information. We take our obligation to maintain our compliance with these various laws and regulations seriously.
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In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians. The ACA,
among other things, imposed new requirements on manufacturers of drugs, devices, biologics and medical supplies for which payment
is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the
Centers for Medicare & Medicaid Services (“CMS”), information related to payments or other “transfers of value” made to physicians
(defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and applicable manufacturers
and group purchasing organizations to report annually to CMS ownership and investment interests held by physicians (as defined
above) and their immediate family members and payments or other “transfers of value” to such physician owners and their immediate
family members. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per
year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or
investment interests not reported in an annual submission.
Many states also have adopted laws similar to each of the federal laws described above, some of which apply to healthcare items
or services reimbursed by any source, not only the Medicare and Medicaid programs. In addition, some states have laws that require
pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable
compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers
and other potential referral sources, and to report information related to payments and other transfers of value to physicians and other
healthcare providers; and state laws governing the privacy and security of health information in certain circumstances, many of which
differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Because of the breadth of these laws, it is possible that some of our business activities could be subject to challenge under one or
more of such laws. The ACA also make several important changes to the federal Anti-Kickback Statute, false claims laws, and health
care fraud statute by weakening the intent requirement under the anti-kickback and health care fraud statutes that may make it easier
for the government, or whistleblowers to charge such fraud and abuse violations. A person or entity no longer needs to have actual
knowledge of this statute or specific intent to violate it. In addition, the ACA provides that the government may assert that a claim
including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for
purposes of the false claims statutes.
If we are found to be in violation of any of the laws and regulations described above or other applicable state and federal
healthcare laws, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from government
healthcare reimbursement programs and the curtailment or restructuring of our operations, any of which could have a material adverse
effect on our business and results of operations.
As we do more business internationally, we will be subject to additional political, economic and regulatory uncertainties.
We may not be able to operate successfully in any foreign market. We believe that because the pharmaceutical industry is global
in nature, international activities will be a significant part of our future business activities and when and if we are able to generate
income, a substantial portion of that income will be derived from product sales and other activities outside the United States. Foreign
regulatory agencies often establish standards different from those in the United States, and an inability to obtain foreign regulatory
approvals on a timely basis could put us at a competitive disadvantage or make it uneconomical to proceed with a product or product
candidate’s development. International sales may be limited or disrupted by:
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imposition of government controls;
export license requirements;
political or economic instability;
trade restrictions;
changes in tariffs;
restrictions on repatriating profits;
exchange rate fluctuations; and
withholding and other taxation.
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Risks Related to Our Reliance on Third Parties
We rely on third parties to provide services in connection with our product candidate development and manufacturing programs.
The inadequate performance by or loss of any of these service providers could affect our product candidate development.
Several third parties provide services in connection with our preclinical and clinical development programs, including in vitro
and in vivo studies, assay and reagent development, immunohistochemistry, toxicology, pharmacokinetics, clinical trial support,
manufacturing and other outsourced activities. If these service providers do not adequately perform the services for which we have
contracted or cease to continue operations and we are not able to find a replacement provider quickly or we lose information or items
associated with our product candidates, our development programs may be delayed.
Our agreements with other third parties, many of which are significant to our business, expose us to numerous risks.
Our financial resources and our marketing experience and expertise are limited. Consequently, our ability to develop products
successfully depends, to a large extent, upon securing the financial resources and/or marketing capabilities of third parties. For
example, we have licensed our bacterial cell expression technology, a set of enabling technologies used to discover and screen, as well
as develop and manufacture, recombinant antibodies and other proteins for commercial purposes, to over 60 companies. As of March
7, 2016, we were aware of three products manufactured using this technology that have received FDA approval: Genentech’s
LUCENTIS® (ranibizumab injection) for treatment of neovascular wet age-related macular degeneration, Macular Edema Following
Vein Occulsion, Diabetic Macular Edema, and Diabetic Retinopathy in patients with Diabetic Macular Edema; UCB’s CIMZIA®
(certolizumab pegol) for treatment of Crohn’s disease and rheumatoid arthritis; and Pfizer’s TRUMENBA®, a meningococcal group
B vaccine. In the third quarter of 2009, we sold our LUCENTIS royalty interest to Genentech, andin the third quarter of 2010, we sold
our CIMZIA royalty interest. We are receiving a fraction of a percentage royalty on sales of TRUMENBA.
Because our collaborators, licensees, suppliers and contractors are independent third parties, they may be subject to different
risks than we are and have significant discretion in, and different criteria for, determining the efforts and resources they will apply
related to their agreements with us. If these collaborators, licensees, suppliers and contractors do not successfully perform the
functions for which they are responsible, we may not have the capabilities, resources or rights to do so on our own.
We do not know whether we, our collaborators or licensees will successfully develop and market any of the products that are or
may become the subject of any of our collaboration or licensing arrangements. In some cases these arrangements provide for funding
solely by our collaborators or licensees, and in other cases, all of the funding for certain projects and a significant portion of the
funding for other projects is to be provided by our collaborator or licensee, and we provide the balance of the funding. Even when we
have a collaborative relationship, other circumstances may prevent it from resulting in successful development of marketable products.
In addition, third-party arrangements such as ours also increase uncertainties in the related decision-making processes and resulting
progress under the arrangements, as we and our collaborators or licensees may reach different conclusions, or support different paths
forward, based on the same information, particularly when large amounts of technical data are involved. Under our contract with
NIAID, we invoice using NIH provisional rates, and these are subject to future audits at the discretion of NIAID’s contracting
office. These audits can result in an adjustment to revenue previously reported, which potentially could be significant.
Although we continue to evaluate additional strategic alliances and potential partnerships, we do not know whether or when any
such alliances or partnerships will be entered into.
Failure of our products to meet current Good Manufacturing Practices standards may subject us to delays in regulatory approval
and penalties for noncompliance.
In December of 2015, we completed the sale of our manufacturing facility to Agenus and we are now almost completely reliant
on third parties to produce material for preclinical work, clinical trials, and commercial product.
Our contract manufacturers are required to produce our clinical product candidates under current Good Manufacturing Practices
(“cGMP”) to meet acceptable standards for use in our clinical trials and for commercial sale, as applicable. If such standards change,
the ability of contract manufacturers to produce our product candidates on the schedule we require for our clinical trials or to meet
commercial requirements may be affected. In addition, contract manufacturers may not perform their obligations under their
agreements with us or may discontinue their business before the time required by us to successfully produce clinical and commercial
supplies of our product candidates.
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Our contract manufacturers are subject to pre-approval inspections and periodic unannounced inspections by the FDA and
corresponding state and foreign authorities to ensure strict compliance with cGMP and other applicable government regulations and
corresponding foreign standards. We do not have control over a third-party manufacturer’s compliance with these regulations and
standards. Any difficulties or delays in our contractors’ manufacturing and supply of our product candidates or any failure of our
contractors to maintain compliance with the applicable regulations and standards could increase our costs, cause us to reduce revenue,
make us postpone or cancel clinical trials, prevent or delay regulatory approval by the FDA and corresponding state and foreign
authorities, prevent the import and/or export of our product candidates, or cause any of our product candidates that may be approved
for commercial sale to be recalled or withdrawn.
Certain of our technologies are in-licensed from third parties, so our capabilities using them are restricted and subject to
additional risks.
We license technologies from third parties. These technologies include but are not limited to phage display technologies
licensed to us in connection with our bacterial cell expression technology licensing program and antibody products. However, our use
of these technologies is limited by certain contractual provisions in the licenses relating to them, and although we have obtained
numerous licenses, intellectual property rights in the area of phage display are particularly complex. If the owners of the patent rights
underlying the technologies that we license do not properly maintain or enforce those patents, our competitive position and business
prospects could be harmed. If we are unable to maintain our licenses, patents or other intellectual property we could lose important
protections that are material to continuing our operations and for future prospects. They may determine not to pursue litigation against
other companies that are infringing these patents, or they may pursue such litigation less aggressively than we would. Our licensors
also may seek to terminate our license, which could cause us to lose the right to use the licensed intellectual property and adversely
affect our ability to commercialize our technologies, products or services.
Because many of the companies with which we do business also are in the biotechnology sector, the volatility of that sector can
affect us indirectly as well as directly.
As a biotechnology company that collaborates with other biotechnology companies, the same factors that affect us directly also
can adversely impact us indirectly by affecting the ability of our collaborators, partners and others with whom we do business to meet
their obligations to us and reduce our ability to realize the value of the consideration provided to us by these other companies.
For example, in connection with our licensing transactions, we have in the past and may in the future agree to accept equity
securities of the licensee in payment of license fees. The future value of these or any other shares we receive is subject both to market
risks affecting our ability to realize the value of these shares and more generally to the business and other risks to which the issuer of
these shares may be subject.
Risks Related to an Investment in Our Common Stock
Our share price may be volatile, and there may not be an active trading market for our common stock.
There can be no assurance the market price of our common stock will not decline below its present market price or there will be
an active trading market for our common stock. The market prices of biotechnology companies have been and are likely to continue to
be highly volatile. Fluctuations in our operating results and general market conditions for biotechnology stocks could have a
significant impact on the volatility of our common stock price. We have experienced significant volatility in the price of our common
stock. From January 1, 2015, through March 7, 2016, the share price of our common stock has ranged from a high of $4.93 to a low of
$0.69. Factors contributing to such volatility include, but are not limited to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
results of preclinical studies and clinical trials;
information relating to the safety or efficacy of products or product candidates;
developments regarding regulatory filings;
announcements of new collaborations;
failure to enter into collaborations;
developments in existing collaborations;
our funding requirements and the terms of our financing arrangements;
technological innovations or new indications for our therapeutic products and product candidates;
introduction of new products or technologies by us or our competitors;
sales and estimated or forecasted sales of products for which we receive royalties, if any;
27
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
government regulations;
developments in patent or other proprietary rights;
the number of shares issued and outstanding;
the number of shares trading on an average trading day;
announcements regarding other participants in the biotechnology and pharmaceutical industries; and
market speculation regarding any of the foregoing.
We may issue additional equity securities and thereby materially and adversely affect the price of our common stock.
We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we
raise additional capital by issuing equity securities, including pursuant to our At Market Issuance Sales Agreement (“ATM”) with
Cowen and Company, LLC, our stockholders may experience substantial dilution. We may sell common stock, convertible securities
or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common
stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent
sales. These sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our
existing stockholders. We are authorized to issue, without stockholder approval, 1,000,000 shares of preferred stock, of which none
were issued and outstanding as of March 7, 2016, which may give other stockholders dividend, conversion, voting, and liquidation
rights, among other rights, which may be superior to the rights of holders of our common stock. In addition, we are authorized to
issue, generally without stockholder approval, up to 277,333,332 shares of common stock, of which 119,615,729 were issued and
outstanding as of March 7, 2016. If we issue additional equity securities, the price of our common stock may be materially and
adversely affected.
In addition, funding from collaboration partners and others has in the past and may in the future involve issuance by us of our
common stock. We cannot be certain how the purchase price of such shares, the relevant market price or premium, if any, will be
determined or when such determinations will be made.
Any issuance by us of equity securities, whether through an underwritten public offering, an at the market offering, a private
placement, in connection with a collaboration or otherwise could result in dilution in the value of our issued and outstanding shares,
and a decrease in the trading price of our common stock.
28
We may sell additional equity or debt securities to fund our operations, which may result in dilution to our stockholders and
impose restrictions on our business.
In order to raise additional funds to support our operations, we may sell additional equity or debt securities, including under our
ATM with Cowen and Company, LLC, which would result in dilution to our stockholders or impose restrictive covenants that may
adversely impact our business. The sale of additional equity or convertible debt securities would result in the issuance of additional
shares of our capital stock and dilution to all of our stockholders. The incurrence of indebtedness would result in increased fixed
payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt,
limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely
impact our ability to conduct our business. If we are unable to expand our operations or otherwise capitalize on our business
opportunities, our business, financial condition and results of operations could be materially adversely affected and we may not be
able to meet our debt service obligations.
If we fail to meet continued listing standards of NASDAQ, our common stock may be delisted, which could have a material adverse
effect on the liquidity of our common stock.
Our common stock is currently traded on the Nasdaq Global Market tier of the Nasdaq Stock Market (“NASDAQ”). NASDAQ
has requirements that a company must meet in order to remain listed on NASDAQ. In particular, NASDAQ rules require us to
maintain a minimum bid price of $1.00 per share of our common stock. As previously disclosed in our filings with the SEC on
September 4, 2015, we received a letter from the staff (the “Staff”) of NASDAQ on September 4, 2015, providing notification that, for
the previous 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per
share requirement for continued listing under NASDAQ’s Listing Rule 5450(a)(1), requiring a minimum bid price of $1.00 per share
(the “Minimum Bid Price Requirement”). On November 2, 2015, the Staff notified us that it had determined that for the last 10
consecutive business days, from October 19, 2015 to October 30, 2015, the closing bid of our common stock had been at or above the
minimum $1.00 per share price. Accordingly, we have regained compliance with the Minimum Bid Price Requirement and this matter
is now closed. In February 2016 and March 2016, our stock has closed below the minimum $1.00 per share. There can be no
assurance that we will continue to meet the Minimum Bid Price Requirement, or any other requirement in the future. If we fail to meet
the Minimum Bid Price Requirement, NASDAQ may initiate the delisting process with another notification letter. If our common
stock were to be delisted, the liquidity of our common stock would be adversely affected and the market price of our common stock
could decrease.
Our organizational documents contain provisions that may prevent transactions that could be beneficial to our stockholders and
may insulate our management from removal.
Our charter and by-laws:
(cid:120)
(cid:120)
require certain procedures to be followed and time periods to be met for any stockholder to propose matters to be
considered at annual meetings of stockholders, including nominating directors for election at those meetings; and
authorize our Board of Directors to issue up to 1,000,000 shares of preferred stock without stockholder approval and to set
the rights, preferences and other designations, including voting rights, of those shares as the Board of Directors may
determine.
In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”), that may
prohibit large stockholders, in particular those owning 15% or more of our outstanding common stock, from merging or combining
with us.
These provisions of our organizational documents and the DGCL, alone or in combination with each other, may discourage
transactions involving actual or potential changes of control, including transactions that otherwise could involve payment of a
premium over prevailing market prices to holders of common stock, could limit the ability of stockholders to approve transactions that
they may deem to be in their best interests, and could make it considerably more difficult for a potential acquirer to replace
management.
29
As a public company in the United States, we are subject to the Sarbanes-Oxley Act. We have determined our disclosure controls
and procedures and our internal control over financial reporting are effective. We can provide no assurance that we will, at all
times, in the future be able to report that our internal controls over financial reporting are effective.
Companies that file reports with the Securities and Exchange Commission, or the SEC, including us, are subject to the
requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires management to establish and maintain a system
of internal control over financial reporting, and annual reports on Form 10-K filed under the Securities Exchange Act of 1934, as
amended, or the Exchange Act, must contain a report from management assessing the effectiveness of our internal control over
financial reporting. Ensuring we have adequate internal financial and accounting controls and procedures in place to produce accurate
financial statements on a timely basis is a time-consuming effort that needs to be re-evaluated frequently. Failure on our part to have
effective internal financial and accounting controls would cause our financial reporting to be unreliable, could have a material adverse
effect on our business, operating results, and financial condition, and could cause the trading price of our common stock to fall.
Risks Related to Employees, Location, Data Integrity, and Litigation
The loss of key personnel, including our Chief Executive Officer, could delay or prevent achieving our objectives.
Our research, product development and business efforts could be affected adversely by the loss of one or more key members of
our scientific or management staff, particularly our executive officers: John Varian, our Chief Executive Officer; Patrick J. Scannon,
M.D., Ph.D., our Executive Vice President and Chief Scientific Officer; Paul D. Rubin, M.D., our Senior Vice President, Research and
Development and Chief Medical Officer; James R. Neal, our Senior Vice President and Chief Operating Officer; and Thomas Burns,
our Vice President, Finance and Chief Financial Officer. We currently do not have key person insurance on any of our employees.
Because we are a relatively small biopharmaceutical company with limited resources, we may not be able to attract and retain
qualified personnel.
Our success in developing marketable products and achieving a competitive position will depend, in part, on our ability to
attract and retain qualified scientific and management personnel, particularly in areas requiring specific technical, scientific or medical
expertise. After a series of restructuring activities and asset sales during 2015, we had approximately 86 employees as of March 7,
2016. We may require additional experienced executive, accounting, research and development, legal, administrative and other
personnel from time to time in the future. There is intense competition for the services of these personnel, especially in California.
Moreover, we expect that the high cost of living in the San Francisco Bay Area, where our headquarters are located, may impair our
ability to attract and retain employees in the future. If we do not succeed in attracting new personnel and retaining and motivating
existing personnel, our operations may suffer and we may be unable to implement our current initiatives or grow effectively.
Calamities, power shortages or power interruptions at our Berkeley headquarters and research laboratories could disrupt our
business and adversely affect our operations.
Our principal operations are located in Northern California, including our corporate headquarters and research laboratories in
Berkeley, California. This location is in an area of seismic activity near active earthquake faults. Any earthquake, terrorist attack, fire,
power shortage or other calamity affecting our facilities may disrupt our business and could have material adverse effect on our
business and results of operations.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our current and any future
collaborators, licensees, suppliers, contractors and consultants are vulnerable to damage from cyber(cid:237)attacks, computer viruses,
unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. We could experience failures in
our information systems and computer servers, which could be the result of a cyber(cid:237)attack and could result in an interruption of our
normal business operations and require substantial expenditure of financial and administrative resources to remedy. System failures,
accidents or security breaches can cause interruptions in our operations and can result in a material disruption of our development
programs and other business operations. The loss of clinical trial data from completed or future clinical trials could result in delays in
our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Similarly, we rely on third parties
to supply components for and manufacture our products and product candidates, and conduct clinical trials of our product candidates,
and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any
disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of
confidential or proprietary information, we could incur liability and the development of any of our other product candidates could be
delayed or otherwise adversely affected.
30
Data breaches and cyber-attacks could compromise our intellectual property or other sensitive information and cause significant
damage to our business and reputation.
In the ordinary course of our business, we maintain sensitive data on our networks, including our intellectual property and
proprietary or confidential business information relating to our business and that of our customers and business partners. The secure
maintenance of this information is critical to our business and reputation. We believe companies have been increasingly subject to a
wide variety of security incidents, cyber-attacks and other attempts to gain unauthorized access. These threats can come from a variety
of sources, all ranging in sophistication from an individual hacker to a state-sponsored attack. Cyber threats may be generic, or they
may be custom-crafted against our information systems. Over the past year, cyber-attacks have become more prevalent and much
harder to detect and defend against. Our network and storage applications may be subject to unauthorized access by hackers or
breached due to operator error, malfeasance or other system disruptions. It is often difficult to anticipate or immediately detect such
incidents and the damage caused by such incidents. These data breaches and any unauthorized access or disclosure of our information
or intellectual property could compromise our intellectual property and expose sensitive business information. A data security breach
could also lead to public exposure of personal information of our clinical trial patients, customers and others. Cyber-attacks could
cause us to incur significant remediation costs, result in product development delays, disrupt key business operations and divert
attention of management and key information technology resources. These incidents could also subject us to liability, expose us to
significant expense and cause significant harm to our reputation and business.
We and certain of our officers and directors have been named as defendants in shareholder lawsuits. These lawsuits, and potential
similar or related lawsuits, could result in substantial damages, divert management’s time and attention from our business, and
have a material adverse effect on our results of operations.
Securities-related class action and shareholder derivative litigation has often been brought against companies, including many
biotechnology companies, which experience volatility in the market price of their securities. This risk is especially relevant for us
because biotechnology and biopharmaceutical companies often experience significant stock price volatility in connection with their
product development programs.
On July 24, 2015, a purported securities class action lawsuit was filed in the United States District Court for the Northern
District of California, captioned Markette v. XOMA Corp., et al. (Case No. 3:15-cv-3425-HSG) naming as defendants us and certain
of our officers. The complaint asserts that all defendants violated Section 10(b) of the the Exchange Act and SEC Rule 10b-5, by
making materially false or misleading statements regarding the Company’s EYEGUARD-B study between November 6, 2014 and
July 21, 2015. The plaintiff also alleges that certain of our officers violated Section 20(a) of the Exchange Act. The plaintiff seeks
class certification, an award of unspecified compensatory damages, an award of reasonable costs and expenses, including attorneys’
fees, and other further relief as the Court may deem just and proper. We are awaiting the appointment of a lead plaintiff by the Court.
We believe the allegations have no merit and we intend to vigorously defend against the claims.
On October 1, 2015, a stockholder purporting to act on our behalf, filed a derivative lawsuit in the Superior Court of California
for the County of Alameda, purportedly asserting claims on behalf of the Company against certain of our officers and the members of
our board of directors, captioned Silva v. Scannon, et al. (Case No. RG15787990). The lawsuit asserts claims for breach of fiduciary
duty, corporate waste and unjust enrichment based on the dissemination of allegedly false and misleading statements related to the
Company’s EYEGUARD-B study. The plaintiff is seeking unspecified monetary damages and other relief, including reforms and
improvements to our corporate governance and internal procedures. This action is currently stayed pending further developments in
the securities class action. Management believes the allegations have no merit and intends to vigorously defend against the claims.
On November 16, and November 25, 2015, two derivative lawsuits were filed purportedly on our behalf in the United States
District Court for the Northern District of California, captioned Fieser v. Van Ness, et al. (Case No. 4:15-CV-05236-HSG) and Csoka
v. Varian, et al. (Case No. 3:15-cv-05429-SI), against certain of our officers and the members of our board of directors. The lawsuits
assert claims for breach of fiduciary duty and other violations of law based on the dissemination of allegedly false and misleading
statements related to the our EYEGUARD-B study. Plaintiffs seek unspecified monetary damages and other relief including reforms
and improvements to our corporate governance and internal procedures. Our response to the Fieser complaint is currently due on April
4, 2016. Our response to the Csoka Complaint is currently due on April 18, 2016. Management believes the allegations have no merit
and intend to vigorously defend against the claims.
31
It is possible that additional suits will be filed, or allegations received from stockholders, with respect to these same or other
matters and also naming us and/or our officers and directors as defendants. These and any other related lawsuits are subject to inherent
uncertainties, and the actual defense and disposition costs will depend upon many unknown factors. The outcome of these lawsuits are
necessarily uncertain. We could be forced to expend significant resources in the defense of these suits and we may not prevail. In
addition, we may incur substantial legal fees and costs in connection with these lawsuits. We currently are not able to estimate the
possible cost to us from these lawsuits, as they are currently at an early stage, and we cannot be certain how long it may take to resolve
these matters or the possible amount of any damages that we may be required to pay. We have not established any reserve for any
potential liability relating to these lawsuits. It is possible that we could, in the future, incur judgments or enter into settlements of
claims for monetary damages. A decision adverse to our interests on these actions could result in the payment of substantial damages,
or possibly fines, and could have a material adverse effect on our cash flow, results of operations and financial position.
Monitoring, initiating and defending against legal actions, including the currently pending litigation, are time-consuming for our
management, are likely to be expensive and may detract from our ability to fully focus our internal resources on our business
activities. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require us to pay
damages, enjoin us from certain activities, or otherwise affect our legal or contractual rights, which could have a significant adverse
effect on our business. In addition, the inherent uncertainty of the currently pending litigation and any future litigation could lead to
increased volatility in our stock price and a decrease in the value of an investment in our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
Our corporate headquarters and research laboratories are located in Berkeley and Emeryville, California. We currently lease
three buildings that house our office space and research and development laboratories. Our building leases expire in the period from
2021 to 2023, and total minimum lease payments due from January 2016 until expiration of the leases is $26.0 million. We have the
option to renew our lease agreements for periods ranging from three to ten years.
Item 3.
Legal Proceedings
On July 24, 2015, a purported securities class action lawsuit was filed in the United States District Court for the Northern
District of California captioned Markette v. XOMA Corp., et al. (Case No. 3:15-cv-3425-HSG) against us, our Chief Executive Officer
and our Chief Medical Officer. The complaint asserts that all defendants violated Section 10(b) the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), and SEC Rule 10b-5, by making materially false or misleading statements regarding the
Company’s EYEGUARD-B study between November 6, 2014 and July 21, 2015. The plaintiff also alleges that Messrs. Varian and
Rubin violated Section 20(a) of the Exchange Act. The plaintiff seeks class certification, an award of unspecified compensatory
damages, an award of reasonable costs and expenses, including attorneys’ fees, and other further relief as the Court may deem just and
proper. We are awaiting the appointment of a lead plaintiff by the Court. Based on a review of the allegations, the Company believes
that the plaintiff’s allegations are without merit, and intends to vigorously defend against the claims.
On October 1, 2015, a stockholder purporting to act on our behalf, filed a derivative lawsuit in the Superior Court of California
for the County of Alameda, purportedly asserting claims on behalf of the Company against certain of our officers and the members of
our board of directors, captioned Silva v. Scannon, et al. (Case No. RG15787990). The lawsuit asserts claims for breach of fiduciary
duty, corporate waste and unjust enrichment based on the dissemination of allegedly false and misleading statements related to the
Company’s EYEGUARD-B study. The plaintiff is seeking unspecified monetary damages and other relief, including reforms and
improvements to our corporate governance and internal procedures. This action is currently stayed pending further developments in
the securities class action Management believes the allegations have no merit and intends to vigorously defend against the claims.
On November 16, and November 25, 2015, two derivative lawsuits were filed purportedly on our behalf in the United States
District Court for the Northern District of California, captioned Fieser v. Van Ness, et al. (Case No. 4:15-CV-05236-HSG) and Csoka
v. Varian, et al. (Case No. 3:15-cv-05429-SI), against certain of our officers and the members of our board of directors. The lawsuits
assert claims for breach of fiduciary duty and other violations of law based on the dissemination of allegedly false and misleading
statements related to the Company’s EYEGUARD-B study. Plaintiffs seek unspecified monetary damages and other relief including
reforms and improvements to our corporate governance and internal procedures. Our response to the Fieser complaint is currently due
on April 4, 2016. Our response to the Csoka Complaint is currently due on April 18, 2016. Management believes the allegations have
no merit and intend to vigorously defend against the claims.
32
Item 4. Mine Safety Disclosures
Not applicable.
33
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Registrant’s Common Equity
Our common stock trades on The Nasdaq Global Market tier of the Nasdaq Stock Market (“NASDAQ”) under the symbol
“XOMA.” The following table sets forth the quarterly range of high and low reported sale prices of our common stock on NASDAQ
for the periods indicated:
2015
First Quarter ............................................................................... $
Second Quarter .......................................................................... $
Third Quarter ............................................................................. $
Fourth Quarter............................................................................ $
2014
First Quarter ............................................................................... $
Second Quarter .......................................................................... $
Third Quarter ............................................................................. $
Fourth Quarter............................................................................ $
Price Range
High
Low
4.33 $
4.41 $
4.93 $
2.03 $
9.57 $
5.54 $
4.95 $
5.95 $
3.22
2.92
0.69
0.90
4.77
3.42
3.66
3.50
On March 7, 2016, there were 832 stockholders of record of our common stock, one of which was Cede & Co., a nominee for
Depository Trust Company (“DTC”). All of the shares of our common stock held by brokerage firms, banks and other financial
institutions as nominees for beneficial owners are deposited into participant accounts at DTC and are therefore considered to be held
of record by Cede & Co. as one stockholder.
Dividend Policy
We have not paid dividends on our common stock. We currently intend to retain any earnings for use in the development and
expansion of our business. We, therefore, do not anticipate paying cash dividends on our common stock in the foreseeable future. In
addition, our loan agreement with Hercules generally restricts the declaration and payment of cash dividends.
Recent Sales of Unregistered Securities
Except as previously reported in our quarterly reports on Form 10-Q and current reports on Form 8-K filed with the Securities
and Exchange Commission, or SEC, during the year ended December 31, 2015, there were no unregistered sales of equity securities
by us during the year ended December 31, 2015.
34
Performance Graph
The following graph compares the five-year cumulative total stockholder return for XOMA common stock with the comparable
cumulative return of certain indices. The graph assumes $100 invested on the same date in each of the indices. Returns of the company
are not indicative of future performance.
FIVE-YEAR PERFORMANCE GRAPH
S
R
A
L
L
O
D
.
.
S
U
$400
$350
$300
$250
$200
$150
$100
$50
$-
2010
2011
2012
2013
2014
2015
XOMA
Corporation
Nasdaq
Composite…
AMEX
Biotechnology…
This Section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any
filing of XOMA Corporation under the Securities Act, or the Exchange Act, whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
As of December 31,
2010 .......................................................................................... $
2011 .......................................................................................... $
2012 .......................................................................................... $
2013 .......................................................................................... $
2014 .......................................................................................... $
2015 .......................................................................................... $
XOMA
Corporation
Nasdaq
Composite
Index
AMEX
Biotechnology
Index
100.00 $
22.42 $
46.78 $
131.19 $
69.98 $
25.93 $
100.00 $
98.20 $
113.82 $
157.44 $
178.53 $
188.75 $
100.00
84.11
119.22
179.59
265.03
293.92
35
Item 6.
Selected Financial Data
The following table contains our selected financial information including consolidated statement of operations and consolidated
balance sheet data for the years 2011 through 2015. The selected financial information has been derived from our audited consolidated
financial statements. The selected financial information should be read in conjunction with Item 8: Financial Statements and
Supplementary Data and Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations included
in this Annual Report. The data set forth below is not necessarily indicative of the results of future operations.
2015
Year Ended December 31,
2012
2013
2014
(In thousands, except per share amounts)
Consolidated Statement of Operations Data
Total revenues ....................................................................... $
Restructuring costs ................................................................
Operating costs and expenses................................................
Loss from operations .............................................................
Other income (expense), net (1) .............................................
Loss before taxes ...................................................................
Income tax benefit (expense), net .........................................
Net loss ................................................................................. $
Basic net loss per share of common stock ............................. $
Diluted net loss per share of common stock.......................... $
55,447 $
3,699
91,472
(39,724)
19,118
(20,606)
—
(20,606) $
(0.17) $
(0.17) $
18,866 $
84
100,614
(81,832)
43,531
(38,301)
—
35,451 $
328
93,328
(58,205 )
(65,867 )
(124,072 )
14
(38,301) $ (124,058 ) $
(1.43 ) $
(1.43 ) $
(0.36) $
(0.67) $
33,782 $
5,074
85,332
(56,624)
(14,515)
(71,139)
74
(71,065) $
(1.10) $
(1.10) $
2011
58,196
—
92,151
(33,955)
1,227
(32,728)
(15)
(32,743)
(1.04)
(1.04)
2015
2014
December 31,
2013
(In thousands)
2012
2011
Balance Sheet Data
48,344
Cash and cash equivalents ...................................................... $
—
Marketable securities ............................................................. $
62,695
Current assets ......................................................................... $
42,064
Working capital ...................................................................... $
78,036
Total assets ............................................................................. $
20,631
Current liabilities ................................................................... $
Long-term liabilities (2) ........................................................... $
42,394
Redeemable convertible preferred stock, at par value............ $
—
Accumulated deficit ............................................................... $(1,140,083) $(1,119,477) $(1,081,176 ) $ (957,118) $ (886,053)
15,011
Total stockholders' (deficit) equity......................................... $
45,345 $
39,987 $
95,837 $
72,004 $
134,782 $ 105,676 $
23,833 $
60,376 $
— $
78,445 $
— $
83,613 $
47,367 $
89,402 $
36,246 $
50,057 $
— $
65,767 $
496 $
72,219 $
48,924 $
74,880 $
23,295 $
53,894 $
— $
101,659 $
19,990 $
127,060 $
97,415 $
29,645 $
109,124 $
— $
(3,987 ) $
21,467 $
(2,309) $
3,099 $
We have paid no dividends in the past five years.
(1)
(2)
2015, 2014 and 2013 and 2012 include $17.8 million, $45.8 million, ($61.0) million and ($9.2) million, respectively, related to
the revaluation of contingent warrant liabilities issued in connection with equity financings in June 2009, February 2010, March
2012 and December 2014. All outstanding warrants issued in June 2009 and February 2010 expired in June 2014 and February
2015, respectively.
2015, 2014 2013 and 2012 include $10.5 million, $31.8 million, $69.9 million and $15.0 million, respectively, related to
contingent warrant liabilities in connection with equity financings in June 2009, February 2010, March 2012 and December
2014. All outstanding warrants issued in June 2009 and February 2010 expired in June 2014 and February 2015, respectively.
The balance in 2015, 2014, 2013, 2012, and 2011 includes a term loan from Hercules, which had a principal balance equal to
$20.0 million as of December 31, 2015 and a term loan from GECC, which had a principal balance equal to zero, $5.2 million,
$9.4 million, $12.5 million, and $10.0 million as of December 31, 2015, 2014, 2013, 2012, and 2011, respectively.
36
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
XOMA Corporation (“XOMA”), a Delaware corporation, is a development stage biotechnology company with a portfolio of
therapeutic antibodies. Our product candidates are the result of our expertise in developing new monoclonal antibodies, which have
created new opportunities to potentially treat a wide range of endocrine diseases. We discover and develop innovative antibody-based
therapeutics. Several of our antibodies have unique properties due to their interaction at allosteric sites on a specific protein rather than
at the orthosteric, or active, sites. The antibodies are designed to either enhance or diminish the protein’s activity as desired. We
believe allosteric modulating antibodies may be more selective and offer a safety advantage in certain disease indications when
compared to more traditional modes of action.
Our business efforts are focused on advancing the assets in our portfolio of compounds that could treat a variety of endocrine
diseases. Our product candidates are in various stages of development and are subject to regulatory approval before they can be
commercially launched.
We currently have five assets in our endocrine portfolio, two of which were developed as part of our proprietary XOMA
Metabolism (“XMet”) platform. We believe the XMet platform is highly novel as it targets the insulin receptor and has generated new
classes of fully human allosteric modulating monoclonal antibodies known as Selective Insulin Receptor Modulators (“SIRMs”). One
program of SIRMs produced by the XMet Platform is a negative allosteric modulator of the insulin receptor (“XMetD”). We intend to
advance the following two antibodies derived from the XMetD program, which presents potential new therapeutic approaches to the
treatment of rare diseases that involve insulin and result in severe hypoglycemia.
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XOMA 358, a potential long-acting treatment for hyperinsulinemic hypoglycemia; and
XOMA 129, a potential rapid onset, short-acting treatment for severe acute hypoglycemia.
Our endocrine portfolio also includes what we believe is a Phase 2-ready product candidate, XOMA 213, targeting the prolactin
receptor as well as research-stage programs targeting the parathyroid receptor (“PTH1R”) and the adrenal corticotropic hormone
(“ACTH”).
Given our focus on endocrine diseases, we have determined that gevokizumab no longer fits our strategic focus and we have
decided to stop all development activities on the asset. As a result, we are closing the Phase 3 program in patients suffering from
pyoderma gangrenosum (“PG”) and will immediately pursue licensing discussions with potential interested parties. Further
information regarding our corporate strategy and proprietary products is included in Part 1 Item 1 of this annual report on Form 10-K.
Significant Developments in 2015
Licensing
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On September 30, 2015, we entered into a license agreement with Novartis International Pharmaceutical Ltd. (“Novartis
International”) pursuant to which we have granted to Novartis International an exclusive, world-wide, royalty-bearing
license to XOMA’s anti-TGF(cid:533) program. Under the terms of the license agreement, we received $37 million in the form of
an upfront payment and are eligible to receive up to $480 million if all development, regulatory, and commercial
milestones are met. In addition, we are eligible to receive royalties on product sales that range from the mid-single digits
to the low double digits. In connection with this license agreement, we have agreed to reduce our royalty rate associated
with sales of Novartis International' clinical stage anti-CD40 antibodies. All other terms of the 2004 collaboration
agreement remained unchanged.
In December 2015, we entered into a settlement and amended license agreement with Pfizer Inc. (“Pfizer”), pursuant to
which we granted Pfizer a fully-paid, royalty-free, worldwide, irrevocable, non-exclusive license rights to our patented
bacterial cell expression technology for phage display and other research, development and manufacturing of antibody
products for a cash payment by Pfizer of $3.8 million in full satisfaction of all obligations to us under the August 27, 2007
license agreement between XOMA Ireland Limited and Pfizer, including but not limited to potential milestone, royalty
and other fees under the 2007 license agreement.
37
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In December 2015, we entered into a license agreement with Novo Nordisk A/S (“Novo Nordisk”) pursuant to which we
granted to Novo Nordisk an exclusive, world-wide, royalty-bearing license to our XMetA program of allosteric
monoclonal antibodies that positively modulate the insulin receptor, subject to our retained commercialization rights for
rare disease indications. Novo Nordisk has an option to add these additional rights to its license upon payment of an
option fee to us. Under the agreement, we received a $5.0 million upfront payment. Based on the achievement of pre-
specified criteria, we are eligible to receive up to $290.0 million in development, regulatory and commercial milestones.
We are also eligible to receive royalties on sales of licensed products, which are tiered based on sales levels and range
from a mid-single digit percentage rate to up to a high single digit percentage rate.
XOMA 358
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In March 2015, we announced that we successfully completed a Phase 1 clinical study of XOMA 358, a fully human,
allosteric monoclonal antibody that attenuates both the binding of insulin to its receptor and downstream insulin
signaling. We have presented the data at the ENDO 2015 meeting and at the American Diabetes Association’s 75th
Scientific Sessions. XOMA 358 is being evaluated for the treatment of non-drug-induced, endogenous hyperinsulinemic
hypoglycemia.
In June 2015, we announced that we have been granted Orphan Drug Designation for XOMA 358 by the FDA for the
treatment of congenital hyperinsulinism, a hereditary disease resulting in lack of insulin regulation and profound
hypoglycemia that can result in seizures and brain damage.
In October 2015, we initiated a single-dose Phase 2 proof-of-concept study of XOMA 358 in patients with congenital
hyperinsulinism. In addition, we intend to initiate a single-dose Phase 2 proof-of-concept study in patients who
experience hyperinsulinism post bariatric surgery.
Financing
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On January 9, 2015, we entered into Amendment No. 2 to our loan agreement with Servier, initially entered into on
December 30, 2010, and subsequently amended by a Consent, Transfer, Assumption and Amendment Agreement entered
into as of August 12, 2013. Amendment No. 2 modified the maturity date of the loan from January 13, 2016 to three
tranches of principal to be paid as follows: €3.0 million on January 15, 2016, €5.0 million on January 15, 2017 and €7.0
million on January 15, 2018. All other terms of the Servier Loan Agreement remained unchanged.
On February 27, 2015, we entered into a loan and security agreement with Hercules Technology Growth Capital, Inc. (the
“Hercules Term Loan”), under which we borrowed $20.0 million. We used a portion of the proceeds under the Hercules
Term Loan to repay the General Electric Capital Corporation (“GECC”) outstanding principle balance, final payment fee,
prepayment fee, and accrued interest amounts totaling $5.5 million.
On June 19, 2015, we and Novartis Vaccines and Diagnostics, Inc. (“NVDI”), agreed to extend the maturity date on the
approximately $13.5 million of outstanding debt under our secured note agreement from June 21, 2015 to September 30,
2015. On September 30, 2015, in connection with the license agreement entered into with Novartis International, NVDI
agreed to extend the maturity date on the $13.5 million of outstanding debt under our secured note agreement to
September 30, 2020. All other terms of the note agreement remained unchanged.
Restructuring
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On August 21, 2015, in connection with our efforts to lower operating expenses and preserve capital while continuing to
focus on our product pipeline, we implemented a workforce reduction of 38 employees and the elimination of 20 open
positions. On September 29, 2015, we terminated an additional five employees and on October 20, 2015, we terminated
an additional nine employees. In addition, we cancelled our contracts with clinical manufacturing organizations and site
investigators following the discontinuation of our EYEGUARD-B and EYEGUARD-E studies, as discussed below.
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Sale of Manufacturing Facility and Biodefense Assets
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On November 4, 2015, we entered into an asset purchase agreement (the “Nanotherapeutics Purchase Agreement”) with
Nanotherapeutics Inc. (“Nanotherapeutics”), pursuant to which Nanotherapeutics agreed, subject to the terms and
conditions set forth in the Nanotherapeutics Purchase Agreement, to acquire our biodefense business and related assets
(including, subject to regulatory approval, certain contracts with the U.S. government), and to assume certain liabilities of
XOMA (the “Transaction”). As part of the Transaction, the parties will, subject to the terms and conditions of the asset
purchase agreement and the satisfaction of certain conditions, enter into an intellectual property license agreement (the
“License Agreement”), pursuant to which we agreed to license to Nanotherapeutics, subject to the terms and conditions
set forth in the License Agreement, certain intellectual property rights related to the purchased assets. Under the License
Agreement, we are eligible for up to $4.5 million of cash payments upon Nanotheraputics’ execution of a contract with
the Defense Threat Reduction Agency. In addition, we are eligible to receive 15% royalties on net sales of products.
On November 5, 2015, we entered into an asset purchase agreement (the “Agenus Purchase Agreement”) with Agenus
West, LLC, a wholly-owned subsidiary of Agenus Inc. (“Agenus”), pursuant to which Agenus agreed, subject to the terms
and conditions set forth in the Agenus Purchase Agreement, to acquire our pilot scale manufacturing facility in Berkeley,
California, together with certain related assets, including a license to certain intellectual property related to the purchased
assets, and to assume certain liabilities of XOMA, in consideration for the payment to us of up to $5.0 million in cash and
the issuance to XOMA of shares of Agenus’ common stock having an aggregate value of up to $1.0 million. The Agenus
Purchase Agreement closed on December 31, 2015. At closing, we received net cash of $4.7 million, net of the assumed
liabilities of $0.3 million. In addition to the cash consideration, we received 109,211 shares of common stock of Agenus
with an aggregate value of $0.5 million. The remaining common stock of Agenus will only be received upon our
satisfaction of certain operational matters, which XOMA may or may not be able to satisfy. We believe that the assets
related to the manufacturing facility and certain other assets sold to Agenus include all key inputs and processes necessary
to generate output from a market participant’s perspective. Accordingly, we have determined that such assets qualify as a
business.
Gevokizumab
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On May 28, 2015, we announced that the gevokizumab Phase 3 EYEGUARD-B study, sponsored by Servier, reached its
target exacerbation event as specified in the study design. The objective of the first part of this study was to demonstrate
the superiority of gevokizumab, as compared to placebo, on top of the current standard of care (immunosuppressant
therapy and oral corticosteroids) in reducing the risk of Behçet's disease uveitis exacerbations and to assess the safety of
gevokizumab. On July 22, 2015, we announced the Phase 3 EYEGUARD-B study did not reach its primary endpoint of
time to first acute ocular exacerbation. On September 28, 2015, Servier notified us of its intention to terminate our
collaboration and license agreement and return the gevokizumab rights to XOMA. The termination of the collaboration
and license agreement will be effective on March 25, 2016.
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In March 2016, we announced we are closing our Phase 3 study of gevokizumab in PG. A preliminary review of the data
from the study did not show a clear signal of activity in PG.
Critical Accounting Estimates
The accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated
financial statements and the related disclosures, which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires us to make estimates, assumptions and judgments
that affect the reported amounts in our consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate
our estimates, assumptions and judgments described below that have the greatest potential impact on our consolidated financial
statements, including those related to revenue recognition, research and development activities warrant liabilities and stock-based
compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Accounting assumptions and estimates are inherently uncertain and actual results may
differ materially from these estimates under different assumptions or conditions.
The consolidated financial statements include the accounts of XOMA and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions among the entities have been eliminated.
While our significant accounting policies are more fully described in Note 2 to the Consolidated Financial Statements, we
believe the following policies to be the most critical to an understanding of our financial condition and results of operations because
they require us to make estimates, assumptions and judgments about matters that are inherently uncertain.
39
Revenue Recognition
License and Collaborative Fees
Revenue from non-refundable license, technology access or other payments under license and collaborative agreements where
we have a continuing obligation to perform is recognized as revenue over the estimated period of the continuing performance
obligation. We estimate the performance period at the inception of the arrangement and re-evaluate it each reporting period.
Management makes its best estimate of the period over which it expects to fulfill the performance obligations, which may include
clinical development activities. Given the uncertainties of research and development collaborations, significant judgment is required to
determine the duration of the performance period. This re-evaluation may shorten or lengthen the period over which the remaining
revenue is recognized. Changes to these estimates are recorded on a prospective basis.
Our license and collaboration agreements with certain third parties also provide for contingent payments to be paid to us based
solely upon the performance of the partner. For such contingent payments we recognize the payments as revenue upon completion of
the milestone event, once confirmation is received from the third party, provided that collection is reasonably assured and the other
revenue recognition criteria have been satisfied.
Contract Revenue
Contract revenue for research and development involves our providing research and development and manufacturing services to
collaborative partners, biodefense contractors or others. Cost reimbursement revenue under collaborative agreements is recognized as
the related research and development costs are incurred, as provided for under the terms of these agreements. Revenue for certain
contracts is accounted for by a proportional performance, or output-based, method where performance is based on estimated progress
toward elements defined in the contract. The amount of contract revenue and related costs recognized in each accounting period are
based on estimates of the proportional performance during the period. Adjustments to estimates based on actual performance are
recognized on a prospective basis and do not result in reversal of revenue should the estimate to complete be extended.
In addition, revenue related to certain research and development contracts is billed based on actual hours incurred by XOMA
related to the contract, multiplied by full-time equivalent (“FTE”) rates plus a mark-up. The FTE rates are developed based on our best
estimates of labor, materials and overhead costs. For certain contracts, such as our government contracts, the FTE rates are agreed
upon at the beginning of the contract and are subject to review or audit by the contracting party at any time. Under our contracts with
NIAID, a part of the NIH, we bill using NIH provisional rates and thus are subject to future audits at the discretion of NIAID’s
contracting office. These audits can result in adjustments to previously reported revenue.
In 2011, the NIH conducted an audit of our actual data under two contracts for the period from January 1, 2007, through
December 31, 2009, and developed final billing rates for this period. As a result, we retroactively applied these NIH rates to the
invoices from this period, which resulted in an increase in revenue of $3.1 million from the NIH, excluding $0.9 million billed to the
NIH in 2010 as a result of a comparison of 2009 calculated costs incurred and costs billed to the government under provisional rates.
Final rates were settled for one contract resulting in the recognition of revenue of $2.0 million in 2012. The remaining deferred
revenue in connection with the 2011 NIH rate audit will be recognized upon negotiation with and approval by NIH. In 2014, upon
completion of a NIAID review of hours and external expenses for the period spanning from 2008 to 2013, XOMA agreed to exclude
certain hours and external expense resulting in a $1.8 million adjustment, which reduced deferred revenue and accounts receivable.
Upfront fees associated with contract revenue are recorded as license and collaborative fees and are recognized ratably over the
expected benefit period under the arrangement. Given the uncertainties of research and development collaborations, significant
judgment is required to determine the duration of the arrangement.
Research and Development Expenses
We expense research and development costs as incurred. Research and development expenses consist of direct costs such as
salaries and related personnel costs, and material and supply costs, and research-related allocated overhead costs, such as facilities
costs. In addition, research and development expenses include costs related to clinical trials. From time to time, research and
development expenses may include up-front fees and milestones paid to collaborative partners for the purchase of rights to in-process
research and development. Such amounts are expensed as incurred.
40
Our accrual for clinical trials is based on estimates of the services received and efforts expended pursuant to contracts with
clinical trial centers and clinical research organizations. Payments under the contracts depend on factors such as the achievement of
certain events, successful enrollment of patients, and completion of portions of the clinical trial or similar conditions. We may
terminate these contracts upon written notice and we are generally only liable for actual effort expended by the organizations to the
date of termination, although in certain instances we may be further responsible for termination fees and penalties. We make estimates
of our accrued expenses as of each balance sheet date based on the facts and circumstances known to us at that time. Expenses
resulting from clinical trials are recorded when incurred based, in part, on estimates as to the status of the various trials. There have
been no material adjustments to our prior period accrued estimates for clinical trial activities through December 31, 2015.
Biopharmaceutical development includes a series of steps, including in vitro and in vivo preclinical testing, and Phase 1, 2 and 3
clinical studies in humans. Each of these steps is typically more expensive than the previous step, but actual timing and the cost to us
depends on the product being tested, the nature of the potential disease indication and the terms of any collaborative or development
arrangements with other companies or entities. After successful conclusion of all of these steps, regulatory filings for approval to
market the products must be completed, including approval of manufacturing processes and facilities for the product.
Stock-based Compensation
Stock-based compensation expense for stock options and other stock awards is estimated at the grant date based on the award’s
fair value-based measurement and is recognized on a straight-line basis over the award’s vesting period, assuming appropriate
forfeiture rates. The valuation of stock-based compensation awards is determined at the date of grant using the Black-Scholes option
pricing model (the “Black-Scholes Model”). This model requires highly complex and subjective inputs, such as the expected term of
the option, expected volatility, and risk-free interest rate. Further, the forfeiture rate also impacts the amount of aggregate
compensation. These inputs are subjective and generally require significant analysis and judgment to develop. Our current estimate of
volatility is based on the historical volatility of our stock price. To the extent volatility in our stock price increases in the future, our
estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation cost
recognized in future periods. To establish an estimate of expected term, we consider the vesting period and contractual period of the
award and our historical experience of stock option exercises, post-vesting cancellations and volatility. To establish an estimate of
forfeiture rate, we consider our historical experience of option forfeitures and terminations. The risk-free rate is based on the yield
available on United States Treasury zero-coupon issues. We review our valuation assumptions quarterly and, as a result, we likely will
change our valuation assumptions used to value stock-based awards granted in future periods. Stock-based compensation expense is
recognized ratably over the requisite service period. In the future, as additional empirical evidence regarding these input estimates
becomes available, we may change or refine our approach of deriving these input estimates. These changes could impact our fair
value-based measurement of stock options granted in the future. Changes in the fair value-based measurement of stock awards could
materially impact our operating results.
Warrants
We have issued warrants to purchase shares of our common stock in connection with financing activities. We account for some
of these warrants as a liability at estimated fair value and others as equity at estimated fair value. The estimated fair value of the
outstanding warrants is estimated using the Black-Scholes Model. The Black-Scholes Model requires inputs, such as the expected
term of the warrants, expected volatility and risk-free interest rate. These inputs are subjective and require significant analysis and
judgment to develop. For the estimate of the expected term, we use the full remaining contractual term of the warrant. We determine
the expected volatility based on the historical stock price volatility of XOMA’s underlying stock. The assumptions associated with
contingent warrant liabilities are reviewed each reporting period and changes in the estimated fair value of these contingent warrant
liabilities are recognized as gain or loss in the revaluation of contingent warrant liabilities line in the consolidated statement of
comprehensive loss.
Results of Operations
Revenues
Total revenues for the years ended December 31, 2015, 2014, and 2013, were as follows (in thousands):
License and collaborative fees .............................................. $
Contract and other .................................................................
Total revenues ....................................................................... $
49,064 $
6,383
55,447 $
5,683 $
13,183
18,866 $
Year Ended December 31,
2014
2015
41
2013
11,028 $
24,423
35,451 $
2014-2015
Change
2013-2014
Change
43,381 $
(6,800)
36,581 $
(5,345)
(11,240)
(16,585)
License and Collaborative Fees
License and collaborative fees include fees and milestone payments related to the out-licensing of our products and
technologies. The primary components of license and collaboration fees in 2015 were $46.3 million in upfront and milestone
payments relating to various out-licensing arrangements, $1.6 million in annual maintenance fees relating to various out-licensing
arrangements and $1.2 million in revenue recognized related to the loan agreement with Servier. The $46.3 million included $37.0
million upfront payment from Novartis, $5.0 million upfront payment from Novo Nordisk and $3.8 million payment from Pfizer.
The primary components of license and collaboration fees in 2014 were $3.0 million in milestone payments relating to various
out-licensing arrangements, $1.9 million in revenue recognized related to the loan agreement with Servier and $0.8 million in upfront
fees and annual maintenance fees relating to various out-licensing arrangements.
The primary components of license and collaboration fees in 2013 were $8.6 million in milestone payments relating to various
out-licensing arrangements, including $7.0 million milestone payment from Novartis, $1.6 million in revenue recognized related to the
loan agreement with Servier, and $0.8 million in upfront fees and annual maintenance fees relating to various out-licensing
arrangements.
The generation of future revenues related to license and other collaborative fees is dependent on our ability to attract new
licensees and new collaboration partners to our antibody technologies, or the achievement of milestones by our existing licensees.
Contract and Other Revenues
Contract and other revenues include agreements where we provide contracted research and development services to our contract
and collaboration partners, including Servier and NIAID. Contract and other revenues also include net product sales and royalties. The
following table shows the activity in contract and other revenues for the years ended December 31, 2015, 2014, and 2013 (in
thousands):
NIAID ................................................................................... $
Servier ...................................................................................
Other .....................................................................................
Total contract and other revenues ......................................... $
5,084 $
1,178
121
6,383 $
9,565 $
3,523
95
13,183 $
9,098 $
13,568
1,757
24,423 $
(4,481) $
(2,345)
26
(6,800) $
467
(10,045)
(1,662)
(11,240)
Year Ended December 31,
2014
2015
2013
2014-2015
Change
2013-2014
Change
The 2015 decrease in contract and other revenues, as compared with 2014, was primarily due to reduced activity under our
existing NIAID contracts and decreased reimbursements from Servier under our collaboration agreement.
The 2014 decrease in contract and other revenues, as compared with 2013, was primarily due to a decrease of $6.3 million in
reimbursements from Servier under our collaboration agreement due to meeting the initial $50.0 million cap of fully reimbursable
NIU costs in third quarter of 2013. Also contributing to the decrease were a decrease of $3.9 million for the partial funding of fixed
dose combination of perindopril arginine and amlodipine besylate (“FDC1”) Phase 3 trial received from Servier in 2013 for which
there was no equivalent payment received in 2014, a decrease of $0.8 million received from ACEON sales and a decrease of $0.7
million in manufacturing activities for Allergan. The decreases in contract and other revenue were partially offset by a $0.5 million
increase in NIAID related revenue.
We expect total revenue to decrease in 2016 compared to 2015 levels based on anticipated licensing activities, the termination of
our collaboration with Servier, and the expected novation of our NIAID contract to Nanotherapeutics.
Research and Development Expenses
Research and development expenses were $70.9 million in 2015, compared with $80.7 million in 2014 and $74.9 million in
2013. The decrease of $9.8 million in 2015, as compared with 2014, was primarily due to a decrease of $3.1 million in salaries and
related expenses, a decrease of $3.5 million in internal and external manufacturing costs, a decrease of $1.9 million in clinical trial
costs related to spending on our erosive osteoarthritis of the hand (“EOA”) studies in 2014, and a decrease of $1.1 million in research
and development materials costs. The increase of $5.8 million in 2014, as compared with 2013, was primarily due to an increase of
$4.9 million in clinical trial-related costs, an increase of $4.8 million in salaries and related personnel costs and an increase of $2.2
million in outside consulting services, partially offset by a $5.9 million decrease in external manufacturing activities.
42
Salaries and related personnel costs are a significant component of research and development expenses. We recorded $28.7
million in research and development salaries and employee-related expenses in 2015, compared with $31.8 million in 2014 and $27.0
million in 2013. Included in these expenses for 2015 were $21.8 million for salaries and benefits, $1.9 million for bonus expense and
$5.0 million for stock-based compensation, which is a non-cash expense. The decrease of $3.1 million in 2015, as compared with
2014, was primarily due to a decrease of $2.6 million in salaries and benefits and a decrease of $0.5 million in stock-based
compensation. The decrease in stock-based compensation in 2015, included $0.8 million related to the reversal of expense for
forfeitures of stock awards related to our restructuring activities in the second half of 2015.
We recorded $31.8 million in research and development salaries and employee-related expenses in 2014, compared with $27.0
million in 2013. Included in these expenses for 2014 were $23.4 million for salaries and benefits, $2.8 million for bonus expense and
$5.6 million for stock-based compensation. The increase of $4.8 million in 2014, as compared with 2013, was primarily due to an
increase of $1.6 million in salaries and benefits resulting from increased headcount and an increase of $3.2 million in stock-based
compensation, which is a non-cash expense.
Our research and development activities can be divided into earlier-stage programs and later-stage programs. Earlier-stage
programs include molecular biology, process development, pilot-scale production and preclinical testing. Later-stage programs include
clinical testing, regulatory affairs and manufacturing clinical supplies. The costs associated with these programs are summarized
below (in thousands):
Earlier stage programs ............................................................. $
Later stage programs ...............................................................
Total ......................................................................................... $
39,495 $
31,357
70,852 $
28,327 $
52,421
80,748 $
40,840
34,011
74,851
Year Ended December 31,
2014
2015
2013
Our research and development activities also can be divided into those related to our internal projects and those projects related
to collaborative and contract arrangements. The costs related to internal projects versus collaborative and contract arrangements are
summarized (in thousands):
Internal projects ....................................................................... $
Collaborative and contract arrangements.................................
Total ......................................................................................... $
50,206 $
20,646
70,852 $
51,281 $
29,467
80,748 $
47,489
27,362
74,851
Year Ended December 31,
2014
2015
2013
In 2015, the gevokizumab program, for which we incurred the largest amount of expense, accounted for more than 40% but less
than 50% of our total research and development expenses. A second development program, XMet, accounted for more than 30% but
less than 40% of our total research and development expenses. All remaining development programs accounted for less than 10% of
our total research and development.
In 2014, the gevokizumab program, for which we incurred the largest amount of expense, accounted for more than 40% but less
than 50% of our total research and development expenses. A second development program, XMet, accounted for more than 10% but
less than 20% of our total research and development expenses and a third development program, NIAID, accounted for more than
10% but less than 20% of our total research and development expenses.
In 2013, the gevokizumab program, for which we incurred the largest amount of expense, accounted for more than 40% but less
than 50% of our total research and development expenses. XMet, accounted for more than 20% but less than 30% of our total research
and development expenses. NIAID accounted for more than 10% but less than 20% of our total research and development expenses.
We expect our research and development spending in 2016 will be reduced as compared with 2015 levels due to our 2015
restructuring efforts, our strategic focus on our endocrine portfolio, and reduced spending on gevokizumab.
Future research and development spending also may be impacted by potential new licensing or collaboration arrangements, as
well as the termination of existing agreements. Beyond this, the scope and magnitude of future research and development expenses are
difficult to predict at this time.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses include salaries and related personnel costs, facilities cost and professional fees. In
2015, selling, general and administrative expenses were $20.6 million compared with $19.9 million in 2014 and $18.5 million in 2013.
The increase of $0.7 million in 2015 as compared with 2014 was primarily due to a $1.5 million increase in consulting services,
primarily related to our out-licensing activities and a $1.0 million increase in legal fees, partially offset by a $0.5 million decrease in
stock-based compensation, which is a non-cash expense and a $2.0 million decrease in salaries and related personnel costs. The
decrease in stock-based compensation for the year ended December 31, 2015 included $0.7 million related to the reversal of expense
for forfeitures of stock awards related to our restructuring activities in the second half of 2015.
The increase in selling, general and administrative expenses in 2014, as compared with 2013 was primarily due to a $3.6 million
increase in salaries and related personnel costs, primarily reflecting an increase of $2.5 million in stock-based compensation, partially
offset by a $1.7 million decrease in professional service costs.
We expect selling, general and administrative expenses in 2016 to be reduced as compared to 2015 levels due to our 2015
restructuring efforts.
Restructuring and Other Charges
On July 22, 2015, we announced the Phase 3 EYEGUARD-B study of gevokizumab in patients with Behçet’s disease uveitis,
run by Servier, did not meet the primary endpoint of time to first acute ocular exacerbation. In August 2015, we announced our
intention to end the EYEGUARD global Phase 3 program. On August 21, 2015, in connection with our efforts to lower operating
expenses and preserve capital while continuing to focus on our endocrine product pipeline, we implemented a restructuring plan (the
“2015 Restructuring”) that included a workforce reduction resulting in the termination of 38 employees and the elimination of 20 open
positions. On September 29, 2015, we terminated an additional five employees and on October 20, 2015, we terminated an additional
nine employees.
During the year ended December 31, 2015, we recorded charges of $2.9 million related to severance, other termination benefits
and outplacement services. In addition, we recognized an additional restructuring charge of $0.8 million in contract termination costs
in the year ended December 31, 2015, which primarily include costs in connection with the discontinuation of the EYEGUARD
studies.
In 2014 and 2013, we recorded restructuring charges of $0.1 million and $0.3 million, respectively, for facility costs related to
restructuring activities initiated in 2012.
Other Income (Expense), Net
Interest Expense
Amortization of debt issuance costs and discounts are included in interest expense. Interest expense is shown below for the years
ended December 31, 2015, 2014, and 2013 (in thousands):
Year Ended December 31,
2014
2015
2013
2014-2015
Change
2013-2014
Change
Hercules loan ........................................................................ $
Servier loan ...........................................................................
GECC term loan ....................................................................
Novartis note .........................................................................
Other .....................................................................................
Total interest expense ............................................................ $
2,223 $
1,083
548
329
11
4,194 $
— $
2,330
1,638
312
23
4,303 $
— $
2,152
2,064
362
53
4,631 $
2,223 $
(1,247)
(1,090)
17
(12)
(109) $
—
178
(426)
(50)
(30)
(328)
Interest expense related to the Servier loan and GECC term loan decreased by $1.2 million and $1.1 million, respectively, in
2015, compared with 2014. The decrease was due to the $1.9 million balance of imputed interest remaining at the time the Servier
loan was amended in January 2015 now being amortized over the extended term of the loan and the extinguishment of the GECC term
loan in February 2015. This decrease was partially offset by an increase of $2.2 million in interest expense due to our $20.0 million
term loan with Hercules Technology Growth Capital, Inc. that was entered into in February 2015. A portion of the proceeds from the
Hercules Term Loan was used to repay our outstanding loan with GECC and we recorded a loss of $0.4 million upon the
extinguishment of the GECC term loan.
44
The decrease in interest expense in 2014 as compared to 2013 was due primarily to a decrease in the principal balance of the
GECC term loan.
We expect interest expense during 2016 to decrease as compared with 2015 due to the decrease in the principal balances of the
Hercules and Servier loans.
Other Income (Expense), Net
The following table shows the activity in other income (expense), net for the years ended December 31, 2015, 2014, and 2013
(in thousands):
Year Ended December 31,
2014
2013
2015
2014-2015
Change
2013-2014
Change
Other income (expense), net
Gain on sale of business ................................................... $
Unrealized foreign exchange gains (losses) ......................
Realized foreign exchange gain (loss) ..............................
Gain (loss) on sale of assets ..............................................
Unrealized loss on foreign exchange options ...................
Other .................................................................................
Total other income (expense), net .................................... $
3,505 $
1,870
69
18
(6)
44
5,500 $
— $
2,447
—
—
(355)
(31)
2,061 $
— $
(442 )
(90 )
(281 )
(127 )
743
(197 ) $
3,505 $
(577)
69
18
349
75
3,439 $
—
2,889
90
281
(228)
(774)
2,258
The gain on sale of business for the year ended December 31, 2015 is related to the $3.5 million gain recognized from the sale
of our pilot scale manufacturing facility, including certain equipment, to Agenus in 2015. We believe that the assets related to the
manufacturing facility and certain other assets sold to Agenus include all key inputs and processes necessary to generate output from a
market participant’s perspective. Accordingly, we have determined that such assets qualify as a business. Unrealized foreign exchange
gains (losses) for the years ended December 31, 2015, 2014, and 2013 are primarily related to the re-measurement of the €15 million
Servier loan.
Revaluation of Contingent Warrant Liabilities
We have issued warrants that contain provisions that are contingent on the occurrence of a change in control, which could
conditionally obligate us to repurchase the warrants for cash in an amount equal to their estimated fair value using the Black-Scholes
Model on the date of such change in control. Due to these provisions, we account for the warrants issued as a liability at estimated fair
value. In addition, the estimated liability related to the warrants is revalued at each reporting period until the earlier of the exercise of
the warrants, at which time the liability will be reclassified to stockholders’ equity at its then estimated fair value, or expiration of the
warrants.
We revalued the March 2012 warrants at December 31, 2015 using the Black-Scholes Model and recorded a $15.6 million
reduction in the estimated fair value as a gain on the revaluation of contingent warrant liabilities line of our consolidated statement of
comprehensive loss for the year ended December 31, 2015. The decrease in the estimated fair value of the warrants is primarily due to
the decrease in the market price of our common stock at December 31, 2015 as compared to December 31, 2014. We revalued the
warrants at December 31, 2014 and recorded a $39.5 million reduction in the estimated fair value in 2014 as a gain on the revaluation
of contingent warrant liabilities line of our consolidated statement of comprehensive loss for the year ended December 31, 2014.
45
We revalued the December 2014 warrants at December 31, 2015 using the Black-Scholes Model and recorded a $2.2 million
reduction in the estimated fair value as a gain on the revaluation of contingent warrant liabilities line of our consolidated statement of
comprehensive loss for the year ended December 31, 2015. The decrease in the estimated fair value of the warrants is primarily due to
the decrease in the market price of our common stock at December 31, 2015 as compared to December 31, 2014. We revalued the
warrants at December 31, 2014 and recorded a $5.1 million reduction in the estimated fair value in 2014 as a gain on the revaluation
of contingent warrant liabilities line of our consolidated statement of comprehensive loss for the year ended December 31, 2014.
The activity during the year ended December 31, 2014 also included the change in estimated fair value for the February 2010
warrants that expired in February 2015. We revalued the warrants at December 31, 2014 using the Black-Scholes Model and recorded
a $1.0 million reduction in the estimated fair value as a gain on the revaluation of contingent warrant liabilities line of our
consolidated statement of comprehensive loss for the year ended December 31, 2014.
Liquidity and Capital Resources
The following table summarizes our cash, cash equivalents and marketable securities, our working capital and our cash flow
activities for each of the periods presented (in thousands):
Cash and cash equivalents ........................................................ $
Marketable securities ................................................................ $
Working capital ........................................................................ $
65,767 $
496 $
48,924 $
78,445 $
— $
47,367 $
(12,678)
496
1,557
December 31,
2015
2014
Change
Net cash used in operating activities ...................................... $
Net cash provided by investing activities ...............................
Net cash provided by financing activities ..............................
Effect of exchange rate changes on cash ................................
Net (decrease) increase in cash and cash equivalents ............ $
Year Ended December 31,
2014
(78,282) $
19,675
35,560
(167)
(23,214) $
2015
(30,892) $
4,450
13,801
(37)
(12,678) $
2013
(45,915 ) $
18,840
83,389
—
56,314 $
2014-2015
Change
2013-2014
Change
47,390 $
(15,225)
(21,759)
130
10,536 $
(32,367)
835
(47,829)
(167)
(79,528)
Cash Used in Operating Activities
The decrease in net cash used in operating activities in 2015 as compared to 2014 was due to increased licensing fee revenue,
including the $37.0 million upfront fee from Novartis, combined with decreased R&D spending related to internal and external
manufacturing costs and a decrease in clinical trial costs primarily resulting from the completion in 2014 of our Phase 2 study in
EOA.
The increase in net cash used in operating activities in 2014 as compared to 2013 was primarily due to an increase in research
and development spending primarily related to gevokizumab clinical development programs and an increase in salaries and related
personnel expenses primarily related to an increase in headcount.
Cash Used in Investing Activities
Net cash provided by investing activities for the year ended December 31, 2015 was primarily related to proceeds from the sale
of our manufacturing facility of $4.9 million, partially offset by $0.4 million in purchases of property and equipment.
Net cash provided by investing activities for the year ended December 31, 2014 was primarily due to the $20.0 million in
proceeds from maturities of short-term investments, partially offset by $0.3 million in purchases of property and equipment.
Net cash provided by investing activities for the year ended December 31, 2013 was primarily due to the $40.0 million in
proceeds from maturities of short-term investments, partially offset by $20.0 million in purchases of short-term investments and $1.2
million in purchases of property and equipment.
46
Cash Provided by Financing Activities
Net cash provided by financing activities for the year ended December 31, 2015 was primarily related to proceeds from the
Hercules Term Loan of $20.0 million and proceeds from the issuance of common stock of $0.5 million. These cash inflows were
partially offset by $6.1 million of principal payments on the GECC Term Loan, and payment of debt issuance costs of $0.5 million on
the Hercules Term Loan.
Net cash provided by financing activities for the year ended December 31, 2014 was primarily related to net proceeds received
from the issuance of common stock of $37.7 million, net of offering expenses, from the December 2014 registered direct offering, and
$3.7 million from employee stock purchases. These cash inflows were partially offset by $5.9 million of principal payments on our
loans with GECC and Novartis.
Net cash provided by financing activities for the year ended December 31, 2013 was primarily related to net proceeds received
from the issuance of common stock of $29.4 million from the August 2013 public offering, $53.6 million from the December 2013
public offering, $2.2 million of net proceeds from the exercise of warrants, and $1.4 million of net proceeds received from employee
stock purchases. These cash inflows were partially offset by $3.1 million of principal payments on our loan with GECC.
ATM Agreement
On November 12, 2015, we entered into an At Market Issuance Sales Agreement (the “2015 ATM Agreement”) with Cowen
and Company, LLC (“Cowen”), under which we may offer and sell from time to time at our sole discretion shares of our common
stock through Cowen as our sales agent, in an aggregate amount not to exceed the amount that can be sold under our registration
statement on Form S-3 (File No. 333-201882) filed with the SEC on the same date. Cowen may sell the shares by any method
permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act, including without limitation
sales made directly on The Nasdaq Global Market, on any other existing trading market for our common stock or to or through a
market maker. Cowen also may sell the shares in privately negotiated transactions, subject to our prior approval. We will pay Cowen a
commission equal to 3% of the gross proceeds of the sales price of all shares sold through it as sales agent under the 2015 ATM
Agreement. For the year ended December 31, 2015, no shares of common stock have been sold under this agreement.
Hercules Term Loan
The Company and Hercules Technology Growth Capital, Inc. entered into the Hercules Term Loan on February 27, 2015 (the
“Closing Date”), under which we borrowed $20.0 million. The Hercules Term Loan has a variable interest rate that is the greater of
either (i) 9.40% plus the prime rate as reported from time to time in The Wall Street Journal minus 7.25%, or (ii) 9.40%. The
payments under the Hercules Term Loan are interest only until one month prior to July 1, 2016. The interest-only period will be
followed by equal monthly payments of principal and interest amortized over a 30-month schedule through the scheduled maturity
date of September 1, 2018. As security for its obligations under the Hercules Term Loan, we granted a security interest in substantially
all of our existing and after-acquired assets, excluding our intellectual property assets. We used a portion of the proceeds under the
Hercules Term Loan to repay the outstanding principle balance, final payment fee, prepayment fee, and accrued interest totaling $5.5
million from GECC.
If we prepay the loan prior to the loan maturity date, we will pay Hercules a prepayment charge, based on a prepayment fee
equal to 3.00% of the amount prepaid, if the prepayment occurs in any of the first 12 months following the Closing Date, 2.00% of the
amount prepaid, if the prepayment occurs after 12 months from the Closing Date but prior to 24 months from the closing date, and
1.00% of the amount prepaid if the prepayment occurs after 24 months from the Closing Date. The Hercules Term Loan includes
customary affirmative and restrictive covenants, but does not include any financial maintenance covenants, and also includes standard
events of default, including payment defaults. Upon the occurrence of an event of default, a default interest rate of an additional 5%
may be applied to the outstanding loan balances, and Hercules may declare all outstanding obligations immediately due and payable
and take such other actions as set forth in the Hercules Term Loan.
We incurred debt issuance costs of $0.5 million in connection with the Hercules Term Loan. We will be required to pay a final
payment fee equal to $1.2 million on the maturity date, or such earlier date as the term loan is paid in full. The debt issuance costs and
final payment fee are being amortized and accreted, respectively, to interest expense over the term of the term loan using the effective
interest method.
47
In connection with the Hercules Term Loan, we issued unregistered warrants that entitle Hercules to purchase up to an
aggregate of 181,268 unregistered shares of XOMA common stock at an exercise price equal to $3.31 per share. These warrants were
exercisable immediately and have a five-year term expiring in February 2020. We allocated the aggregate proceeds of the Hercules
Term Loan between the warrants and the debt obligation. The estimated fair value of the warrants issued to Hercules of $0.5 million
was determined using the Black-Scholes Model and was recorded as a discount to the debt obligation. The discount is being amortized
over the term of the loan using the effective interest method. The warrants are classified in stockholders’ equity on the consolidated
balance sheet. At December 31, 2015, the net carrying value of the Hercules Term Loan was $19.7 million.
Servier Loan
In December 2010, we entered into a loan agreement with Servier (the “Servier Loan Agreement”), which provided for an
advance of up to €15.0 million. The loan was fully funded in January 2011, with the proceeds converting to approximately $19.5
million at the exchange rate on the date of funding. The loan is secured by an interest in XOMA’s intellectual property rights to all
gevokizumab indications worldwide, excluding certain rights in the U.S. and Japan. Interest is calculated at a floating rate based on a
Euro Inter-Bank Offered Rate (“EURIBOR”) and is subject to a cap. The interest rate is reset semi-annually in January and July of
each year. The interest rate for the initial interest period was 3.22% and was reset semi-annually ranging from 2.05% to 3.83%.
Interest for the six-month period from mid-January 2015 through mid-July 2015 was reset to 2.16%. Interest for the six-month period
from mid-July 2015 through mid-January 2016 was reset to 2.05%. In January 2015 and July 2015, the Company made payments of
$0.2 million in accrued interest to Servier. Interest is payable semi-annually; however, the Servier Loan Agreement provides for a
deferral of interest payments over a period specified in the agreement. During the deferral period, accrued interest will be added to the
outstanding principal amount for the purpose of interest calculation for the next six-month interest period. On the repayment
commencement date, all unpaid and accrued interest shall be paid to Servier, and thereafter, all accrued and unpaid interest shall be
due and payable at the end of each six-month period. The loan would have matured in 2016. In addition, the loan becomes
immediately due and payable upon certain customary events of default. On January 9, 2015, Servier and we entered into Amendment
No. 2 (“Loan Amendment”) which extended the maturity date of the loan from January 13, 2016 to three tranches of principal to be
repaid as follows: €3.0 million on January 15, 2016, €5.0 million on January 15, 2017, and €7.0 million on January 15, 2018. On
September 28, 2015, Servier notified us of its intention to terminate the Collaboration Agreement, as amended and return the
gevokizumab rights to XOMA. The termination will be effective on March 25, 2016 and does not result in a change to the maturity
date of our loan with Servier. At December 31, 2015, the outstanding principal balance under this loan was $16.4 million using the
December 31, 2015 Euro to U.S. Dollar exchange rate of 1.091.
* * *
We have incurred operating losses since inception and have an accumulated deficit of $1.1 billion at December 31,
2015. Management expects operating losses and negative cash flows to continue for the foreseeable future. As of December 31,
2015, we had $66.3 million in cash, cash equivalents and marketable securities, which is available to fund future operations. Taking
into account the repayment of our outstanding debt classified within current liabilities on our Consolidated Balance Sheet as of
December 31, 2015, we anticipate that we have adequate resources to fund operations through at least December 31, 2016.
Our ability to raise additional capital in the equity and debt markets, should we choose to do so, is dependent on a number of
factors, including, but not limited to, the market demand for our common stock, which itself is subject to a number of pharmaceutical
development and business risks and uncertainties, as well as the uncertainty that we would be able to raise such additional capital at a
price or on terms that are favorable to us.
48
Commitments and Contingencies
Schedule of Contractual Obligations
Payments by period due under contractual obligations at December 31, 2015, are as follows (in thousands):
Contractual Obligations
Operating leases(1) ........................................................ $
Capital lease(1) ..............................................................
Debt obligations(2) ........................................................
Principal and final payment fee ..............................
Interest ....................................................................
Total .................................................................. $
Total
26,015 $
319
Less than
1 year
1 to 3 years 3 to 5 years
More than
5 years
3,631 $
131
7,574 $
188
8,016 $
—
6,794
—
51,192
6,066
83,592 $
6,892
2,147
12,801 $
30,617
1,938
40,317 $
13,683
1,981
23,680 $
—
—
6,794
(1)
See Note 13: Commitment and Contingencies to the accompanying consolidated financial statements for further discussion.
(2) See Item 7A: Quantitative and Qualitative Disclosures about Market Risk and Note 8: Long-Term Debt and Other Financings to
the accompanying consolidated financial statements for further discussion of our debt obligation. Refer to Management’s
Discussion and Analysis of Financial Condition and Results of Operations for further information regarding the Hercules Loan
Agreement.
We lease administrative and research facilities and office equipment under operating leases expiring on various dates through
April 2023. These leases require us to pay taxes, insurance, maintenance and minimum lease payments. In addition to the above, we
have committed to make potential future milestone payments to third parties as part of licensing and development programs. Payments
under these agreements become due and payable only upon the achievement by us of certain developmental, regulatory and/or
commercial milestones. Because it is uncertain if and when these milestones will be achieved, such contingencies, aggregating up to
$57.7 million (assuming one product per contract meets all milestones) have not been recorded on our consolidated balance sheet as of
December 31, 2015. We are also obligated to pay royalties, ranging generally from 0.5% to 3.5% of the selling price of the licensed
component and up to 40% of any sublicense fees to various universities and other research institutions based on future sales or
licensing of products that incorporate certain products and technologies developed by those institutions. We are unable to determine
precisely when and if our payment obligations under the agreements will become due as these obligations are based on future events,
the achievement of which is subject to a significant number of risks and uncertainties.
Although operations are influenced by general economic conditions, we do not believe inflation had a material impact on
financial results for the periods presented. We believe that we are not dependent on materials or other resources that would be
significantly impacted by inflation or changing economic conditions in the foreseeable future.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance codified in Accounting Standards
Codification (“ASC”) 606, Revenue Recognition — Revenue from Contracts with Customers, which amends the guidance in ASC 605,
Revenue Recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or
services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those
goods or services. In August 2015, the FASB issued an accounting update to defer the effective date by one year for public entities
such that it is now applicable for annual and interim periods beginning after December 15, 2017. Early adoption is permitted for
periods beginning after December 15, 2016. Entities would have the option of using either a full retrospective or a modified
retrospective approach to adopt this new guidance. We are currently evaluating the impact of the adoption of this standard on our
consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). This ASU introduces an explicit requirement for management to
assess if there is substantial doubt about an entity’s ability to continue as a going concern, and to provide related footnote disclosures
in certain circumstances. In connection with each annual and interim period, management must assess if there is substantial doubt
about an entity’s ability to continue as a going concern within one year after the issuance date. Disclosures are required if conditions
give rise to substantial doubt. ASU 2014-15 is effective for all entities in the first annual period ending after December 15, 2016. The
adoption of this guidance is not expected to have any impact on our financial position and results of operations.
49
In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs (“ASU 2015-03”), which requires that debt issuance costs related to a recognized debt liability be presented in
the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. We early
adopted ASU 2015-03 as of January 1, 2015, as permitted. There is no impact of early adoption of ASU 2015-03 on the consolidated
statements of comprehensive loss.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which simplifies the
presentation of deferred income taxes. This ASU amends the existing guidance to require presentation of deferred tax assets and
liabilities as noncurrent within a classified statement of financial position. We early adopted ASU 2015-17 effective December 2015
on a prospective basis. The adoption did not have an impact on our consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities, related to accounting for equity investments, financial liabilities under the
fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified the
guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on
available-for-sale debt securities. The guidance will become effective for us beginning in the first quarter of 2018. Early adoption is
permitted. We are evaluating the impact of the adoption of this accounting guidance on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which supersedes Topic 840, Leases. From a lessee
accounting perspective, the core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases.
A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-
use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a
lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise
an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the
underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to
exercise that purchase option. Reasonably certain is a high threshold that is consistent with and intended to be applied in the same way
as the reasonably assured threshold under Topic 840. In addition, also consistent with Topic 840, a lessee (and a lessor) should
exclude most variable lease payments in measuring lease assets and lease liabilities, other than those that depend on an index or a rate
or are in substance fixed payments. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy
election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should
recognize lease expense for such leases generally on a straight-line basis over the lease term. Under Topic 842, there continues to be a
differentiation between finance leases (which replaces capital leases) and operating leases. However, the principal difference from the
previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the statement of
financial position. The accounting applied by a lessor is largely unchanged from that applied under Topic 840. The guidance will
become effective for us beginning in the first quarter of 2019. Early adoption is permitted. In transition, lessees and lessors are
required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.
The modified retrospective approach includes a number of optional practical expedients primarily focused on leases that commenced
before the effective date of Topic 842, including continuing to account for leases that commence before the effective date in
accordance with previous guidance, unless the lease is modified. We are evaluating the impact of the adoption of the standard on our
consolidated financial statements.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio and our loan facilities.
By policy, we make our investments in high-quality debt securities, limit the amount of credit exposure to any one non-U.S. Treasury
issuer, and limit duration by restricting the term of the instrument. We generally hold investments to maturity, with a weighted
average portfolio period of less than twelve months. However, if the need arose to liquidate such securities before maturity, we may
experience losses on liquidation.
We hold interest-bearing instruments that are classified as cash and cash equivalents. Fluctuations in interest rates can affect the
principal values and yields of fixed income investments. If interest rates in the general economy were to rise rapidly in a short period
of time, our fixed income investments could lose value. As of December 31, 2015, our marketable securities of $0.5 million were
comprised of equity held in a publicly traded company. We do not believe that a change in the market rates of interest would have any
significant impact on the realizable value of our investment portfolio.
50
The following table presents the amounts and related weighted average interest rates of our cash and cash equivalents at
December 31, 2015 and 2014 (in thousands, except interest rate):
Carrying
Amount
(in
thousands)
Fair Value
(in
thousands)
Weighted
Average
Interest Rate
Maturity
December 31, 2015
Cash and cash equivalents ................................................ Daily to 90 days $
65,767 $
65,767
0.05%
December 31, 2014
Cash and cash equivalents ................................................ Daily to 90 days $
78,445 $
78,445
0.07%
As of December 31, 2015, we have an outstanding principal balance on our note with Novartis of $13.7 million, which is due in
2020. The interest rate on this note is charged at a rate of USD six-month London Interbank Offered Rate (“LIBOR”) plus 2%, which
was 2.81% at December 31, 2015. No further borrowing is available under this note.
As of December 31, 2015, we have an outstanding principal balance on our loan with Servier of €15.0 million, which converts
to approximately $16.4 million at December 31, 2015. The interest rate on this loan is charged at a floating rate based on a Euro Inter-
Bank Offered Rate (“EURIBOR”) and subject to a cap. The interest rate for the initial interest period was 3.22% and was reset semi-
annually ranging from 2.05% to 3.83%. Interest for the six-month period from mid-January 2015 through mid-July 2015 was reset to
2.16%. Interest for the six-month period from mid-July 2015 through mid-January 2016 was reset to 2.05%. No further borrowing is
available under this loan.
As of December 31, 2015, we have an outstanding principal balance on our loan with Hercules of $20.0 million. The interest
rate on this loan is the greater of either (i) 9.40% plus the prime rate as reported from time to time in The Wall Street Journal minus
7.25%, or (ii) 9.40%.
The variable interest rate related to our long-term debt instruments is based on LIBOR for our Novartis note, EURIBOR for our
Servier loan and the prime rate for the Hercules loan. We estimate a hypothetical 100 basis point change in interest rates could
increase or decrease our interest expense by approximately $0.3 million on an annualized basis.
Foreign Currency Risk
We have debt, incur expenses, and may be owed milestones denominated in foreign currencies. The amount of debt owed,
expenses incurred, or milestones owed to us will be impacted by fluctuations in these foreign currencies. When the U.S. Dollar
weakens against foreign currencies, the U.S. Dollar value of the foreign-currency denominated debt, expense, and milestones
increases, and when the U.S. Dollar strengthens against these currencies, the U.S. dollar value of the foreign-currency denominated
debt, expense, and milestones decreases. Consequently, changes in exchange rates will affect the amount we are required to repay on
our €15.0 million loan from Servier and may affect our results of operations. We estimate that a hypothetical 0.01 change in the Euro
to USD exchange rate could increase or decrease our unrealized gains or losses by approximately $0.2 million.
Our loan from Servier was fully funded in January 2011, with the proceeds converting to approximately $19.5 million using the
January 13, 2011 Euro-to-U.S.-Dollar exchange rate of 1.3020. At December 31, 2015, the €15.0 million outstanding principal
balance under the Servier Loan Agreement equaled approximately $16.4 million using the December 31, 2015 Euro-to-USD exchange
rate of 1.091. In May 2011, in order to manage our foreign currency exposure relating to our principal and interest payments on our
loan from Servier, we entered into two foreign exchange option contracts to buy €1.5 million and €15.0 million in January 2014 and
January 2016, respectively. Upfront premiums paid on these foreign exchange option contracts totaled $1.5 million. As of December
31, 2015, one option contract had expired. The remaining foreign exchange option contract had a fair value of zero at December 31,
2015 and expired in January 2016. Our use of derivative financial instruments represents risk management; we do not enter into
derivative financial contracts for trading purposes.
51
Item 8.
Financial Statements and Supplementary Data
The following consolidated financial statements of the registrant, related notes and report of independent registered public
accounting firm are set forth beginning on page F-1 of this report.
Report of Independent Registered Public Accounting Firm ...........................................................................................................
Consolidated Balance Sheets ..........................................................................................................................................................
Consolidated Statements of Comprehensive Loss ..........................................................................................................................
Consolidated Statements of Stockholders' (Deficit) Equity ............................................................................................................
Consolidated Statements of Cash Flows .........................................................................................................................................
Notes to the Consolidated Financial Statements .............................................................................................................................
F-2
F-3
F-4
F-5
F-6
F-7
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Vice
President, Finance, and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is
defined under Rule 13a-15the promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period
covered by this report. Our disclosure controls and procedures are intended to ensure that the information we are required to disclose
in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and
communicated to our management, including the Chief Executive Officer and Vice President, Finance and Chief Financial Officer, as
the principal executive and financial officers, respectively, to allow timely decisions regarding required disclosures. Based on this
evaluation, our Chief Executive Officer and our Vice President, Finance and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by this report.
Management’s Report on Internal Control over Financial Reporting
Management, including our Chief Executive Officer and our Vice President, Finance and Chief Financial Officer, is responsible
for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rules
13a-159f). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and
board of directors regarding the preparation and fair presentation of published financial statements in accordance with accounting
principles generally accepted in the United States.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in Internal Control—Integrated Framework (2013 Framework). Based on our assessment we believe that, as of December
31, 2015, our internal control over financial reporting is effective based on those criteria.
The Company’s internal control over financial reporting as of December 31, 2015, has been audited by Ernst & Young, LLP,
independent registered public accounting firm who also audited the Company’s consolidated financial statements. Ernst & Young’s
report on the Company’s internal control over financial reporting follows.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by
paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of XOMA Corporation
We have audited XOMA Corporation’s internal control over financial reporting as of December 31, 2015, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). XOMA Corporation’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included
in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion
on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, XOMA Corporation maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of XOMA Corporation as December 31, 2015 and 2014, and the related consolidated statements of
comprehensive loss, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended December 31, 2015,
of XOMA Corporation and our report dated March 9, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Redwood City, California
March 9, 2016
53
PART III
Item 10. Directors, Executive Officers, Corporate Governance
Certain information regarding our executive officers required by this Item is set forth as a Supplementary Item at the end of Part
I of this Form 10-K (pursuant to Instruction 3 to Item 401(b) of Regulation S-K). Other information required by this Item will be
included in the Company’s proxy statement for the 2016 Annual General Meeting of Stockholders (“2016 Proxy Statement”), under
the sections labeled “Item 1—Election of Directors” and “Compliance with Section 16(a) of the Securities Exchange Act of 1934”,
and is incorporated herein by reference. The 2016 Proxy Statement will be filed with the SEC within 120 days after the end of the
fiscal year to which this report relates.
Code of Ethics
The Company’s Code of Ethics applies to all employees, officers and directors including the Chief Executive Officer (principal
executive officer) and the Vice President, Finance and Chief Financial Officer (principal financial and principal accounting officer)
and is posted on the Company’s website at www.xoma.com. We intend to satisfy the applicable disclosure requirements regarding
amendments to, or waivers from, provisions of our Code of Ethics by posting such information on our website.
Item 11. Executive Compensation
Information required by this Item will be included in the sections labeled “Compensation of Executive Officers”, “Summary
Compensation Table”, “Grants of Plan-Based Awards”, “Outstanding Equity Awards as of December 31, 2015”, “Option Exercises
and Shares Vested”, “Pension Benefits”, “Non-Qualified Deferred Compensation” and “Compensation of Directors” appearing in
our 2016 Proxy Statement, and is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this Item will be included in the sections labeled “Stock Ownership” and “Equity Compensation Plan
Information” appearing in our 2016 Proxy Statement, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this Item will be included in the section labeled “Transactions with Related Persons” appearing in our
2016 Proxy Statement, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information required by this Item will be included in the section labeled “Item 3—Appointment of Independent Registered
Public Accounting Firm” appearing in our 2016 Proxy Statement, and is incorporated herein by reference.
54
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are included as part of this Annual Report on Form 10-K:
(1) Financial Statements:
All financial statements of the registrant referred to in Item 8 of this Report on Form 10-K.
(2) Financial Statement Schedules:
All financial statements schedules have been omitted because the required information is included in the
consolidated financial statements or the notes thereto or is not applicable or required.
(3) Exhibits:
The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on
Form 10-K.
55
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 9th day of March 2016.
SIGNATURES
XOMA CORPORATION
By:
/s/ JOHN VARIAN
John Varian
Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
John Varian and Thomas Burns, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection
therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ John Varian
Chief Executive Officer (Principal Executive Officer) and Director
March 9, 2016
(John Varian)
/s/ Thomas Burns
Vice President, Finance and Chief Financial Officer (Principal
March 9, 2016
(Thomas Burns)
Financial and Principal Accounting Officer)
/s/ Patrick J. Scannon
(Patrick J. Scannon)
Executive Vice President and Chief Scientific
Officer and Director
March 9, 2016
/s/ W. Denman Van Ness
Chairman of the Board of Directors
March 9, 2016
(W. Denman Van Ness)
/s/ William K. Bowes, Jr.
Director
(William K. Bowes, Jr.)
/s/ Peter Barton Hutt
(Peter Barton Hutt)
(Joseph M. Limber)
Director
Director
/s/ Timothy P. Walbert
Director
(Timothy P. Walbert)
/s/ Jack L. Wyszomierski
Director
(Jack L. Wyszomierski)
56
March 9, 2016
March 9, 2016
March 9, 2016
March 9, 2016
March 9, 2016
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm .........................................................................................................
Consolidated Balance Sheets ........................................................................................................................................................
Consolidated Statements of Comprehensive Loss ........................................................................................................................
Consolidated Statements of Stockholders' (Deficit) Equity ..........................................................................................................
Consolidated Statements of Cash Flows .......................................................................................................................................
Notes to the Consolidated Financial Statements ...........................................................................................................................
F-2
F-3
F-4
F-5
F-6
F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of XOMA Corporation
We have audited the accompanying consolidated balance sheets of XOMA Corporation as of December 31, 2015 and 2014, and
the related consolidated statements of comprehensive loss, stockholders’ (deficit) equity and cash flows for each of the three years in
the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of XOMA Corporation at December 31, 2015 and 2014, and the consolidated results of its operations, and its cash flows for
each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
XOMA Corporation’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated March 9, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Redwood City, California
March 9, 2016
F-2
XOMA Corporation
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Current assets:
ASSETS
Cash and cash equivalents ............................................................................................... $
Marketable securities .......................................................................................................
Trade and other receivables, net ......................................................................................
Prepaid expenses and other current assets .......................................................................
Total current assets .....................................................................................................
Property and equipment, net .................................................................................................
Other assets ...........................................................................................................................
Total assets ................................................................................................................. $
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable ............................................................................................................. $
Accrued and other liabilities ............................................................................................
Deferred revenue – current ..............................................................................................
Interest bearing obligations – current ..............................................................................
Accrued interest on interest bearing obligations – current ..............................................
Total current liabilities ...............................................................................................
Deferred revenue – non-current ...........................................................................................
Interest bearing obligations – non-current ............................................................................
Contingent warrant liabilities ................................................................................................
Other liabilities – non-current ...............................................................................................
Total liabilities ...........................................................................................................
Commitments and Contingencies (Note 13)
Stockholders’ (deficit) equity:
December 31,
2015
2014
65,767 $
496
4,069
1,887
72,219
1,997
664
74,880 $
6,831 $
7,025
3,198
5,910
331
23,295
—
42,757
10,464
673
77,189
78,445
—
3,309
1,859
83,613
5,120
669
89,402
5,990
9,892
1,089
19,018
257
36,246
1,939
16,290
31,828
—
86,303
Preferred stock, $0.05 par value, 1,000,000 shares authorized, 0 issued and
outstanding ...................................................................................................................
Common stock, $0.0075 par value, 277,333,332 shares authorized, 119,045,592
and 115,892,450 shares issued and outstanding at December 31, 2015 and 2014,
respectively ...................................................................................................................
Additional paid-in capital ................................................................................................
Accumulated deficit .........................................................................................................
Total stockholders’ (deficit) equity ............................................................................
Total liabilities and stockholders’ (deficit) equity ................................................ $
—
—
893
1,136,881
(1,140,083 )
(2,309 )
74,880 $
869
1,121,707
(1,119,477)
3,099
89,402
The accompanying notes are an integral part of these consolidated financial statements.
F-3
XOMA Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands, except per share amounts)
2015
Year Ended December 31,
2014
2013
Revenues:
License and collaborative fees .............................................................. $
Contract and other .................................................................................
Total revenues ..................................................................................
$
49,064
6,383
55,447
$
5,683
13,183
18,866
Operating expenses:
Research and development ....................................................................
Selling, general and administrative .......................................................
Restructuring .........................................................................................
Total operating expenses .................................................................
70,852
20,620
3,699
95,171
80,748
19,866
84
100,698
11,028
24,423
35,451
74,851
18,477
328
93,656
Loss from operations .......................................................................
(39,724)
(81,832)
(58,205)
Other income (expense):
Interest expense .....................................................................................
Other income (expense), net ..................................................................
Revaluation of contingent warrant liabilities ........................................
Loss before taxes .............................................................................
Benefit from income taxes ...............................................................
Net loss ............................................................................................ $
(4,194)
5,500
17,812
(20,606)
—
(20,606) $
(4,303)
2,061
45,773
(38,301)
—
(38,301) $
Basic net loss per share of common stock ......................................................... $
Diluted net loss per share of common stock...................................................... $
Shares used in computing basic net loss per share of common stock ...............
Shares used in computing diluted net loss per share of common stock.............
(0.17) $
(0.17) $
(0.36) $
(0.67) $
117,803
117,803
107,435
115,333
(4,631)
(197)
(61,039)
(124,072)
14
(124,058)
(1.43)
(1.43)
86,938
86,938
Other comprehensive loss:
Net loss ........................................................................................................ $
Net unrealized (loss) gain on available-for-sale securities ..........................
Comprehensive loss ............................................................................... $
(20,606) $
—
(20,606) $
(38,301) $
1
(38,300) $
(124,058)
(9)
(124,067)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
XOMA Corporation
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(in thousands)
Common Stock
Shares
Amount
Paid-In
Capital
977,962 $
Accumulated
Comprehensive Accumulated
Income
Deficit
8 $ (957,118) $
Total
Stockholders'
(Deficit) Equity
21,467
615 $
82,447 $
Balance, December 31, 2012 .......................
Exercise of stock options, contributions to
933
401(k) and incentive plans ........................
801
Vesting of restricted stock units ...................
—
Stock-based compensation expense .............
19,661
Sale of shares of common stock ...................
1,544
Exercise of warrants .....................................
—
Net loss ........................................................
Other comprehensive loss ............................
—
Balance, December 31, 2013 ....................... 105,386
Exercise of stock options, contributions to
1,065
401(k) and incentive plans ........................
981
Vesting of restricted stock units ...................
—
Stock-based compensation expense .............
8,097
Sale of shares of common stock ...................
—
Issuance of warrants .....................................
363
Exercise of warrants .....................................
—
Net loss ........................................................
Other comprehensive income .......................
—
Balance, December 31, 2014 ....................... 115,892
Exercise of stock options, contributions to
542
401(k) and incentive plans ........................
1,202
Vesting of restricted stock units ...................
—
Stock-based compensation expense .............
—
Issuance of warrants .....................................
1,410
Exercise of warrants .....................................
Net loss ........................................................
—
Balance, December 31, 2015 ....................... 119,046 $
7
6
—
147
12
—
—
2,213
(6)
5,099
82,799
8,336
—
—
787 1,076,403
11
7
—
61
—
3
—
—
4,515
(7)
10,772
37,725
(10,258)
2,557
—
—
869 1,121,707
4
9
—
—
11
—
1,463
(9)
9,727
450
3,543
—
893 $ 1,136,881 $
—
—
—
—
—
—
—
—
—
—
(124,058)
—
(9 )
—
(1 ) (1,081,176)
—
—
—
—
—
—
—
—
—
—
—
—
(38,301)
—
1
—
— (1,119,477)
—
—
—
—
—
—
—
—
—
—
—
(20,606)
— $ (1,140,083) $
2,220
—
5,099
82,946
8,348
(124,058)
(9)
(3,987)
4,526
—
10,772
37,786
(10,258)
2,560
(38,301)
1
3,099
1,467
—
9,727
450
3,554
(20,606)
(2,309)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
XOMA Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows used in operating activities:
Net loss ...................................................................................................................... $
Adjustments to reconcile net loss to net cash used in operating activities:
(20,606) $
(38,301) $
(124,058)
2015
Year Ended December 31,
2014
2013
Depreciation ........................................................................................................
Common stock contribution to 401(k) ................................................................
Stock-based compensation expense ....................................................................
Revaluation of contingent warrant liabilities.......................................................
Amortization of debt discount, final payment fee on debt, and debt
issuance costs ...................................................................................................
Gain on sale of business in connection with Agenus asset purchase
agreement .........................................................................................................
(Gain) loss on sale and retirement of property and equipment ............................
Loss on loan extinguishment ...............................................................................
Unrealized (gain) loss on foreign currency exchange .........................................
Unrealized loss on foreign exchange options ......................................................
Other non-cash adjustments ................................................................................
Changes in assets and liabilities:
Trade and other receivables, net .............................................................
Prepaid expenses and other current assets ..............................................
Accounts payable and accrued liabilities ................................................
Accrued interest on interest bearing obligations .....................................
Deferred revenue ....................................................................................
Other liabilities ........................................................................................
Net cash used in operating activities .................................................
Cash flows from investing activities:
Purchase of investments .............................................................................................
Proceeds from maturities of investments ....................................................................
Purchases of property and equipment .........................................................................
Proceeds from sale of business in connection with Agenus asset purchase
agreement ................................................................................................................
Proceeds from sale of property and equipment ...........................................................
Net cash provided by investing activities ..........................................
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs ................................
Proceeds from exercise of warrants ............................................................................
Proceeds from issuance of long term debt ..................................................................
Debt issuance costs and loan fees ...............................................................................
Principal payments – debt ..........................................................................................
Principal payments – capital lease ..............................................................................
Net cash provided by financing activities .........................................
1,532
986
9,727
(17,812)
1,856
870
10,772
(45,773)
1,413
2,707
(3,505)
(18)
429
(1,870)
6
—
(761)
(28)
(1,621)
380
356
500
(30,892)
—
—
(430)
4,862
18
4,450
481
1
20,000
(512)
(6,128)
(41)
13,801
—
—
—
(2,280)
355
(9)
472
(662)
(3,774)
(1,444)
(2,983)
(88)
(78,282)
—
20,000
(325)
—
—
19,675
41,442
35
—
—
(5,917)
—
35,560
Effect of exchange rate changes on cash .................................................................................
(37)
(167)
Net (decrease) increase in cash and cash equivalents ..............................................................
Cash and cash equivalents at the beginning of the year ..........................................................
Cash and cash equivalents at the end of the year..................................................................... $
(12,678)
78,445
65,767 $
(23,214)
101,659
78,445 $
2,575
828
5,099
61,039
2,470
—
281
—
662
127
(20)
4,486
481
2,901
2,284
(3,399)
(1,671)
(45,915)
(19,991)
40,000
(1,169)
—
—
18,840
84,338
2,176
—
—
(3,125)
—
83,389
—
56,314
45,345
101,659
Supplemental Cash Flow Information:
Cash paid for interest ........................................................................................................ $
Non-cash investing and financing activities:
1,927 $
3,009 $
1,262
Marketable securities received in conjunction with the disposal of business ....... $
Equipment acquired through capital lease ............................................................ $
Reclassification of contingent warrant liability to equity upon
exercise of warrants .......................................................................................... $
Issuance of warrants ............................................................................................. $
Interest added to principal balances on long-term debt ........................................ $
Investment in Symplmed Pharmaceuticals, LLC ................................................. $
496 $
323 $
(3,552)
$
450 $
327 $
— $
— $
— $
$
(2,526)
10,258 $
313 $
— $
The accompanying notes are an integral part of these consolidated financial statements.
—
—
(6,171)
—
935
171
F-6
XOMA Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
XOMA Corporation (“XOMA” or the “Company”), a Delaware corporation, combines a portfolio of clinical programs and
research activities to develop innovative therapeutic antibodies that it intends to commercialize. XOMA focuses its scientific research
on allosteric modulation, which offers opportunities for new classes of therapeutic antibodies to treat a wide range of human diseases.
XOMA’s scientific research has produced five product candidates to treat diseases within the endocrine therapeutic area. These
include candidates from the XMet platform, which consists of several Selective Insulin Receptor Modulator antibodies that could offer
new approaches in the treatment of metabolic diseases. The lead compound from the XMet platform, XOMA 358, is a fully human
monoclonal negative allosteric modulating antibody that binds to insulin receptors and attenuates insulin action. XOMA intends to
investigate this compound as a novel treatment for non-drug-induced, endogenous hyperinsulinemic hypoglycemia (low blood glucose
caused by excessive insulin produced by the body). In October 2015, the Company initiated a Phase 2 proof-of-concept study for
XOMA 358 in patients with congenital hyperinsulinemia. XOMA’s endocrine portfolio also includes a Phase 2 ready product
candidate targeting the prolactin receptor as well as other preclinical or research stage programs. The Company’s products are
presently in various stages of development and are subject to regulatory approval before they can be commercially launched.
On July 22, 2015, the Company announced the Phase 3 EYEGUARD-B study of gevokizumab in patients with Behçet’s disease
uveitis, run by Servier, its partner for gevokizumab, did not meet the primary endpoint of time to first acute ocular exacerbation. In
August 2015, XOMA announced its intention to end the EYEGUARD global Phase 3 program. In September 2015, Servier notified
XOMA of its intention to terminate the Amended and Restated Collaboration and License Agreement dated February 14, 2012, as
later amended on November 4, 2014 and January 9, 2015, and return the gevokizumab rights to XOMA. Termination of the
collaboration agreement with Servier will be effective on March 25, 2016. As gevokizumab does not fit the Company’s strategic focus
on endocrine diseases, the Company announced in March 2016 it is closing its Phase 3 study in pyoderma gangrenosum.
Liquidity and Management Plans
The Company has incurred operating losses since its inception and had an accumulated deficit of $1.1 billion at December 31,
2015. Management expects operating losses and negative cash flows to continue for the foreseeable future. As of December 31,
2015, the Company had $66.3 million in cash, cash equivalents and marketable securities, which is available to fund future operations.
Taking into account the repayment of its outstanding debt classified within current liabilities on the Company’s consolidated balance
sheet as of December 31, 2015, the Company anticipates that it has adequate resources to fund its operations through December 31,
2016.
The Company’s ability to raise additional capital in the equity and debt markets, should the Company choose to do so, is
dependent on a number of factors, including, but not limited to, the market demand for the Company’s common stock, which itself is
subject to a number of pharmaceutical development and business risks and uncertainties, as well as the uncertainty that the Company
would be able to raise such additional capital at a price or on terms that are favorable to the Company.
2. Basis of Presentation and Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions among consolidated entities were eliminated upon consolidation.
F-7
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and
related disclosures. On an on-going basis, management evaluates its estimates including, but not limited to, those related to contingent
warrant liabilities, revenue recognition, debt amendments, research and development expense, long-lived assets, restructuring
liabilities, legal contingencies, derivative instruments and stock-based compensation. The Company bases its estimates on historical
experience and on various other market-specific and other relevant assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ significantly from these estimates, such as the Company’s billing under
government contracts and the Company’s accrual for clinical trial expenses. Under the Company’s contracts with the National
Institute of Allergy and Infectious Diseases (“NIAID”), a part of the National Institutes of Health (“NIH”), the Company bills using
NIH provisional rates and thus is subject to future audits at the discretion of NIAID’s contracting office. These audits can result in an
adjustment to revenue previously reported which potentially could be significant. The Company’s accrual for clinical trials is based on
estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research
organizations. Payments under the contracts depend on factors such as the achievement of certain events, successful enrollment of
patients, and completion of portions of the clinical trial or similar conditions.
Revenue Recognition
Revenue is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectability is
reasonably assured. The determination of criteria (2) is based on management’s judgments regarding whether a continuing
performance obligation exists. The determination of criteria (3) and (4) are based on management’s judgments regarding the nature of
the fee charged for products or services delivered and the collectability of those fees. Allowances are established for estimated
uncollectible amounts, if any.
The Company recognizes revenue from its license and collaboration arrangements, contract services, product sales and royalties.
Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including
whether the delivered element has stand-alone value to the customer and whether there is objective and reliable evidence of the fair
value of the undelivered items. Each deliverable in the arrangement is evaluated to determine whether it meets the criteria to be
accounted for as a separate unit of accounting or whether it should be combined with other deliverables. In order to account for the
multiple-element arrangements, the Company identifies the deliverables included within the arrangement and evaluates which
deliverables represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment,
and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. The
consideration received is allocated among the separate units of accounting based on their respective fair values and the applicable
revenue recognition criteria are applied to each of the separate units. Advance payments received in excess of amounts earned are
classified as deferred revenue until earned.
License and Collaborative Fees
Revenue from non-refundable license, technology access or other payments under license and collaborative agreements where
the Company has a continuing obligation to perform is recognized as revenue over the estimated period of the continuing performance
obligation. The Company estimates the performance period at the inception of the arrangement and reevaluates it each reporting
period. Management makes its best estimate of the period over which it expects to fulfill the performance obligations, which may
include clinical development activities. Given the uncertainties of research and development collaborations, significant judgment is
required to determine the duration of the performance period. This reevaluation may shorten or lengthen the period over which the
remaining revenue is recognized. Changes to these estimates are recorded on a prospective basis.
License and collaboration agreements with certain third parties also provide for contingent payments to be paid to XOMA based
solely upon the performance of the partner. For such contingent payments revenue is recognized upon completion of the milestone
event, once confirmation is received from the third party, provided that collection is reasonably assured and the other revenue
recognition criteria have been satisfied. Milestone payments that are not substantive or that require a continuing performance
obligation on the part of the Company are recognized over the expected period of the continuing performance obligation. Amounts
received in advance are recorded as deferred revenue until the related milestone is completed.
F-8
Payment related to an option to purchase the Company’s commercialization rights is considered substantive if, at the inception
of the arrangement, the Company is at risk as to whether the collaboration partner will choose to exercise the option. Factors that the
Company considers in evaluating whether an option is substantive include the overall objective of the arrangement, the benefit the
collaborator might obtain from the arrangement without exercising the option, the cost to exercise the option and the likelihood that
the option will be exercised. For arrangements under which an option is considered substantive, the Company does not consider the
item underlying the option to be a deliverable at the inception of the arrangement and the associated option fees are not included in
allocable arrangement consideration, assuming the option is not priced at a significant and incremental discount. Conversely, for
arrangements under which an option is not considered substantive or if an option is priced at a significant and incremental discount,
the Company would consider the item underlying the option to be a deliverable at the inception of the arrangement and a
corresponding amount would be included in allocable arrangement consideration.
Contract and Other Revenues
Contract revenue for research and development involves the Company providing research and development and manufacturing
services to collaborative partners, biodefense contractors or others. Cost reimbursement revenue under collaborative agreements is
recorded as contract and other revenues and is recognized as the related research and development costs are incurred, as provided for
under the terms of these agreements. Revenue for certain contracts is accounted for by a proportional performance, or output-based,
method where performance is based on estimated progress toward elements defined in the contract. The amount of contract revenue
and related costs recognized in each accounting period are based on management’s estimates of the proportional performance during
the period. Adjustments to estimates based on actual performance are recognized on a prospective basis and do not result in reversal of
revenue should the estimate to complete be extended. In 2014, the Company had a $1.8 million adjustment to decrease previously
invoiced balances from the NIAID contract (see Note 4).
Up-front fees associated with contract revenue are recorded as license and collaborative fees and are recognized in the same
manner as the final deliverable, which is generally ratably over the period of the continuing performance obligation. Given the
uncertainties of research and development collaborations, significant judgment is required to determine the duration of the
arrangement.
Royalty revenue and royalty receivables are recorded in the periods these royalty amounts are earned, if estimable and
collectibility is reasonably assured. The royalty revenue and receivables recorded in these instances are based upon communication
with collaborative partners or licensees, historical information and forecasted sales trends.
Research and Development Expenses
The Company expenses research and development costs as incurred. Research and development expenses consist of direct costs
such as salaries and related personnel costs, and material and supply costs, and research-related allocated overhead costs, such as
facilities costs. In addition, research and development expenses include costs related to clinical trials. From time to time, research and
development expenses may include up-front fees and milestones paid to collaborative partners for the purchase of rights to in-process
research and development. Such amounts are expensed as incurred.
The Company’s accrual for clinical trials is based on estimates of the services received and efforts expended pursuant to
contracts with clinical trial centers and clinical research organizations. The Company may terminate these contracts upon written
notice and is generally only liable for actual effort expended by the organizations to the date of termination, although in certain
instances the Company may be further responsible for termination fees and penalties. The Company makes estimates of its accrued
expenses as of each balance sheet date based on the facts and circumstances known to the Company at that time. Expenses resulting
from clinical trials are recorded when incurred based, in part on estimates as to the status of the various trials. In 2014, the Company
changed its methodology of accrual for the per-patient component of clinical trial expense from straight-line over the patient treatment
period to scheduled costs as projected by the contract research organization. The change resulted in a $0.2 million adjustment to the
Company’s accrued estimates for clinical trial activities from inception of the trials through December 31, 2014.
Stock-Based Compensation
The Company recognizes compensation expense for all stock-based payment awards made to the Company’s employees,
consultants and directors that are expected to vest based on estimated fair values. The valuation of stock option awards is determined
at the date of grant using the Black-Scholes Option Pricing Model (the “Black-Scholes Model”). The Black-Scholes Model requires
inputs such as the expected term of the option, expected volatility and risk-free interest rate. To establish an estimate of expected term,
the Company considers the vesting period and contractual period of the award and its historical experience of stock option exercises,
post-vesting cancellations and volatility. The estimate of expected volatility is based on the Company’s historical volatility. The risk-
free rate is based on the yield available on United States Treasury zero-coupon issues corresponding to the expected term of the award.
F-9
The valuation of restricted stock units (“RSUs”) is determined at the date of grant using the Company’s closing stock price.
To establish an estimate of forfeiture rate, the Company considers its historical experience of option forfeitures and
terminations. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ
from estimates.
Restructuring Charges
Restructuring costs, which primarily include termination benefits and contract termination costs, are recorded at estimated fair
value. Key assumptions in determining the restructuring costs include the terms and payments that may be negotiated to terminate
certain contractual obligations and the timing of employees leaving the Company.
Cash, Cash Equivalents and Marketable Securities
The Company considers all highly liquid debt instruments with maturities of three months or less at the time the Company
acquires them and that can be liquidated without prior notice or penalty to be cash equivalents.
All marketable securities have been classified as “available-for-sale” and are carried at fair value, with unrealized gains and
losses, net of tax, if any, reported in other comprehensive income (loss). The estimate of fair value is based on publicly available
market information. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities
are included in other income (expense), net. The Company reviews its instruments for other-than-temporary impairment whenever the
value of the instrument is less than the amortized cost. The cost of investments sold is based on the specific identification method.
Interest and dividends on securities classified as available-for-sale are included in other income (expense), net.
Property and Equipment and Long-Lived Assets
Property and equipment is stated at cost less depreciation. Equipment depreciation is calculated using the straight-line method
over the estimated useful lives of the assets (three to seven years). Leasehold improvements, buildings and building improvements are
depreciated using the straight-line method over the shorter of the lease terms or the useful lives (one to fifteen years). Depreciation
expense for assets acquired through capital leases is included in depreciation expense in the consolidated statements of comprehensive
loss. Upon the sale or retirement of assets, the cost and related accumulated depreciation and amortization are removed from the
consolidated balance sheets, and the resulting gain or loss, if any, is reflected in other income (expense), net in the consolidated
statements of comprehensive loss. Repairs and maintenance costs are charged to expense as incurred.
Long-lived assets include property and equipment. The carrying value of our long-lived assets is reviewed for impairment
whenever events or changes in circumstances indicate that the asset may not be recoverable. An impairment loss would be recognized
when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying
amount. During the years ended December 31, 2015, 2014, and 2013, there were no such impairment losses recognized.
Warrants
The Company has issued warrants to purchase shares of its common stock in connection with financing activities. The Company
accounts for some of these warrants as a liability at fair value and others as equity at fair value. The fair value of the outstanding
warrants is estimated using the Black-Scholes Model. The Black-Scholes Model requires inputs such as the expected term of the
warrants, expected volatility and risk-free interest rate. These inputs are subjective and require significant analysis and judgment to
develop. For the estimate of the expected term, the Company uses the full remaining contractual term of the warrant. The Company
determines the expected volatility assumption in the Black-Scholes Model based on historical stock price volatility observed on
XOMA’s underlying stock. The assumptions associated with contingent warrant liabilities are reviewed each reporting period and
changes in the estimated fair value of these contingent warrant liabilities are recognized in revaluation of contingent warrant liabilities
within the consolidated statements of comprehensive loss.
Income Taxes
The Company accounts for income taxes using the liability method under which deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount which is more likely than not to be realizable.
F-10
The recognition, derecognition and measurement of a tax position is based on management’s best judgment given the facts,
circumstances and information available at each reporting date. The Company’s policy is to recognize interest and penalties related to
the underpayment of income taxes as a component of income tax expense. To date, there have been no interest or penalties charged in
relation to the unrecognized tax benefits.
Net Loss per Share of Common Stock
Basic net loss per share of common stock is based on the weighted average number of shares of common stock outstanding
during the period. Diluted net loss per share of common stock is based on the weighted average number of shares outstanding during
the period, adjusted to include the assumed conversion of certain stock options, RSUs, and warrants for common stock. The
calculation of diluted loss per share of common stock requires that, to the extent the average market price of the underlying shares for
the reporting period exceeds the exercise price of the warrants and the presumed exercise of such securities are dilutive to earnings
(loss) per share of common stock for the period, adjustments to net income or net loss used in the calculation are required to remove
the change in fair value of the warrants for the period. Likewise, adjustments to the denominator are required to reflect the related
dilutive shares.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance codified in Accounting Standards
Codification (“ASC”) 606, Revenue Recognition — Revenue from Contracts with Customers, which amends the guidance in ASC 605,
Revenue Recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or
services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those
goods or services. In August 2015, the FASB issued an accounting update to defer the effective date by one year for public entities
such that it is now applicable for annual and interim periods beginning after December 15, 2017. Early adoption is permitted for
periods beginning after December 15, 2016. Entities would have the option of using either a full retrospective or a modified
retrospective approach to adopt this new guidance. The Company is currently evaluating the impact of the adoption of this standard on
its consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). This ASU introduces an explicit requirement for management to
assess if there is substantial doubt about an entity’s ability to continue as a going concern, and to provide related footnote disclosures
in certain circumstances. In connection with each annual and interim period, management must assess if there is substantial doubt
about an entity’s ability to continue as a going concern within one year after the issuance date. Disclosures are required if conditions
give rise to substantial doubt. ASU 2014-15 is effective for all entities in the first annual period ending after December 15, 2016. The
adoption of this guidance is not expected to have any impact on the Company’s financial position and results of operations.
F-11
In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs (“ASU 2015-03”), which requires that debt issuance costs related to a recognized debt liability be presented in
the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company
early adopted ASU 2015-03 as of January 1, 2015, as permitted. There is no impact of early adoption of ASU 2015-03 on the
consolidated statements of comprehensive loss. The impact of early adoption on the consolidated balance sheets for the periods
presented is noted in the table below (in thousands):
December 31, 2015
December 31, 2014
Prior to
Adoption of
ASU 2015-03
ASU 2015-03
Adjustment As Adopted
Prior to
Adoption of
ASU 2015-03
ASU 2015-03
Adjustment As Adopted
Prepaid expenses and other
current assets ............................. $
Total current assets....................... $
Other assets .................................. $
Total assets ................................... $
Interest bearing obligations –
current ....................................... $
Total current liabilities ................. $
Interest bearing obligations –
long-term ................................... $
Total liabilities ............................. $
2,076 $
72,408 $
838 $
75,243 $
6,099 $
23,484 $
42,931 $
77,552 $
(189) $
(189) $
(174) $
(363) $
(189) $
(189) $
(174) $
(363) $
1,887 $
72,219 $
664 $
74,880 $
5,910 $
23,295 $
42,757 $
77,189 $
2,088 $
83,842 $
669 $
89,631 $
19,247 $
36,475 $
16,290 $
86,532 $
(229) $
(229) $
- $
(229) $
(229) $
(229) $
- $
(229) $
1,859
83,613
669
89,402
19,018
36,246
16,290
86,303
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which simplifies the
presentation of deferred income taxes. This ASU amends the existing guidance to require presentation of deferred tax assets and
liabilities as noncurrent within a classified statement of financial position. The Company early adopted ASU 2015-17 effective
December 2015 on a prospective basis. The adoption did not have an impact on the consolidated financial statements of the Company.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities, related to accounting for equity investments, financial liabilities under the
fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified the
guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on
available-for-sale debt securities. The guidance will become effective for the Company beginning in the first quarter of 2018. Early
adoption is permitted. The Company is evaluating the impact of the adoption of this accounting guidance on its consolidated financial
statements.
F-12
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which supersedes Topic 840, Leases. From a lessee
accounting perspective, the core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases.
A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-
use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a
lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise
an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the
underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to
exercise that purchase option. Reasonably certain is a high threshold that is consistent with and intended to be applied in the same way
as the reasonably assured threshold under Topic 840. In addition, also consistent with Topic 840, a lessee (and a lessor) should
exclude most variable lease payments in measuring lease assets and lease liabilities, other than those that depend on an index or a rate
or are in substance fixed payments. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy
election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should
recognize lease expense for such leases generally on a straight-line basis over the lease term. Under Topic 842, there continues to be a
differentiation between finance leases (which replaces capital leases) and operating leases. However, the principal difference from the
previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the statement of
financial position. The accounting applied by a lessor is largely unchanged from that applied under Topic 840. The guidance will
become effective for the Company beginning in the first quarter of 2019. Early adoption is permitted. In transition, lessees and lessors
are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.
The modified retrospective approach includes a number of optional practical expedients primarily focused on leases that commenced
before the effective date of Topic 842, including continuing to account for leases that commence before the effective date in
accordance with previous guidance, unless the lease is modified. The Company is evaluating the impact of the adoption of the
standard on its consolidated financial statements.
3. Consolidated Financial Statement Detail
Cash and Cash Equivalents
At December 31, 2015, cash and cash equivalents consisted of demand deposits of $23.2 million and money market funds of
$42.6 million with maturities of less than 90 days at the date of purchase. At December 31, 2014, cash and cash equivalents consisted
of demand deposits of $10.8 million and money market funds of $67.6 million with maturities of less than 90 days at the date of
purchase.
Marketable Securities
At December 31, 2015, marketable securities consisted of an investment in the common stock of a public entity of $0.5 million.
At December 31, 2014, there were no marketable securities. The Company had no unrealized gains or losses associated with its
marketable securities as of December 31, 2015.
Foreign Exchange Options
The Company holds debt and may incur revenue and expenses denominated in foreign currencies, which exposes it to market
risk associated with foreign currency exchange rate fluctuations between the U.S. dollar and the Euro. The Company is required in the
future to make principal and accrued interest payments in Euros on its €15.0 million loan from Servier (see Note 8). In order to
manage its foreign currency exposure related to these payments, in May 2011, the Company entered into two foreign exchange option
contracts to buy €1.5 million and €15.0 million in January 2014 and January 2016, respectively. By having these option contracts in
place, the Company’s foreign exchange rate risk is reduced if the U.S. dollar weakens against the Euro. However, if the U.S. dollar
strengthens against the Euro, the Company is not required to exercise these options, but will not receive any refund on premiums paid.
Upfront premiums paid on these foreign exchange option contracts totaled $1.5 million. The fair values of these option contracts
are revalued at each reporting period and are estimated based on pricing models using readily observable inputs from actively quoted
markets. The fair values of these option contracts are included in other assets on the consolidated balance sheet and changes in fair
value on these contracts are included in other income (expense), net on the consolidated statements of comprehensive loss.
As of December 31, 2014, one option contract had expired. The remaining foreign exchange option was revalued at December
31, 2015 and 2014 and the fair value was zero. The Company recognized losses of $6,000, $0.4 million, and $0.1 million related to
the revaluation of these options for the years ended December 31, 2015, 2014, and 2013, respectively.
F-13
Trade and Other Receivables, net
Trade receivables are stated at their net realizable value. Specific allowances are recorded for known troubled accounts or based
on other available information. The Company reviews their exposure to accounts receivable, including the requirement for allowances
based on management’s judgment. The Company has not historically experienced any significant losses. As of December 31, 2015
and 2014, the allowance for doubtful accounts amounted to $0.2 million and $0.4 million, respectively. Trade receivables are written
off after all reasonable means to collect the full amount have been exhausted. The Company has not historically experienced any
significant losses.
Trade and other receivables consisted of the following (in thousands):
Trade receivables, net ............................................................... $
Other receivables ......................................................................
Total .................................................................................... $
3,718 $
351
4,069 $
2,993
316
3,309
December 31,
2015
2014
Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
Equipment and furniture ........................................................... $
Buildings, leasehold and building improvements .....................
Construction-in-progress ...........................................................
Land ..........................................................................................
Less: Accumulated depreciation and amortization ..................
Property and equipment, net ..................................................... $
December 31,
2015
2014
14,431 $
2,776
243
—
17,450
(15,453)
1,997 $
28,638
9,343
337
310
38,628
(33,508 )
5,120
As of December 31, 2015, property and equipment held under capital leases, included under construction-in-progress above,
amounted to $0.2 million, with accumulated depreciation of zero. Depreciation and amortization expense was $1.5 million, $1.9
million, and $2.9 million for the years ended December 31, 2015, 2014, and 2013, respectively. In December 2015, the Company
completed the sale of its land, building and certain equipment used for its manufacturing operations (see Note 6). The related cost and
accumulated depreciation and amortization amounts of $15.9 million and $13.7 million, respectively, have been removed from the
consolidated balance sheet and a gain of $3.5 million was recorded on the other income (expense), net line of the Company’s
consolidated statements of comprehensive loss for the year ended December 31, 2015.
Accrued and Other Liabilities
Accrued and other liabilities consisted of the following (in thousands):
Accrued management incentive compensation ......................................... $
Accrued payroll and other benefits ...........................................................
Accrued legal and accounting fees ...........................................................
Accrued restructuring costs ......................................................................
Accrued clinical trial costs........................................................................
Other .........................................................................................................
Total .................................................................................................... $
December 31,
2015
2014
2,609 $
2,156
517
459
406
878
7,025 $
4,295
3,061
409
—
1,424
703
9,892
F-14
4. Collaborative, Licensing and Other Arrangements
Collaborative and Other Agreements
Novartis
In November 2008, the Company restructured its product development collaboration with Novartis AG (“Novartis”) entered into
in 2004 for the development and commercialization of antibody products for the treatment of cancer. Under the restructured
agreement, the Company received $6.2 million in cash and $7.5 million in the form of debt reduction on its existing loan facility with
Novartis. In addition, the Company could, in the future, receive potential milestones of up to $14.0 million and royalty rates which
ranged from low-double digit to high-teen percentage rates for two ongoing product programs, CD40 and prolactin receptor antibodies
and options to develop or receive royalties on additional programs. In exchange, Novartis received control over the CD40 and
prolactin receptor antibody programs, as well as the right to expand the development of these programs into additional indications
outside of oncology. Novartis has returned control of the prolactin receptor antibody program to the Company; which is now referred
to as XOMA 213. The Company’s right to royalty-style payments expires on the later of the expiration of any licensed patent covering
each product or 20 years from the launch of each product that is produced from a cell line provided to Novartis by XOMA. In 2013,
the Company received a $7.0 million milestone relating to one currently active program. Pursuant to the obligations under the
agreement, in January 2014, the Company made a payment, equal to 25 percent of the milestone received, or $1.75 million, toward its
outstanding debt obligation to Novartis. In 2014 and 2015, no revenue was recognized under the collaboration agreement with
Novartis.
A loan facility of up to $50.0 million was available to the Company to fund up to 75% of its share of development expenses
incurred beginning in 2005 (see Note 8).
On September 30, 2015 (the “Effective Date”), the Company and Novartis International Pharmaceutical Ltd. (“Novartis
International”) entered into a license agreement (the “License Agreement”) pursuant to which the Company granted Novartis
International an exclusive, world-wide, royalty-bearing license to the Company’s anti-transforming growth factor beta (TGF(cid:533))
antibody program (the “anti-TGF(cid:533) Program”). Under the terms of the License Agreement, Novartis International has worldwide rights
to the anti-TGF(cid:533) Program and is responsible for the development and commercialization of antibodies and products containing
antibodies arising from the anti-TGF(cid:533) Program. Within 90 days of the Effective Date, the Company was required to transfer certain
proprietary know-how, materials and inventory relating to the anti-TGF(cid:533) Program to Novartis International. The transfer of certain
proprietary know-how, materials and inventory relating to the anti-TGF(cid:533) Program to Novartis International was completed in the
fourth quarter of 2015.
Under the License Agreement, the Company received a $37.0 million upfront fee. The Company is also eligible to receive up to
a total of $480.0 million in development, regulatory and commercial milestones. Any such payments will be treated as contingent
consideration and recognized as revenue when they are achieved, as the Company has no performance obligations under the License
Agreement beyond the initial 90-day period. No milestone payments have been received as of December 31, 2015. The Company is
also eligible to receive royalties on sales of licensed products, which are tiered based on sales levels and range from a mid-single digit
percentage rate to up to a low double-digit percentage rate. Novartis International’s obligation to pay royalties with respect to a
particular product and country will continue for the longer of the date of expiration of the last valid patent claim covering the product
in that country, or ten years from the date of the first commercial sale of the product in that country.
The License Agreement contains customary termination rights relating to material breach by either party. Novartis International
also has a unilateral right to terminate the License Agreement on an antibody-by-antibody and country-by-country basis or in its
entirety on one hundred eighty days’ notice.
The Company identified the following performance deliverables under the License Agreement: (i) the license, (ii) regulatory
services to be delivered within 90 days from the Effective Date and (iii) transfer of materials, process and know-how, also to be
delivered within 90 days from the Effective Date. The Company considered the provisions of the multiple-element arrangement
guidance in determining how to recognize the revenue associated with these deliverables. The Company determined that none of the
deliverables have standalone value and therefore has accounted for them as a single unit of account. The Company recognized the
entire upfront payment as revenue in the consolidated statement of comprehensive loss as it had completed its performance obligations
as of December 31, 2015.
F-15
In connection with the execution of the License Agreement, XOMA and Novartis Vaccines Diagnostics, Inc. (“NVDI”)
executed an amendment to their Amended and Restated Research, Development and Commercialization Agreement dated July 1,
2008, as amended, relating to anti-CD40 antibodies (the “Collaboration Agreement Amendment”). Pursuant to the Collaboration
Agreement Amendment, the parties agreed to reduce the royalty rates and period that XOMA is eligible to receive on sales of NVDI’s
clinical stage anti-CD40 antibodies. These royalties are tiered based on sales levels and now range from a mid-single digit percentage
rate to up to a low double-digit percentage rate and royalties are payable until the later of any licensed patent covering each product or
ten years from the launch of each product. In addition, XOMA and NVDI amended the note agreement to extend the maturity date of
the note from September 30, 2015 to September 30, 2020 (see Note 8). All other terms of the Amended and Restated Research,
Development and Commercialization Agreement remained unchanged.
Servier
In December 2010, the Company entered into a license and collaboration agreement (“Collaboration Agreement”) with Servier,
to jointly develop and commercialize gevokizumab in multiple indications, which provided for a non-refundable upfront payment of
$15.0 million that was received by the Company in January 2011. The upfront payment was recognized over the eight month period
that the initial group of deliverables were provided to Servier. In addition, the Company received a loan of €15.0 million, which was
fully funded in January 2011, with the proceeds converting to $19.5 million at the date of funding (see Note 8). Under the terms of the
Collaboration Agreement, Servier had worldwide rights to cardiovascular disease and diabetes indications and had rights outside the
United States and Japan to all other indications, including non-infectious intermediate, posterior or pan-uveitis (“NIU”), Behçet’s
disease uveitis, pyoderma gangrenosum, and other inflammatory and oncology indications. XOMA retained development and
commercialization rights in the United States and Japan for all indications other than cardiovascular disease and diabetes.
Under the Collaboration Agreement, Servier funded all activities to advance the global clinical development and future
commercialization of gevokizumab in cardiovascular-related diseases and diabetes. Also, Servier funded the first $50.0 million of
gevokizumab global clinical development and chemistry, manufacturing and controls expenses related to the three pivotal clinical
trials under the EYEGUARD program. All remaining expenses related to these three pivotal clinical trials were shared equally
between Servier and the Company. For the years ended December 31, 2015, 2014, and 2013, the Company recorded revenue of $1.2
million, $3.5 million, and $13.6 million, respectively, from this Collaboration Agreement.
On January 9, 2015, concurrent with a loan amendment (see Note 8), the Company and Servier entered into Amendment No. 2
to the Collaboration Agreement (“Collaboration Amendment”). Under the Collaboration Agreement, the Company was eligible to
receive up to approximately €356.5 million in the aggregate in milestone payments if the Company re-acquired cardiovascular and/or
diabetes rights for use in the United States, and approximately €633.8 million in aggregate milestone payments if the Company did not
re-acquire those rights. Under the Collaboration Amendment, the Company was eligible to receive up to €341.5 million in the
aggregate in milestone payments in the event the Company re-acquired the cardiovascular and/or diabetes rights for use in the United
States and approximately €618.8 million if the Company did not re-acquire those rights. The milestone reductions were related to a
low prevalence indication for which Servier would not have pursued development had these payments been required. All other terms
of the Collaboration Agreement remained unchanged.
On September 28, 2015, Servier notified XOMA of its intention to terminate the Collaboration Agreement, as amended, and
return the gevokizumab rights to XOMA. The termination will be effective on March 25, 2016, and does not result in a change to the
maturity date of the Company’s loan with Servier (see Note 8). As the Company will no longer be required to provide services to
Servier under the Collaboration Agreement beyond the effective date, the Company will amortize the remaining deferred revenue
through March 2016. As of December 31, 2015, the deferred revenue – current associated with this collaboration was $0.6 million.
F-16
NIAID
In September 2008, the Company announced that it had been awarded a $64.8 million multiple-year contract funded with
federal funds from NIAID (Contract No. HHSN272200800028C), to continue the development of anti-botulinum antibody product
candidates. The contract work is being performed on a cost plus fixed fee basis over a three-year period. The Company recognizes
revenue under the arrangement as the services are performed on a proportional performance basis. In 2011, the NIH conducted an
audit of the Company’s actual data for period from January 1, 2007 through December 31, 2009 and developed final billing rates for
this period. As a result, the Company retroactively applied these NIH rates to the invoices from this period resulting in an increase in
revenue of $1.1 million from the NIH, excluding $0.9 million billed to the NIH in 2010 resulting from the Company’s performance of
a comparison of 2009 calculated costs incurred and costs billed to the government under provisional rates. In 2014, upon completion
of a NIAID review of hours and external expenses, XOMA agreed to exclude certain hours and external expenses resulting in a $1.8
million adjustment to decrease previously invoiced balances. The adjustment was offset by a $1.9 million deferred revenue balance
that was recorded in 2012 as a result of a rate adjustment for the period 2007 to 2009. This adjustment reduced accounts receivable
and deferred revenue by $1.8 million to reflect the final settlement of the 2008 to 2013 hours and external review. The remaining $0.1
million in deferred revenue in connection with the 2011 NIH rate audit will be recognized upon completion of negotiations with and
approval by the NIH. The Company recognized revenue of $0.2 million, $1.2 million and $4.4 million under this contract, for the
years ended December 31, 2015, 2014 and 2013, respectively.
In October 2011, the Company announced that NIAID had awarded the Company a new contract under Contract No.
HHSN272201100031C for up to $28.0 million over five years to develop broad-spectrum antitoxins for the treatment of human
botulism poisoning. The contract work is being performed on a cost plus fixed fee basis over the life of the contract and the Company
is recognizing revenue under the arrangement as the services are performed on a proportional performance basis. The Company
recognized revenue of $4.9 million, $8.4 million and $4.7 million under this contract, for the years ended December 31, 2015, 2014
and 2013, respectively.
Takeda
In November 2006, the Company entered into a fully funded collaboration agreement with Takeda for therapeutic monoclonal
antibody discovery and development. Under the agreement, Takeda will make up-front, annual maintenance and milestone payments
to the Company, fund its research and development and manufacturing activities for preclinical and early clinical studies and pay
royalties on sales of products resulting from the collaboration. Takeda will be responsible for clinical trials and commercialization of
drugs after an Investigational New Drug Application submission and is granted the right to manufacture once the product enters into
Phase 2 clinical trials. During the collaboration, the Company will discover therapeutic antibodies against targets selected by Takeda.
The Company will recognize revenue on the up-front and annual payments on a straight-line basis over the expected term of each
target antibody discovery, on the research and development and manufacturing services as they are performed on a time and materials
basis, on the milestones when they are achieved and on the royalties when the underlying sales occur. The Company recognized
revenue of $0.1 million, $1.6 million and $0.1 million under this agreement for the years ended December 31, 2015, 2014 and 2013,
respectively.
Under the terms of this agreement, the Company may receive milestone payments aggregating up to $19.0 million relating to
one undisclosed product candidate and low single-digit royalties on future sales of all products subject to this license. In addition, in
the event Takeda were to develop additional future qualifying product candidates under the terms of the agreement, the Company
would be eligible for milestone payments aggregating up to $20.8 million for each such qualifying product candidate. The Company’s
right to milestone payments expires on the later of the receipt of payment from Takeda of the last amount to be paid under the
agreement or the cessation of all research and development activities with respect to all program antibodies, collaboration targets
and/or collaboration products. The Company’s right to royalties expires on the later of 13.5 years from the first commercial sale of
each royalty-bearing discovery product or the expiration of the last-to-expire licensed patent.
In February 2009, the Company expanded its existing collaboration agreement with Takeda to provide Takeda with access to
multiple antibody technologies, including a suite of research and development technologies and integrated information and data
management systems. The Company may receive milestones of up to $3.3 million per discovery product candidate and low single-
digit royalties on future sales of all antibody products subject to this license. The Company’s right to milestone payments expires on
the later of the receipt of payment from Takeda of the last amount to be paid under the agreement or the cessation of all research and
development activities with respect to all program antibodies, collaboration targets and/or collaboration products. The Company’s
right to royalties expires on the later of 10 years from the first commercial sale of such royalty-bearing discovery product, or the
expiration of the last-to-expire licensed patent.
F-17
Pfizer
In August 2007, the Company entered into a license agreement (the “2007 Agreement”) with Pfizer Inc. (“Pfizer”) for non-
exclusive, worldwide rights for XOMA’s patented bacterial cell expression technology for research, development and manufacturing
of antibody products. Under the terms of the 2007 Agreement, the Company received a license fee payment of $30.0 million in 2007.
From 2011 through 2015, the Company received milestone payments aggregating $4.2 million.
On December 3, 2015, the Company and Pfizer entered into a settlement and amended license agreement pursuant to which
XOMA granted Pfizer a fully-paid, royalty-free, worldwide, irrevocable, non-exclusive license right to XOMA’s patented bacterial
cell expression technology for phage display and other research, development and manufacturing of antibody products. Under the
amended license agreement, the Company received a cash payment of $3.8 million in full satisfaction of all obligations to XOMA
under the 2007 Agreement, including but not limited to potential milestone, royalty and other fees under the 2007 Agreement. The
Company recognized the entire payment from Pfizer as revenue upon delivery of the license in 2015.
In August 2005, the Company entered into a license agreement with Wyeth (subsequently acquired by Pfizer) for non-exclusive,
worldwide rights for certain of XOMA’s patented bacterial cell expression technology for vaccine manufacturing. Under the terms of
this agreement, the Company received a milestone payment in November 2012 relating to TRUMENBA®, a meningococcal group B
vaccine marketed by Pfizer. The Company receives a fraction of a percentage of sales of TRUMENBA as royalties. The Company’s
right to royalties expires on a country-by-country basis upon the later of the expiration of the last-to-expire licensed patent or 10 years
from the first commercial sale of TRUMENBA.
Novo Nordisk
On December 1, 2015, the Company and Novo Nordisk A/S (“Novo Nordisk ”) entered into a license agreement pursuant to
which XOMA has granted to Novo Nordisk an exclusive, world-wide, royalty-bearing license to XOMA’s XMetA program of
allosteric monoclonal antibodies that positively modulate the insulin receptor (the “XMetA Program”), subject to XOMA’s retained
commercialization rights for rare disease indications. Novo Nordisk has an option to add these retained rights to its license upon
payment of an option fee.
Novo Nordisk will have worldwide rights to the XMetA Program and will be solely responsible at its expense for the
development and commercialization of antibodies and products containing antibodies arising from the XMetA Program, subject to the
Company’s retained rights described above. The Company has transferred certain proprietary know-how and materials relating to the
XMetA Program to Novo Nordisk. Under the agreement, XOMA received a $5.0 million, non-creditable, non-refundable, upfront
payment. Based on the achievement of pre-specified criteria, XOMA is eligible to receive up to $290.0 million in development,
regulatory and commercial milestones. No milestone payments have been received as of December 31, 2015. XOMA is also eligible
to receive royalties on sales of licensed products, which are tiered based on sales levels and range from a mid-single digit percentage
rate to up to a high single digit percentage rate. Novo Nordisk’s obligation to pay development and commercialization milestones will
continue for so long as Novo Nordisk is developing or selling products under the agreement, subject to the maximum milestone
payment amounts set forth above. Novo Nordisk’s obligation to pay royalties with respect to a particular product and country will
continue for the longer of the date of expiration of the last valid patent claim covering the product in that country, or ten years from
the date of the first commercial sale of the product in that country.
The agreement contains customary termination rights relating to material breach by either party. Novo Nordisk also has a
unilateral right to terminate the agreement in its entirety upon 90 days’ notice.
The Company identified the following performance deliverables under the agreement: (i) the license, and (ii) the transfer of
technology and know-how to be delivered within 60 days from December 1, 2015. The Company has delivered the majority of the
technology and know-how to Novo Nordisk as of December 31, 2015 and determined that any remaining items are perfunctory to the
arrangement. Accordingly, the Company has recognized the entire $5.0 million upfront fee as revenue in 2015.
F-18
5. Fair Value Measurements
The Company records its financial assets and liabilities at fair value. The carrying amounts of certain of the Company’s
financial instruments, including cash and cash equivalents, marketable securities, trade receivable and accounts payable, approximate
their fair value due to their short maturities. Fair value is defined as the exchange price that would be received from selling an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting guidance for
fair value establishes a framework for measuring fair value and a fair value hierarchy that prioritizes the inputs used in valuation
techniques. The accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 – Observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs, either directly or indirectly, other than quoted prices in active markets for similar assets or
liabilities, that are not active or other inputs that are not observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities; therefore, requiring an entity to develop its own valuation techniques and assumptions.
The following tables set forth the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on
a recurring basis as follows (in thousands):
Fair Value Measurements at December 31, 2015 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets:
Money market funds (1) ................................. $
Marketable securities ....................................
Total ........................................................ $
42,590 $
496
43,086 $
— $
—
— $
— $
—
— $
42,590
496
43,086
Liabilities:
Contingent warrant liabilities ........................ $
— $
— $
10,464 $
10,464
Fair Value Measurements at December 31, 2014 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets:
Money market funds (1) .................................. $
Foreign exchange options (2) ..........................
Total ......................................................... $
67,569 $
—
67,569 $
— $
6
6 $
— $
—
— $
67,569
6
67,575
Liabilities:
Contingent warrant liabilities ......................... $
— $
— $
31,828 $
31,828
(1) Included in cash and cash equivalents
(2) Included in other assets
During the years ended December 31, 2015 and 2014, there were no transfers between Level 1, Level 2, or Level 3 assets or
liabilities reported at fair value on a recurring basis and the valuation techniques used did not change compared to the Company’s
established practice.
The estimated fair value of the foreign exchange options as of December 31, 2015 was zero. The estimated fair value of the
foreign exchange options at December 31, 2015 and 2014 was determined using readily observable market inputs from actively
quoted markets obtained from various third-party data providers. These inputs, such as spot rate, forward rate and volatility have been
derived from readily observable market data, meeting the criteria for Level 2 in the fair value hierarchy. The change in the fair value is
recorded in other income (expense), net line of the consolidated statements of comprehensive loss.
F-19
The estimated fair value of the contingent warrant liabilities at December 31, 2015 and 2014 was determined using the Black-
Scholes Model, which requires inputs such as the expected term of the warrants, volatility and risk-free interest rate. These inputs are
subjective and generally require significant analysis and judgment to develop. The Company’s common stock price represents a
significant input that affects the valuation of the warrants. The change in the fair value is recorded as a gain or loss in the revaluation
of contingent warrant liabilities line of the consolidated statements of comprehensive loss.
The estimated fair value of the contingent warrant liabilities was estimated using the following range of assumptions at
December 31, 2015 and 2014:
December 31,
Expected volatility ......................................................................... 166% - 183%
Risk-free interest rate ..................................................................... 0.64% - 0.74% 0.03% - 0.67%
Expected term (in years) ................................................................
0.94 - 1.19
0.09 - 2.19
2015
2014
70% - 73%
The following table provides a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the years
ended December 31, 2015 and 2014 (in thousands):
Balance at December 31, 2013 ......................................................
Initial fair value of warrants issued in December 2014 warrant ....
Reclassification of contingent warrant liability to equity upon
exercise of warrants ....................................................................
Decrease in estimated fair value of contingent warrant liabilities
upon revaluation .........................................................................
Balance at December 31, 2014 ......................................................
Reclassification of contingent warrant liability to equity upon
exercise of warrants ....................................................................
Decrease in estimated fair value of contingent warrant liabilities
upon revaluation .........................................................................
Balance at December 31, 2015 ......................................................
$
$
69,869
10,258
(2,526 )
(45,773 )
31,828
(3,552 )
(17,812 )
10,464
The fair value of the Company’s outstanding interest-bearing obligations is estimated using the net present value of the
payments, discounted at an interest rate that is consistent with market interest rates, which is a Level 2 input. The carrying amount and
the estimated fair value of the Company’s outstanding interest-bearing obligations at December 31, 2015 and 2014 are as follows (in
thousands):
Hercules term loan ........................................................................... $
Servier loan ......................................................................................
Novartis note ....................................................................................
General Electric Capital Corporation term loan ...............................
Total ................................................................................................. $
19,653 $
15,331
13,683
—
48,667 $
21,231 $
15,185
13,394
—
49,810 $
— $
16,290
13,357
5,661
35,308 $
—
17,068
12,923
6,470
36,461
December 31, 2015
December 31, 2014
Carrying Amount
Fair Value
Carrying Amount
Fair Value
F-20
6. Dispositions
Biodefense Assets
On November 4, 2015, XOMA and Nanotherapeutics Inc. (“Nanotherapeutics”) entered into an asset purchase agreement (the
“Nanotherapeutics Purchase Agreement”), pursuant to which Nanotherapeutics agreed, subject to the terms and conditions set forth in
the Nanotherapeutics Purchase Agreement, to acquire XOMA’s biodefense business and related assets (including, subject to
regulatory approval, certain contracts with the U.S. government), and to assume certain liabilities of XOMA (the “Transaction”). As
part of the Transaction, the parties will, subject to the terms and conditions of the asset purchase agreement and the satisfaction of
certain conditions, enter into an intellectual property license agreement (the “License Agreement”), pursuant to which XOMA agreed
to license to Nanotherapeutics, subject to the terms and conditions set forth in the License Agreement, certain intellectual property
rights related to the purchased assets. Under the License Agreement, the Company is eligible to receive up to $4.5 million of cash
payments upon Nanotherapeutics’ execution of a contract with the Defense Threat and Reduction Agency. In addition, the Company is
eligible to receive 15% royalties on net sales of products.
Manufacturing Facility
On November 5, 2015, XOMA and Agenus West, LLC, a wholly-owned subsidiary of Agenus Inc. (“Agenus”), entered into an
asset purchase agreement (the “Agenus Purchase Agreement”), pursuant to which Agenus agreed, subject to the terms and conditions
set forth in the Agenus Purchase Agreement, to acquire XOMA’s manufacturing facility in Berkeley, California, together with certain
related assets, including certain intellectual property related to the purchased assets under an intellectual property license agreement,
and to assume certain liabilities of XOMA, in consideration for the payment to XOMA of up to $5.0 million in cash and the issuance
to XOMA of shares of Agenus’ common stock having an aggregate value of up to $1.0 million.
On December 31, 2015, XOMA completed the sale of the manufacturing facility, including certain related equipment and
furniture, and the grant of non-exclusive licenses for certain of its patents and general know-how to Agenus for cash consideration of
$4.7 million, net of the assumed liabilities of $0.3 million at closing. In addition to the cash consideration, XOMA received 109,211
shares of common stock of Agenus with an aggregate value of $0.5 million. The remaining $0.5 million of Agenus common stock
will only be received upon the Company’s satisfaction of certain organizational matters, which XOMA may or may not be able to
satisfy. Agenus also paid $0.2 million to the Company as consideration for the employees who would not have otherwise been
retained by the Company had the manufacturing facility closed on October 31, 2015. At closing, the carrying value of the assets sold
was $2.2 million. The Company believes that the assets related to the manufacturing facility and certain other assets sold to Agenus
include all key inputs and processes necessary to generate output from a market participant’s perspective. Accordingly, the Company
has determined that such assets qualify as a business. The Company recorded the gain on the sale of a business of $3.5 million in the
other income (expense), net line of the consolidated statement of comprehensive loss for the year ended December 31, 2015.
7. Restructuring Charges
On July 22, 2015, the Company announced the Phase 3 EYEGUARD-B study of gevokizumab in patients with Behçet’s disease
uveitis, run by Servier, did not meet the primary endpoint of time to first acute ocular exacerbation. Due to the results and the
Company’s belief they would be predictive of results in its other EYEGUARD studies, in August 2015, XOMA announced its
intention to end the EYEGUARD global Phase 3 program. On August 21, 2015, the Company, in connection with its efforts to lower
operating expenses and preserve capital while continuing to focus on its endocrine product pipeline, implemented a restructuring plan
(the “2015 Restructuring”) that included a workforce reduction resulting in the termination of 38 employees. The Company
terminated an additional five employees on September 29, 2015 and an additional nine employees on October 20, 2015.
During the year ended December 31, 2015, the Company recorded charges of $2.9 million related to severance, other
termination benefits and outplacement services in connection with the workforce reduction resulting from the 2015 Restructuring. In
addition, the Company recognized an additional restructuring charge of $0.8 million in contract termination costs, which primarily
include costs in connection with the discontinuation of the EYEGUARD studies.
Of the $3.7 million total expenses associated with the restructuring activities during 2015, the Company paid $3.2 million in
2015 and expects to pay approximately $0.5 million in 2016.
F-21
In January 2012, the Company implemented a streamlining of operations, which resulted in a restructuring plan (the “2012
Restructuring”) designed to sharpen its focus on value-creating opportunities led by gevokizumab and its unique antibody discovery
and development capabilities. The restructuring plan included a reduction of XOMA’s personnel by 84 positions, or 34%. These staff
reductions resulted primarily from the Company’s decisions to utilize a contract manufacturing organization for Phase 3 and
commercial antibody production, and to eliminate internal research functions that are non-differentiating or that can be obtained cost
effectively by contract service providers.
During the years ended December 31, 2015, 2014 and 2013, the Company incurred zero, $0.1 million and $0.3 million,
respectively in restructuring charges related to facility costs resulting from the 2012 Restructuring.
The outstanding restructuring liabilities are included in accrued and other liabilities on the consolidated balance sheets. As of
December 31, 2015 and 2014, the components of these liabilities are shown below (in thousands):
Employee
Severance
and Other
Benefits
Contract
Termination
Costs
Facility
Charges (1)
Total
Balance at December 31, 2013 ................................................ $
Restructuring charges ..............................................................
Cash payments.........................................................................
Adjustments .............................................................................
Balance at December 31, 2014 ................................................
Restructuring charges ..............................................................
Cash payments.........................................................................
Balance at December 31, 2015 ................................................ $
— $
—
—
—
—
2,933
(2,590)
343 $
— $
—
—
—
—
766
(650)
116 $
21 $
84
(128 )
23
—
—
—
— $
21
84
(128)
23
—
3,699
(3,240)
459
(1)
Includes moving and relocation costs, and lease payments, net of sublease payments.
8. Long-Term Debt and Other Financings
Novartis Note
In May 2005, the Company executed a secured note agreement (the “Note Agreement”) with Novartis, which was due and
payable in full in June 2015. Under the Note Agreement, the Company borrowed semi-annually to fund up to 75% of the Company’s
research and development and commercialization costs under its collaboration arrangement with Novartis, not to exceed $50.0 million
in aggregate principal amount. Interest on the principal amount of the loan accrues at six-month LIBOR plus 2%, which was equal to
2.81% at December 31, 2015, and is payable semi-annually in June and December of each year. Additionally, the interest rate resets in
June and December of each year. At the Company’s election, the semi-annual interest payments could be added to the outstanding
principal amount, in lieu of a cash payment, as long as the aggregate principal amount does not exceed $50.0 million. The Company
made this election for all interest payments. Accrued interest of $0.3 million, $0.3 million and $0.4 million was added to the principal
balance of the note for the years ended December 31, 2015, 2014 and 2013, respectively. Loans under the Note Agreement were
secured by the Company’s interest in its collaboration with Novartis, including any payments owed to it thereunder. Pursuant to the
terms of the arrangement as restructured in November 2008, the Company did not make any additional borrowings under the Novartis
note.
In June 2015, the Company and Novartis Vaccines and Diagnostics, Inc. (“NVDI”), agreed to extend the maturity date of the
Note Agreement from June 21, 2015, to September 30, 2015 (the “June 2015 Extension Letter”).
On September 30, 2015, concurrent with the execution of the License Agreement with Novartis International as discussed in
Note 4, XOMA and NVDI executed an amendment to the June 2015 Extension Letter (the “Secured Note Amendment”). Pursuant to
the Secured Note Amendment, the parties further extended the maturity date of the June 2015 Extension Letter from September 30,
2015 to September 30, 2020, and eliminated the mandatory prepayment previously required to be made with certain proceeds of pre-
tax profits and royalties. In addition, upon achievement of a specified development and regulatory milestone, the then-outstanding
principal amount of the note will be reduced by $7.3 million rather than the Company receiving such amount as a cash payment. All
other terms of the original Note Agreement remain unchanged.
Pursuant to its obligations under the collaboration with NVDI, in January 2014, the Company made a payment, equal to 25
percent of a $7.0 million milestone received, or $1.75 million, toward its outstanding debt obligation to NVDI.
F-22
As of December 31, 2015, the outstanding principal balance under this Secured Note Amendment was $13.7 million and was
included in interest bearing obligations – long term in the Company’s consolidated balance sheet. As of December 31, 2014, the
outstanding principal balance under this arrangement was $13.4 million and was included in interest bearing obligations – current in
the Company’s consolidated balance sheet.
Servier Loan Agreement
In December 2010, in connection with the Collaboration Agreement entered into with Servier, the Company executed a loan
agreement with Servier (the “Servier Loan Agreement”), which provided for an advance of up to €15.0 million. The loan was fully
funded in January 2011, with the proceeds converting to approximately $19.5 million at that time. The loan is secured by an interest in
XOMA’s intellectual property rights to all gevokizumab indications worldwide, excluding certain rights in the U.S. and Japan. Interest
is calculated at a floating rate based on a Euro Inter-Bank Offered Rate (“EURIBOR”) and subject to a cap. The interest rate is reset
semi-annually in January and July of each year. The interest rate for the initial interest period was 3.22% and was reset semi-annually
ranging from 2.05% to 3.83%. Interest for the six-month period from mid-January 2015 through mid-July 2015 was reset to 2.16%.
Interest for the six-month period from mid-July 2015 through mid-January 2016 was reset to 2.05%. Interest is payable semi-annually;
however, the Servier Loan Agreement provides for a deferral of interest payments over a period specified in the agreement. During the
deferral period, accrued interest will be added to the outstanding principal amount for the purpose of interest calculation for the next
six-month interest period. On the repayment commencement date, all unpaid and accrued interest shall be paid to Servier and
thereafter, all accrued and unpaid interest shall be due and payable at the end of each six-month period. In January 2016, the Company
made payments to Servier of $0.2 million in accrued interest as well as the principal balance due described below.
On January 9, 2015, Servier and the Company entered into Amendment No. 2 (“Loan Amendment”) to the Servier Loan
Agreement initially entered into on December 30, 2010 and subsequently amended by a Consent, Transfer, Assumption and
Amendment Agreement entered into as of August 12, 2013. The Loan Amendment extended the maturity date of the loan from
January 13, 2016 to three tranches of principal to be repaid as follows: €3.0 million on January 15, 2016, €5.0 million on January 15,
2017, and €7.0 million on January 15, 2018. All other terms of the Servier Loan Agreement remained unchanged. The loan will be
immediately due and payable upon certain customary events of default. The Company determined that the Loan Amendment resulted
in a loan modification.
Upon initial issuance, the loan had a stated interest rate lower than the market rate based on comparable loans held by similar
companies, which represents additional value to the Company. The Company recorded this additional value as a discount to the
carrying value of the loan amount, at its fair value of $8.9 million. The fair value of this discount, which was determined using a
discounted cash flow model, represents the differential between the stated terms and rates of the loan, and market rates. Based on the
association of the loan with the collaboration arrangement, the Company recorded the offset to this discount as deferred revenue.
The loan discount was amortized to interest expense under the effective interest method over the remaining life of the loan. The
loan discount balance at the time of the Loan Amendment was $1.9 million, which was being amortized over the remaining term of
the Loan Amendment. The Company recorded non-cash interest expense resulting from the amortization of the loan discount of $0.7
million, $1.9 million and $1.6 million for the years ended December 31, 2015, 2014 and 2013, respectively. At December 31, 2015
and 2014, the net carrying value of the loan was $15.3 million and $16.2 million, respectively. For the years ended December 31, 2015
and 2014, the Company recorded unrealized foreign exchange losses of $0.2 million and $0.3 million, respectively, related to the re-
measurement of the loan discount. For the year ended December 31, 2013, the Company recorded an unrealized foreign exchange gain
of $0.2 million related to the re-measurement of the loan discount.
On September 28, 2015, Servier terminated the Collaboration Agreement with the required 180-day notice and none of the
acceleration clauses were triggered; therefore, the termination of the Collaboration Agreement had no impact on the loan balance as of
December 31, 2015.
The outstanding principal balance under this loan was $16.4 million and $18.2 million, using a euro to US dollar exchange rate
of 1.091 and 1.216, as of December 31, 2015 and 2014, respectively. The Company recorded unrealized foreign exchange gains of
$1.9 million and $2.4 million for the years ended December 31, 2015 and 2014, related to the re-measurement of the loan. The
Company recognized an unrealized foreign exchange loss of $0.8 million for the year ended December 31, 2013, related to the re-
measurement of the loan.
General Electric Capital Corporation Term Loan
In December 2011, the Company entered into a loan agreement (the “GECC Loan Agreement”) with General Electric Capital
Corporation (“GECC”), under which GECC agreed to make a term loan in an aggregate principal amount of $10.0 million (the “Term
Loan”) to the Company, and upon execution of the GECC Loan Agreement, GECC funded the Term Loan.
F-23
In connection with the GECC Loan Agreement, the Company issued to GECC unregistered warrants that entitle GECC to
purchase up to an aggregate of 263,158 unregistered shares of XOMA common stock at an exercise price equal to $1.14 per share.
These warrants are exercisable immediately and have a five-year term expiring in December 2016. As of December 31, 2015 and
2014, all of these warrants were outstanding.
In September 2012, the Company entered into an amendment to the GECC Loan Agreement which provided for an additional
term loan in the amount of $4.6 million, increasing the term loan obligation to $12.5 million (the “Amended Term Loan”) and
provided for an interest-only monthly repayment period following the effective date of the amendment through March 1, 2013, at a
stated interest rate of 10.9% per annum. Thereafter, the Company was obligated to make monthly principal payments of $347,222,
plus accrued interest, over a 27-month period commencing on April 1, 2013, and through June 15, 2015, at which time the remaining
outstanding principal amount of $3.1 million, plus accrued interest, was due. The Company incurred debt issuance costs of
approximately $0.2 million and was required to make a final payment fee in the amount of $875,000 on the date upon which the
outstanding principal amount was required to be repaid in full. This final payment fee replaced the original final payment fee of
$500,000. The debt issuance costs and final payment fee were being amortized and accreted, respectively, to interest expense over the
term of the Amended Term Loan using the effective interest method.
In connection with the amendment, on September 27, 2012 the Company issued to GECC unregistered stock purchase warrants,
which entitle GECC to purchase up to an aggregate of 39,346 shares of XOMA common stock at an exercise price equal to $3.54 per
share. These warrants are exercisable immediately and have a five-year term expiring in September 2017. As of December 31, 2015,
all of these warrants were outstanding.
The Company allocated the aggregate proceeds of the GECC Term Loan between the warrants and the debt obligation based on
their relative fair values. The estimated fair value of the warrants issued to GECC was determined using the Black-Scholes Model.
The fair value of the warrants with the GECC Loan Agreement and the subsequent September 27, 2012 amendment had estimated fair
values of $0.2 million and $0.1 million, respectively, and were recorded as a discount to the debt obligation, which was amortized
over the term of the loan using the effective interest method. The warrants are classified in permanent equity on the consolidated
balance sheets.
The Company may prepay the Amended Term Loan voluntarily in full, but not in part, and any voluntary and certain mandatory
prepayments were subject to a prepayment premium of 3% in the first year after the effective date of the loan amendment, 2% in the
second year and 1% thereafter, with certain exceptions. The Company was also required to pay the $875,000 final payment fee in
connection with any voluntary or mandatory prepayment. On the effective date of the loan amendment, the Company paid an accrued
final payment fee in the amount of $0.2 million relating to the original final payment fee of $500,000.
At December 31, 2014, the outstanding principal balance under the Amended Term Loan was $5.2 million.
The GECC Term Loan was paid in full on February 27, 2015, when Hercules Technology Growth Capital, Inc. (“Hercules”) and
the Company entered into a loan and security agreement (the “Hercules Term Loan”), under which the Company borrowed $20.0
million. The Company used a portion of the proceeds under the Hercules Term Loan to repay GECC’s outstanding principle balance,
final payment fee, prepayment fee, and accrued interest totaling $5.5 million. A loss on extinguishment of $0.4 million from the
payoff of the GECC Term Loan was recognized as interest expense during the year ended December 31, 2015.
Hercules Term Loan
On February 27, 2015 (“Closing Date”), the Company entered into the Hercules Term Loan as described above. The Hercules
Term Loan has a variable interest rate that is the greater of either (i) 9.40% plus the prime rate as reported from time to time in The
Wall Street Journal minus 7.25%, or (ii) 9.40%. The payments under the Hercules Term Loan are interest only until one month prior
to July 1, 2016. The interest-only period will be followed by equal monthly payments of principal and interest amortized over a 30-
month schedule through the scheduled maturity date of September 1, 2018. As security for its obligations under the Hercules Term
Loan, the Company granted a security interest in substantially all of its existing and after-acquired assets, excluding its intellectual
property assets.
F-24
If the Company prepays the loan prior to the loan maturity date, it will pay Hercules a prepayment charge, based on a
prepayment fee equal to 3.00% of the amount prepaid, if the prepayment occurs in any of the first 12 months following the Closing
Date, 2.00% of the amount prepaid, if the prepayment occurs after 12 months from the Closing Date but prior to 24 months from the
Closing Date, and 1.00% of the amount prepaid if the prepayment occurs after 24 months from the Closing Date. The Hercules Term
Loan includes customary affirmative and restrictive covenants, but does not include any financial maintenance covenants, and also
includes standard events of default, including payment defaults. Upon the occurrence of an event of default, a default interest rate of
an additional 5% may be applied to the outstanding loan balances, and Hercules may declare all outstanding obligations immediately
due and payable and take such other actions as set forth in the Hercules Term Loan.
The Company incurred debt issuance costs of $0.5 million in connection with the Hercules Term Loan. The Company will be
required to pay a final payment fee equal to $1.2 million on the maturity date, or such earlier date as the term loan is paid in full. The
debt issuance costs and final payment fee are being amortized and accreted, respectively, to interest expense over the term of the term
loan using the effective interest method. The Company recorded non-cash interest expense resulting from the amortization of the debt
issuance costs and accretion of the final payment of $0.5 million for the year ended December 31, 2015.
In connection with the Hercules Term Loan, the Company issued unregistered warrants that entitle Hercules to purchase up to
an aggregate of 181,268 unregistered shares of XOMA common stock at an exercise price equal to $3.31 per share. These warrants
were exercisable immediately and have a five-year term expiring in February 2020. The Company allocated the aggregate proceeds of
the Hercules Term Loan between the warrants and the debt obligation. The fair value of the warrants issued to Hercules was
determined using the Black-Scholes Model and was estimated to be $0.5 million. The estimated fair value of the warrants was
recorded as a discount to the debt obligation. The debt discount is being amortized over the term of the loan using the effective
interest method. The warrants are classified in stockholders’ equity on the consolidated balance sheets. As of December 31, 2015, all
of these warrants were outstanding.
The Company evaluated the Hercules Term Loan in accordance with accounting guidance for derivatives and determined there
was de minimis value to the identified derivative features of the loan at inception and December 31, 2015.
As of December 31, 2015, the outstanding principal balance of the Hercules Term Loan was $20.0 million. At December 31,
2015, the net carrying value of the Hercules Term Loan was $ 19.7 million.
Aggregate future principal, final fee payments and discounts of the Company’s total interest bearing obligations as of
December 31, 2015 are as follows (in thousands):
Year Ended December 31,
2016 ................................................................................................................................ $
2017 ................................................................................................................................
2018 ................................................................................................................................
2019 ................................................................................................................................
2020 ................................................................................................................................
Less: Interest, final payment fee, discount and issuance cost .........................................
Less: interest bearing obligations – current ....................................................................
Interest bearing obligations – non-current ...................................................................... $
Amounts
9,038
14,677
17,879
—
15,664
57,258
(8,591)
48,667
(5,910)
42,757
F-25
Interest Expense
Amortization of debt issuance costs and discounts are included in interest expense. Interest expense in the consolidated
statements of comprehensive loss for the years ended December 31, 2015, 2014, and 2013 relates to the following debt instruments (in
thousands):
Hercules loan ........................................................................... $
Servier loan ..............................................................................
GECC term loan ......................................................................
Novartis note ...........................................................................
Other ........................................................................................
Total interest expense .............................................................. $
Year Ended December 31,
2014
2015
2013
2,223 $
1,083
548
329
11
4,194 $
— $
2,330
1,638
312
23
4,303 $
—
2,152
2,064
362
53
4,631
9. Income Taxes
The total income tax benefit consists of the following (in thousands):
Federal income tax benefit....................................................... $
Total ................................................................................... $
— $
— $
— $
— $
(14)
(14)
Year Ended December 31,
2014
2015
2013
The Company has significant losses in 2015, 2014 and 2013 and as such there was no income tax expense for the years ended
December 31, 2015, 2014, and 2013. The income tax benefit in 2013 relates to federal refundable credits.
Reconciliation between the tax provision computed at the federal statutory income tax rate of 34% and the Company’s actual
effective income tax rate is as follows:
Federal tax at statutory rate......................................................
Warrant valuation ....................................................................
Permanent items and other.......................................................
Valuation allowance ................................................................
Total ...................................................................................
Year Ended December 31,
2014
2015
2013
34%
29%
-15%
-48%
0%
34 %
40 %
-1 %
-73 %
0 %
34%
-17%
0%
-17%
0%
The significant components of net deferred tax assets as of December 31, 2015 and 2014 were as follows (in thousands):
Capitalized research and development expenses ...................... $
Net operating loss carryforwards ..............................................
Research and development and other credit carryforwards ......
Other .........................................................................................
Total deferred tax assets ......................................................
Valuation allowance..................................................................
Net deferred tax assets ......................................................... $
December 31,
2015
50,808 $
115,869
24,268
18,748
209,693
(209,693)
— $
2014
50,852
105,042
12,108
22,060
190,062
(190,062 )
—
The net increase (decrease) in the valuation allowance was $19.6 million, $29.9 million, and $(73.9) million for the years ended
December 31, 2015, 2014, and 2013, respectively.
F-26
As of December 31, 2015, the Company had federal net operating loss carry-forwards of approximately $311.5 million and state
net operating loss carry-forwards of approximately $202.7 million to offset future taxable income. The net operating loss carry-
forwards include $5.2 million which relates to stock option deductions that will be recognized through additional paid in capital when
utilized. As such, these deductions are not reflected in the Company’s deferred tax assets. No federal net operating loss carry-forward
expired in 2015, 2014, and 2013. California net operating losses of $22.4 million, $54.3 million, and $16.8 million, expired in the
years 2015, 2014, and 2013, respectively.
Accounting standards provide for the recognition of deferred tax assets if realization of such assets is more likely than not.
Based upon the weight of available evidence, which includes the Company’s historical operating performance and carry-back
potential, the Company has determined that total deferred tax assets should be fully offset by a valuation allowance.
Based on an analysis under Section 382 of the Internal Revenue Code (which subjects the amount of pre-change NOLs and
certain other pre-change tax attributes that can be utilized to an annual limitation), the Company experienced ownership changes in
2009 and 2012 which substantially limit the future use of its pre-change Net Operating Losses (“NOLs”) and certain other pre-change
tax attributes per year. The Company has excluded the NOLs and R&D credits that will expire as a result of the annual limitations in
the deferred tax assets as of December 31, 2015. To the extent that the Company does not utilize its carry-forwards within the
applicable statutory carry-forward periods, either because of Section 382 limitations or the lack of sufficient taxable income, the carry-
forwards will expire unused.
The Company files income tax returns in the U.S. federal jurisdiction, State of California, Maryland, Alabama, Texas and
Ireland. The Internal Revenue Service has completed an audit of the Company's 2009 and 2010 federal income tax returns which
resulted in no change. The Company’s federal income tax returns for tax years 2012 and beyond remain subject to examination by the
Internal Revenue Service. The Company’s State and Irish income tax returns for tax years 2011 and beyond remain subject to
examination by state tax authorities and Irish Revenue Commissioner. In addition, all of the net operating losses and research and
development credit carry-forwards that may be used in future years are still subject to adjustment.
The following table summarizes the Company's activity related to its unrecognized tax benefits (in thousands):
Balance at January 1 ................................................................ $
Increase related to current year tax position ............................
Increase related to prior year tax position ................................
Balance at December 31 .......................................................... $
5,503 $
2,687
1,476
9,666 $
4,274 $
720
509
5,503 $
4,104
164
6
4,274
Year Ended December 31,
2014
2015
2013
As of December 31, 2015, the Company had a total of $8.0 million of net unrecognized tax benefits, none of which would affect
the effective tax rate upon realization. The Company currently has a full valuation allowance against its U.S. net deferred tax assets
which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the
future.
The Company does not expect the unrecognized tax benefits to change significantly over the next twelve months. The Company
will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December
31, 2015, the Company has not accrued interest or penalties related to uncertain tax positions.
10. Compensation and Other Benefit Plans
The Company grants qualified and non-qualified stock options, RSUs, common stock and other stock-based awards under
various plans to directors, officers, employees and other individuals. Stock options are granted at exercise prices of not less than the
fair market value of the Company’s common stock on the date of grant. Generally, stock options granted to employees fully vest four
years from the grant date and expire ten years from the date of the grant or three months from the date of termination of employment
(longer in case of death or certain retirements). However, certain options granted to employees vest monthly or immediately, certain
options granted to directors vest monthly over one year or three years and certain options may fully vest upon a change of control of
the Company or may accelerate based on performance-driven measures. Additionally, the Company has an Employee Stock Purchase
Plan (“ESPP”) that allows employees to purchase Company shares at a purchase price equal to 85% of the lower of the fair market
value of the Company’s common stock on the first trading day of the offering period or on the last day of the offering period.
F-27
Employee Stock Purchase Plan
Under the ESPP plan approved by the Company’s stockholders in May 1998 (the “1998 ESPP”), the Company is authorized to
issue up to 233,333 shares of common stock to employees through payroll deductions at a purchase price per share equal to 95% of the
closing price of XOMA shares on the exercise date. An employee may elect to have payroll deductions made under the 1998 ESPP for
the purchase of shares in an amount not to exceed 15% of the employee’s compensation.
In May 2015, the Company’s stockholders approved the Employee Stock Purchase Plan (the “2015 ESPP”) which replaced the
1998 ESPP. Under the 2015 ESPP, the Company reserved 300,000 shares of common stock for issuance as of its effective date of July
1, 2015, subject to adjustment in the event of a stock split, stock dividend, combination or reclassification or similar event. The 2015
ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to
10% of their eligible compensation, subject to any plan limitations. The 2015 ESPP provides for six-month offering periods ending on
May 31 and November 30 of each year, with the exception of the first offering period, which lasts from July 1, 2015 through
November 30, 2015, as the Company transition from the Company’s legacy employee stock purchase plan. At the end of each offering
period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the
first trading day of the offering period or on the last day of the offering period.
During the years ended December 31, 2015, 2014, and 2013, employees purchased 120,595, 17,702, and 15,262 shares of
common stock, respectively, under the ESPP plans. Net payroll deductions under 1998 ESPP and 2015 ESPP totaled $170,000,
$74,000, and $60,000 for the years ended December 31, 2015, 2014, and 2013, respectively.
Deferred Savings Plan
Under section 401(k) of the Internal Revenue Code of 1986, the Board of Directors adopted, effective June 1, 1987, a tax-
qualified deferred compensation plan for employees of the Company. Participants may make contributions which defer up to 50% of
their eligible compensation per payroll period, up to a maximum for 2015 of $18,000 (or $24,000 for employees over 50 years of age)
and for 2014 of $17,500 (or $23,000 for employees over 50 years of age). The Company may, at its sole discretion, make
contributions each plan year, in cash or in shares of the Company’s common stock, in amounts which match up to 50% of the salary
deferred by the participants. The expense related to these contributions was $0.8 million, $1.0 million, and $0.9 million for the years
ended December 31, 2015, 2014, and 2013, respectively, and 100% was paid in common stock in each year.
Stock Option Plans
In May 2010, the Compensation Committee and the full Board adopted, and in July 2010 the Company’s stockholders approved,
a new equity-based compensation plan, the 2010 Long Term Incentive and Share Award Plan, which has since been amended and
restated as the Amended and Restated 2010 Long Term Incentive and Stock Award Plan (the “Long Term Incentive Plan”). The Long
Term Incentive Plan is intended to consolidate the Company’s long-term incentive compensation under a single plan, by replacing the
Option Plan, the Restricted Plan and the 1992 Directors Share Option Plan (the “Directors Plan”) going forward, and to provide a
more current set of terms pursuant to which to provide this type of compensation. In May 2014, the Company’s stockholders approved
an amendment to the Company’s Long Term Incentive Plan to (a) increase the number of shares of common stock issuable over the
term of the plan by an additional 5,350,000 to 18,771,206 shares in the aggregate and (b) provide that, for each stock appreciation
right, restricted share, restricted stock unit, performance share, performance unit, dividend equivalent or other stock-based award
issued, the number of available shares under the plan will be reduced by 1.18 shares.
The Long Term Incentive Plan grants stock options, RSUs, and other stock-based awards to eligible employees, consultants and
directors. No further grants or awards will be made under the Option Plan, the Restricted Share Plan or the Directors Plan. Shares
underlying options previously issued under the Option Plan, the Restricted Share Plan or the Directors Plan that are currently
outstanding will, upon forfeiture, cancellation, surrender or other termination, become available under the Long Term Incentive Plan.
Stock-based awards granted under the Long Term Incentive Plan may be exercised when vested and generally expire ten years from
the date of the grant or three to six months from the date of termination of employment (longer in case of death or certain retirements).
Vesting periods vary based on awards granted, however, certain stock-based awards may vest immediately or may accelerate based on
performance-driven measures.
As of December 31, 2015, the Company had 3,935,778 shares available for grant under the stock option plans. As of December
31, 2015, options and RSUs covering 10,148,543 shares of common stock were outstanding under the stock option plans.
F-28
Stock Options
The stock options vest monthly over four years for employees and one year for directors. Stock options held by employees who
qualify for retirement age (defined as employees that are a minimum of 55 years of age and the sum of their age plus years of full-
time employment with the Company exceeds 70 years) vest on the earlier of scheduled vest date or the date of retirement.
Stock Option Plans Summary
The following table summarizes the Company’s stock option activity:
2015
2014
2013
Outstanding at beginning of year ................................
Granted ........................................................................
Exercised .....................................................................
Forfeited, expired or cancelled ....................................
Outstanding at end of year ..........................................
Exercisable at end of year ...........................................
Weighted-average grant-date fair value ......................
Weighted
Average
Exercise
Price
Per Share
Weighted
Average
Exercise
Price
Per Share
Number of
shares
Number of
shares
8.15 7,216,041 $
3.78 1,891,989
1.89 (915,911)
12.51 (489,810)
6.33 7,702,309
6.93 4,908,925 $
$
2.60
8.42 6,788,383 $
6.69 1,168,203
3.91 (589,355)
14.36 (151,190)
8.15 7,216,041
9.98 4,814,926 $
$
4.49
Weighted
Average
Exercise
Price
Per Share
8.99
3.13
2.26
17.46
8.42
11.14
2.27
Number of
shares
7,702,309 $
1,797,222
(163,663)
(1,645,571)
7,690,297
5,604,615 $
$
The aggregate intrinsic value of stock options exercised in 2015, 2014, and 2013 was $0.4 million, $2.9 million, and $1.7
million, respectively.
As of December 31, 2015, there were 7,486,402 stock options vested and expected to vest with a weighted average exercise
price per share of $6.37, aggregate intrinsic value of $13,000, and a weighted average remaining contractual term of 6.3 years. As of
December 31, 2015, there were 5,604,615 stock options exercisable with an aggregate intrinsic value of $10,000 and a weighted
average remaining contractual term of 5.7 years.
As of December 31, 2015, $4.8 million of total unrecognized compensation expense related to stock options is expected to be
recognized over a weighted average period of 2.2 years.
Restricted Stock Units
RSUs generally vest over three years for employees and one year for directors. In 2015, the Company granted certain RSUs
with a one-year vesting period. RSUs held by employees who qualify for retirement age (defined as employees that are a minimum of
55 years of age and the sum of their age plus years of full-time employment with the Company exceeds 70 years) vest on the earlier
of scheduled vest date or the date of retirement.
Unvested RSU activity for the year ended December 31, 2015 is summarized below:
Unvested balance at January 1, 2015 ........................................
Granted .....................................................................................
Vested .......................................................................................
Forfeited ....................................................................................
Unvested balance at December 31, 2015 ..................................
Number of
Weighted-
Average Grant-
Date Fair Value
5.46
3.25
4.64
4.48
4.07
Shares
1,953,879 $
2,113,432
(1,184,147)
(757,403)
2,125,761 $
The total grant-date fair value of RSUs that vested in 2015, 2014 and 2013 was $5.5 million, $3.9 million and $1.6 million,
respectively. As of December 31, 2015, $4.9 million of total unrecognized compensation expense related to employee RSUs was
expected to be recognized over a weighted average period of 1.5 years.
F-29
Stock-based Compensation Expense
The fair value of stock options granted during the years ended December 31, 2015, 2014, and 2013, was estimated based on the
following weighted average assumptions for:
Dividend yield .........................................................................
Expected volatility ...................................................................
Risk-free interest rate ...............................................................
Expected term ..........................................................................
Year Ended December 31,
2014
2015
2013
0%
84%
1.40%
0 %
92 %
1.72 %
5.6 years
5.6 years
0%
92%
0.89%
5.6 years
The following table shows total stock-based compensation expense for stock options, RSUs and ESPP in the consolidated
statements of comprehensive loss (in thousands):
Research and development ...................................................... $
Selling, general and administrative ..........................................
Total stock-based compensation expense ................................ $
5,022 $
4,705
9,727 $
5,557 $
5,215
10,772 $
2,358
2,741
5,099
Year Ended December 31,
2014
2015
2013
11. Net Loss per Share of Common Stock
Potentially dilutive securities are excluded from the calculation of diluted net loss per share of common stock if their inclusion is
anti-dilutive.
The following table shows the weighted-average outstanding securities considered anti-dilutive and therefore excluded from the
computation of diluted net loss per share (in thousands):
Common stock options and RSUs ...........................................
Warrants for common stock.....................................................
Total .........................................................................................
Year Ended December 31,
2014
2015
2013
11,011
19,210
30,221
6,666
2,073
8,739
7,087
15,839
22,926
The following is a reconciliation of the numerators and denominators used in calculating basic and diluted net loss per share of
common stock (in thousands):
Numerator
Net loss .................................................................................... $
Basic
Adjustment for revaluation of contingent warrant
liabilities ..........................................................................
Diluted ..................................................................................... $
Denominator
Weighted average shares outstanding used for basic net
loss per share ........................................................................
Effect of dilutive warrants .......................................................
Weighted average shares outstanding and dilutive
securities used for diluted net loss per share .........................
Year Ended December 31,
2014
2015
2013
(20,606) $
(38,301 ) $
(124,058)
—
(20,606) $
(39,512 )
(77,813 ) $
—
(124,058)
117,803
—
107,435
7,898
86,938
—
117,803
115,333
86,938
F-30
12. Capital Stock
Registered Direct Offerings
On December 8, 2014, the Company completed a registered direct offering of 8,097,165 shares of its common stock, and
accompanying warrants to purchase one share of common stock for each share purchased at an offering price of $4.94 per share to
certain institutional investors. Total gross proceeds from the offering were approximately $40.0 million before deducting underwriting
discounts, commissions and estimated offering expenses totaling approximately $2.3 million. The warrants, which represent the right
to acquire up to an aggregate of 8,097,165 shares of common stock, are exercisable immediately, have a two-year term and an exercise
price of $7.90 per share. As of December 31, 2015, all of these warrants were outstanding.
Underwritten Offerings
On August 23, 2013, the Company completed an underwritten public offering of 8,736,187 shares of its common stock,
including 1,139,502 shares of its common stock that were issued upon the exercise of the underwriters’ 30-day over-allotment option,
at a public offering price of $3.62 per share. Total gross proceeds from the offering were approximately $31.6 million, before
deducting underwriting discounts and commissions and estimated offering expenses totaling approximately $2.2 million.
On December 18, 2013, the Company completed an underwritten public offering of 10,925,000 shares of its common stock,
including 1,425,000 shares of its common stock that were issued upon the exercise of the underwriters’ 30-day over-allotment option,
at a public offering price of $5.25 per share. Total gross proceeds from the offering were approximately $57.4 million, before
deducting underwriting discounts and commissions and estimated offering expenses totaling approximately $3.8 million.
ATM Agreements
On February 4, 2011, the Company entered into an At Market Issuance Sales Agreement (the “2011 ATM Agreement”), with
McNicoll, Lewis & Vlak LLC (now known as MLV & Co. LLC). From the inception of the 2011 ATM Agreement through
December 31, 2012, the Company sold a total of 7,572,327 shares of common stock under this agreement for aggregate gross proceeds
of $14.6 million. No shares of common stock have been sold under this agreement since February 3, 2012. Total offering expenses
incurred related to sales under the 2011 ATM Agreement from inception to December 31, 2012, were $0.5 million. As of December
31, 2014, the 2011 ATM Agreement expired.
On November 12, 2015, the Company entered into an At Market Issuance Sales Agreement (the “2015 ATM Agreement”) with
Cowen and Company, LLC (“Cowen”), under which the Company may offer and sell from time to time at its sole discretion shares of
its common stock through Cowen as its sales agent, in an aggregate amount not to exceed the amount that can be sold under the
Company’s registration statement on Form S-3 (File No. 333-201882) filed with the SEC on the same date. Cowen may sell the shares
by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act, including
without limitation sales made directly on The NASDAQ Global Market, on any other existing trading market for the Company’s
common stock or to or through a market maker. Cowen also may sell the shares in privately negotiated transactions, subject to the
Company’s prior approval. The Company will pay Cowen a commission equal to 3% of the gross proceeds of the sales price of all
shares sold through it as sales agent under the 2015 ATM Agreement. For the year ended December 31, 2015, no shares of common
stock have been sold under this agreement.
Common Stock Warrants
As of December 31, 2015 and 2014, the following common stock warrants were outstanding (in thousands, except for per share
amounts):
Issuance Date
Expiration Date
February 2010 ........ February 2015
December 2011 ...... December 2016
March 2012 ............ March 2017
September 2012 ...... September 2017
December 2014 ...... December 2016
February 2015 ........ February 2020
Balance Sheet Classification
Contingent warrant liabilities $
Stockholders' equity
$
Contingent warrant liabilities $
Stockholders' equity
$
Contingent warrant liabilities $
$
Stockholders' equity
10.50
1.14
1.76
3.54
7.90
3.31
Exercise Price
per Share
Number of Shares at
December 31,
2015
2014
—
263
9,585
39
8,097
181
18,165
1,260
263
12,109
39
8,097
—
21,768
F-31
In February 2015, the Company issued Hercules five-year warrants in connection with the Hercules Term Loan (see Note 8) that
entitle Hercules to purchase up to an aggregate of 181,268 unregistered shares of XOMA’s common stock at an exercise price equal to
$3.31 per share. The warrants are classified in stockholders’ (deficit) equity on the consolidated balance sheets. As of December 31,
2015, all of these warrants were outstanding.
In December 2014, in connection with a registered direct offering to select institutional investors, the Company issued two-year
warrants to purchase up to an aggregate of 8,097,165 shares of XOMA’s common stock at an exercise price of $7.90 per share. These
warrants contain provisions that are contingent on the occurrence of a change in control, which could conditionally obligate the
Company to repurchase the warrants for cash in an amount equal to their estimated fair value using the Black-Scholes Model on the
date of such change in control. Due to these provisions, the Company accounts for the warrants issued in December 2014 as a liability
at estimated fair value. In addition, the estimated fair value of the liability related to the warrants is revalued at each reporting period
until the earlier of the exercise of the warrants, at which time the liability will be reclassified to stockholders’ equity at its then
estimated fair value, or expiration of the warrants. On December 8, 2014, the date of issuance, the fair value of the warrants was
estimated to be $10.3 million using the Black-Scholes Model. The Company revalued the warrants at December 31, 2015 using the
Black-Scholes Model, and recorded a $2.2 million reduction in the estimated fair value as a gain on the revaluation of contingent
warrant liabilities line of the Company’s consolidated statement of comprehensive loss. The decrease in the estimated fair value of the
warrants is primarily due to the decrease in the market price of XOMA’s common stock at December 31, 2015 as compared to
December 31, 2014. As of December 31, 2015 and 2014, 8,097,165 of these warrants were outstanding and had an estimated fair
value of $3.0 million and $5.2 million, respectively.
In September 2012, the Company issued to GECC five-year warrants in connection with the amendment to the GECC Loan
Agreement (see Note 8) that entitle GECC to purchase up to an aggregate of 39,346 unregistered shares of XOMA’s common stock at
an exercise price equal to $3.54 per share. The warrants are classified in stockholders’ equity on the consolidated balance sheets. As of
December 31, 2015 and 2014, all of these warrants were outstanding.
In March 2012, in connection with an underwritten offering, the Company issued five-year warrants to purchase 14,834,577
shares of XOMA’s common stock at an exercise price of $1.76 per share. These warrants contain provisions that are contingent on the
occurrence of a change in control, which could conditionally obligate the Company to repurchase the warrants for cash in an amount
equal to their estimated fair value using the Black-Scholes Model on the date of such change in control. Due to these provisions, the
Company accounts for the warrants issued in March 2012 as a liability at estimated fair value. In addition, the estimated fair value of
the liability related to the warrants is revalued at each reporting period until the earlier of the exercise of the warrants, at which time
the liability will be reclassified to stockholders' equity at its then estimated fair value, or expiration of the warrants. During the year
ended December 31, 2015, warrants to purchase 2,524,265 of common stock were exercised, of which 2,523,515 were cashless
exercises, resulting in an issuance of 1,410,474 shares of common stock. The Company revalued the warrants immediately prior to the
exercise dates and recognized $2.2 million as a gain on the revaluation of contingent warrant liabilities line of the Company’s
consolidated statement of comprehensive loss. The estimated fair value of the exercised warrants of $3.6 million was reclassified from
contingent warrant liabilities to stockholders’ (deficit) equity on the consolidated balance sheet. The Company revalued the remaining
warrants at December 31, 2015 using the Black-Scholes Model and recorded a $13.4 million reduction in the estimated fair value as a
gain on the revaluation of contingent warrant liabilities line of the Company’s consolidated statement of comprehensive loss. The
decrease in the estimated fair value of the warrants is primarily due to the decrease in the market price of XOMA’s common stock at
December 31, 2015 compared to December 31, 2014. As of December 31, 2015 and 2014, 9,585,153 and 12,109,418, respectively, of
these warrants were outstanding and had an estimated fair value of $7.5 million and $26.7 million, respectively.
In December 2011, the Company issued to GECC five-year warrants in connection with a loan agreement (see Note 8) that
entitle GECC to purchase up to an aggregate of 263,158 unregistered shares of XOMA’s common stock at an exercise price equal to
$1.14 per share. The warrants are classified in stockholders’ equity on the consolidated balance sheets. As of December 31, 2015 and
2014, all of these warrants were outstanding.
In February 2010, in connection with an underwritten offering, the Company issued five-year warrants to purchase 1,260,000
shares of XOMA’s common stock at an exercise price of $10.50 per share. The warrants contained provisions that were contingent on
the occurrence of a change in control, which could conditionally obligate the Company to repurchase the warrants for cash in an
amount equal to their estimated fair value using the Black-Scholes Model on the date of such change in control. Due to these
provisions, the Company accounted for the warrants as liabilities at their estimated fair value. As of December 31, 2014, all of the
warrants were outstanding and the estimated fair value was de minimis. All of these warrants expired unexercised in February 2015.
F-32
In June 2009, the Company issued warrants to certain institutional investors as part of a registered direct offering. The warrants
represented the right to acquire an aggregate of up to 347,826 shares of XOMA’s common stock over a five year period beginning
December 11, 2009 at an exercise price of $19.50 per share. The warrants contained provisions that were contingent on the occurrence
of a change in control, which could conditionally obligate the Company to repurchase the warrants for cash in an amount equal to their
estimated fair value using the Black-Scholes Model on the date of such change in control. Due to these provisions, the Company
accounted for the warrants as liabilities at their estimated fair value. As of December 31, 2014, all of these warrants had expired
unexercised.
13. Legal Proceedings, Commitments and Contingencies
Collaborative Agreements, Royalties and Milestone Payments
The Company has committed to make potential future milestone payments to third parties as part of licensing and development
programs. Payments under these agreements become due and payable only upon the achievement by the Company of certain
developmental, regulatory and/or commercial milestones. Because it is uncertain if and when these milestones will be achieved, such
contingencies, aggregating up to $57.7 million (assuming one product per contract meets all milestones events) have not been
recorded on the accompanying consolidated balance sheets. The Company is unable to determine precisely when and if payment
obligations under the agreements will become due as these obligations are based on milestone events, the achievement of which is
subject to a significant number of risks and uncertainties.
Legal Proceedings
On July 24, 2015, a purported securities class action lawsuit was filed in the United States District Court for the Northern
District of California, captioned Markette v. XOMA Corp., et al. (Case No. 3:15-cv-3425-HSG) against the Company, its Chief
Executive Officer and its Chief Medical Officer. The complaint asserts that all defendants violated Section 10(b) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and SEC Rule 10b-5, by making materially false or misleading statements
regarding the Company’s EYEGUARD-B study between November 6, 2014 and July 21, 2015. The plaintiff also alleges that Messrs.
Varian and Rubin violated Section 20(a) of the Exchange Act. The plaintiff seeks class certification, an award of unspecified
compensatory damages, an award of reasonable costs and expenses, including attorneys’ fees, and other further relief as the Court may
deem just and proper. The Company is awaiting the appointment of a lead plaintiff by the Court. Based on a review of the allegations,
the Company believes that the plaintiff’s allegations are without merit, and intends to vigorously defend against the claims. Currently,
the Company does not believe that the outcome of this matter will have a material adverse effect on its business or financial condition,
although an unfavorable outcome could have a material adverse effect on its results of operations for the period in which such a loss is
recognized. The Company cannot reasonably estimate the possible loss or range of loss that may arise from this lawsuit.
On October 1, 2015, a stockholder purporting to act on the behalf of the Company, filed a derivative lawsuit in the Superior
Court of California for the County of Alameda, purportedly asserting claims on behalf of the Company against certain of officers and
the members of board of directors of the Company, captioned Silva v. Scannon, et al. (Case No. RG15787990). The lawsuit asserts
claims for breach of fiduciary duty, corporate waste and unjust enrichment based on the dissemination of allegedly false and
misleading statements related to the Company’s EYEGUARD-B study. The plaintiff is seeking unspecified monetary damages and
other relief, including reforms and improvements to the Company’s corporate governance and internal procedures. This action is
currently stayed pending further developments in the securities class action. Management believes the allegations have no merit and
intends to vigorously defend against the claims. Currently, the Company does not believe that the outcome of this matter will have a
material adverse effect on its business or financial condition, although an unfavorable outcome could have a material adverse effect on
its results of operations for the period in which such a loss is recognized. The Company cannot reasonably estimate the possible loss
or range of loss that may arise from this lawsuit.
On November 16, and November 25, 2015, two derivative lawsuits were filed purportedly on the Company’s behalf in the
United States District Court for the Northern District of California, captioned Fieser v. Van Ness, et al. (Case No. 4:15-CV-05236-
HSG) and Csoka v. Varian, et al. (Case No. 3:15-cv-05429-SI), against certain of the Company’s officers and the members of its
board of directors. The lawsuits assert claims for breach of fiduciary duty and other violations of law based on the dissemination of
allegedly false and misleading statements related to the Company’s EYEGUARD-B study. Plaintiffs seek unspecified monetary
damages and other relief including reforms and improvements to the Company’s corporate governance and internal procedures. The
Company’s response to the Fieser complaint is currently due on April 4, 2016. The Company’s response to the Csoka Complaint is
currently due on April 18, 2016. Management believes the allegations have no merit and intend to vigorously defend against the
claims. Currently, the Company does not believe that the outcome of this matter will have a material adverse effect on its business or
financial condition, although an unfavorable outcome could have a material adverse effect on its results of operations for the period in
which such a loss is recognized. The Company cannot reasonably estimate the possible loss or range of loss that may arise from this
lawsuit.
F-33
Operating Leases
As of December 31, 2015, the Company leased administrative, research facilities, and office equipment under operating leases
expiring on various dates through April 2023. These leases require the Company to pay taxes, insurance, maintenance and minimum
lease payments. For each facility lease, the Company has two successive renewal options to extend the lease for five years upon the
expiration of the initial lease term, or the expiration of the first renewal lease term.
The Company estimates future minimum lease payments, excluding sub-lease income as of December 31, 2015 to be (in
thousands):
Year Ended December 31,
2016............................................................................................... $
2017...............................................................................................
2018...............................................................................................
2019...............................................................................................
2020...............................................................................................
Thereafter ......................................................................................
Total minimum lease payments ............................................... $
Amounts
3,631
3,732
3,842
3,956
4,060
6,794
26,015
Total rental expense, including other costs required under the Company’s leases, was approximately $3.7 million, $3.5 million
and $3.5 million for the years ended December 31, 2015, 2014, and 2013, respectively. Rental expense based on leases allowing for
escalated rent payments are recognized on a straight-line basis. At the expiration of the lease, the Company is required to restore
certain of its leased property to certain conditions in place at the time of lease inception. The Company believes these costs will not be
material to its operations.
On December 31, 2015, in conjunction with the closing of the Agenus Purchase Agreement, the Company entered into sublease
agreements with Agenus for portions of two leased buildings through December 31, 2016. The terms of the sublease agreements
commenced on December 31, 2015 and will expire on December 31, 2016, subject to early termination by Agenus. Under the terms of
the agreements, the Company will receive an aggregate of $0.3 million over the sublease term.
Capital Leases
During the year ended December 31, 2015, the Company has entered into capital lease agreements for certain network hardware
and equipment for use by the Company and its employees. The lease term is for three years. The current portion of capital lease
obligations is included in the accrued and other liabilities line and the noncurrent capital lease obligations is included in other
liabilities – long term line in the consolidated balance sheet as of December 31, 2015.
The following is a schedule of future minimum lease payments due under the capital lease obligation as of December 31, 2015
(in thousands):
Year Ended December 31,
2016.............................................................................................. $
2017..............................................................................................
2018..............................................................................................
Total capital lease obligations .................................................
Less: amount representing interest ...............................................
Present value of net minimum capital lease payments ...........
Less: current portion ....................................................................
Total noncurrent capital lease obligations .............................. $
Amounts
131
116
72
319
(37 )
282
(109 )
173
14. Concentration of Risk, Segment and Geographic Information
Concentration of Risk
Cash equivalents, marketable securities, and receivables are financial instruments which potentially subject the Company to
concentrations of credit risk, as well as liquidity risk for certain cash equivalents such as money market funds. The Company has not
encountered such issues during 2015. The Company’s policy is to focus on investments with high credit quality and liquidity to limit
the amount of credit exposure. The Company currently maintains a portfolio of cash equivalents and have not experienced any losses.
F-34
The Company has not experienced any significant credit losses and does not generally require collateral on receivables. For the
year ended December 31, 2015, one customer represented 67% of total revenue, and as of December 31, 2015, four customers
represented 39%, 25%, 18% and 10% of the accounts receivable balance.
For the year ended December 31, 2014, two customers represented 51% and 28% of total revenues, and as of December 31,
2014, three customers represented 44%, 34% and 12% of the accounts receivable balance.
For the year ended December 31, 2013, three customers represented 43%, 26%, and 20% of total revenues.
Segment Information
The Company has determined that it operates in one business segment as it only reports operating results on an aggregate basis
to the chief operating decision maker of the Company. The Company’s property and equipment is held primarily in the United States.
Geographic Information
Revenue attributed to the following geographic regions for the years ended December 31, 2015, 2014, and 2013 was as follows
(in thousands):
United States ............................................................................ $
Europe .....................................................................................
Asia Pacific ..............................................................................
Total ......................................................................................... $
10,685 $
44,662
100
55,447 $
11,756 $
5,510
1,600
18,866 $
19,955
15,396
100
35,451
Year Ended December 31,
2014
2015
2013
15. Subsequent Events
The Company has evaluated, for potential recognition and disclosure, events that occurred from the balance sheet date through
March 9th, 2016, the date the financial statements were available to be issued.
F-35
16. Quarterly Financial Information (unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31, 2015 and 2014:
Consolidated Statements of Operations
Quarter Ended
March 31
June 30
September 30 December 31
(In thousands, except per share amounts)
2015
Total revenues (1) ..................................................................... $
Restructuring costs ..................................................................
Operating costs and expenses ..................................................
(Loss) income from operations ................................................
Other income (expense), net (2) ................................................
Net (loss) income .................................................................... $
Basic net (loss) income per share of common stock ................ $
Diluted net (loss) income per share of common stock (3) ........ $
2014
Total revenues ......................................................................... $
Restructuring costs ..................................................................
Operating costs and expenses (4) ..............................................
Loss from operations ...............................................................
Other income (expense), net (2) ................................................
Net loss .................................................................................... $
Basic net loss per share of common stock ............................... $
Diluted net loss per share of common stock ........................... $
2,651 $
—
(25,224)
(22,573)
855
(21,718) $
(0.19) $
(0.19) $
3,410 $
(84)
(26,800)
(23,474)
18,787
(4,687) $
(0.04) $
(0.21) $
2,539 $
—
(24,752)
(22,213)
(1,546)
(23,759) $
(0.20) $
(0.20) $
2,074 $
(2,561 )
(23,191 )
(23,678 )
23,198
(480 ) $
(0.00 ) $
(0.00 ) $
5,973 $
—
(24,750)
(18,777)
6,880
(11,897) $
(0.11) $
(0.17) $
5,136 $
—
(25,589 )
(20,453 )
6,054
(14,399 ) $
(0.13 ) $
(0.17 ) $
48,183
(1,138)
(18,305)
28,740
(3,389)
25,351
0.21
0.21
4,347
—
(23,475)
(19,128)
11,810
(7,318)
(0.07)
(0.12)
(1)
In the fourth quarter of 2015, the total revenues include upfront and milestone payments relating to various out-licensing
arrangements, including a $37.0 million upfront payment from Novartis, a $5.0 million upfront payment from Novo Nordisk
and a $3.8 million payment from Pfizer.
(2) Fluctuations in 2015 and 2014 primarily relate to (losses) gains on the revaluation of the contingent warrant liabilities and a $3.5
million gain from the sale of the Company’s manufacturing facility during the three months ended December 31, 2015 (see Note
6).
(3) For the quarter ended December 31, 2015, the Company’s diluted net income per share of common stock was computed by
(4)
giving effect to all potentially dilutive common stock equivalents outstanding during the period.
In 2014, the Company corrected an immaterial error driven by certain stock-based compensation expense in the fourth quarter of
2014, resulting in a decrease to operating expenses and net loss by $1.6 million and a decrease to basic and diluted loss per share
of $0.01 and $0.02, respectively, for the three months ended December 31, 2014.
F-36
Exhibit
Number
Exhibit Description
Form
SEC File No. Exhibit
Filing Date
Incorporation By Reference
3.1
Certificate of Incorporation of XOMA Corporation
8-K
000-14710
3.1
01/03/2012
8-K
000-14710
3.1
05/31/2012
3.2A
Certificate of Amendment of Certificate of Incorporation of
XOMA Corporation
3.2B
Certificate of Amendment of Certificate of Incorporation of
XOMA Corporation
3.3
By-laws of XOMA Corporation
4.1
Reference is made to Exhibits 3.1, 3.2 and 3.3
4.2
Specimen of Common Stock Certificate
4.3
Form of Warrant (December 2011 Warrants)
4.4
Form of Warrant (March 2012 Warrants)
8-K
000-14710
8-K
000-14710
8-K
000-14710
10-K
000-14710
8-K
000-14710
3.1
3.2
4.1
4.9
4.1
4.5
Form of Warrant (September 2012 Warrants)
8-K
000-14710
4.10
4.6
Registration Rights Agreement, dated June 12, 2014, by and among
XOMA Corporation, 667, L.P., Baker Brothers Life Sciences, L.P.,
and 14159, L.P.
4.7
Form of Warrants (December 2014 Warrants)
8-K
000-14710
8-K
000-14710
4.1
4.1
4.8
Warrant Agreement, by and between XOMA Corporation and
Hercules Technology III, L.P., dated February 27, 2015
10-Q
000-14710
4.10
10.1*
1981 Share Option Plan as amended and restated
S-8
333-171429
10.1
05/28/2014
01/03/2012
01/03/2012
03/14/2012
03/07/2012
10/03/2012
06/12/2014
12/09/2014
05/07/2015
12/27/2010
10.2*
Form of Share Option Agreement for 1981 Share Option Plan
10-K
000-14710 10.1A
03/11/2008
10.3*
Restricted Share Plan as amended and restated
S-8
333-171429
10.1
12/27/2010
10.4*
Form of Share Option Agreement for Restricted Share Plan
10-K
000-14710 10.2A
03/11/2008
10.5*
2007 CEO Share Option Plan
8-K
000-14710
10.7
10.6*
1992 Directors Share Option Plan as amended and restated
S-8
333-171429
10.1
08/07/2007
12/27/2010
10.7*
Form of Share Option Agreement for 1992 Directors Share Option
Plan (initial grants)
10-K
000-14710 10.3A
03/11/2008
10.8*
Form of Share Option Agreement for 1992 Directors Share Option
Plan (subsequent grants)
10-K
000-14710 10.3B
03/11/2008
10.9*
2002 Director Share Option Plan
S-8
333-151416
10.10
06/04/2008
10.10*
XOMA Corporation Amended and Restated 2010 Long Term
Incentive and Stock Award Plan
S-8
000-14710
99.1
09/12/2014
10.11*
Form of Stock Option Agreement for Amended and Restated 2010
Long Term Incentive and Stock Award Plan
10-K
000-14710 10.6A
03/14/2012
10.12*
Form of Restricted Stock Unit Agreement for Amended and
Restated 2010 Long Term Incentive and Stock Award Plan
10.13*
Management Incentive Compensation Plan as amended and
restated
10-K
000-14710 10.6B
03/14/2012
8-K
000-14710
10.3
11/06/2007
10.14*
CEO Incentive Compensation Plan
10-K
000-14710 10.4A
03/11/2008
Exhibit
Number
Exhibit Description
Form
SEC File No. Exhibit
Filing Date
Incorporation By Reference
10.15*
Amendment No. 1 to CEO Incentive Compensation Plan
10-K
000-14710 10.7B
03/14/2012
10.16*
Bonus Compensation Plan
10-K
000-14710 10.4B
03/11/2008
10.17
Form of Amended and Restated Indemnification Agreement for
Officers
10-K
000-14710
10.6
03/08/2007
10.18
Form of Amended and Restated Indemnification Agreement for
Employee Directors
10-K
000-14710
10.7
03/08/2007
10.19
Form of Amended and Restated Indemnification Agreement for
Non-employee Directors
10-K
000-14710
10.8
03/08/2007
10.20*
Employment Agreement entered into between XOMA (US) LLC
and Fred Kurland, dated as of December 29, 2008
10-K/A 000-14710 10.7B
12/27/2010
10.21*
Amended and Restated Employment Agreement entered into
between XOMA (US) LLC and Charles C. Wells, dated as of
December 30, 2008
10-K/A 000-14710 10.7D
12/27/2010
10.22*
Officer Employment Agreement dated March 19, 2013 between
XOMA Corporation and Paul Rubin
10-K
000-14710
10.23
03/12/3014
10.23*
Employment Agreement effective as of January 4, 2012 between
XOMA (US) LLC and John Varian
10-K
000-14710 10.10G
03/14/2012
10.24*
Officer Employment Agreement dated March 10, 2014 between
XOMA Corporation and Pat Scannon
10-K
000-14710
10.25
03/12/2014
10.25*
Change of Control Agreement entered into between XOMA Ltd.
and John Varian, dated January 4, 2012
10-K
000-14710 10.12A
03/14/2012
10.26*
Retention Benefit Agreement entered into between XOMA
Corporation and John Varian, dated March 11, 2014
10-K
000-14710
10.28
03/12/2014
10.27*
Employment Agreement by and between XOMA Corporation and
Thomas Burns, dated as of April 3, 2015
10.28*
2015 Employee Stock Purchase Plan
10-Q
000-14710
10.4
S-8
333-204367
99.1
05/07/2015
05/21/2015
10.29*
Form of Subscription Agreement and Authorization of Deduction
under the 2015 Employee Stock Purchase Plan
S-8
333-204367
99.2
05/21/2015
10.30+*
10.31+*
10.32+*
Change of Control and Severance Agreement entered into between
XOMA Corporation and Thomas Burns, dated October 28, 2015
Change of Control Agreement entered into between XOMA
Corporation and Jim Neal, dated January 3, 2011
Employment Agreement entered into between XOMA Corporation
and Jim Neal, dated October 29, 2014
10.33
Lease of premises at 804 Heinz Street, Berkeley, California dated
February 13, 2013
10-K
000-14710
10.29
03/12/2014
10.34
Lease of premises at 2910 Seventh Street, Berkeley, California
dated February 13, 2013
10-K
000-14710
10.30
03/12/2014
10.35
First amendment to lease of premises at 2910 Seventh Street,
Berkeley, California dated February 22, 2013
10-K
000-14710
10.31
03/12/2014
Exhibit
Number
10.36
Exhibit Description
Form
SEC File No. Exhibit
Filing Date
Lease of premises at 5860 and 5864 Hollis Street, Emeryville,
California dated February 13, 2013
10-K
000-14710
10.32
03/12/2014
Incorporation By Reference
10.37†
License Agreement by and between XOMA Ireland Limited and
MorphoSys AG, dated as of February 1, 2002
10-K
000-14710
10.43
02/01/2002
10.38†
License Agreement, dated as of December 29, 2003, by and
between Diversa Corporation (n/k/a BP Biofuels Advanced
Technology Inc.) and XOMA Ireland Limited
10.39
First Amendment, dated October 28, 2014, to the License
Agreement between XOMA (US) LLC (assigned to it by XOMA
Ireland Limited) and BP Biofuels Advanced Technology Inc.
(previously Diversa Corporation, previously Verenium
Corporation).
10.40†
GSSM License Agreement, effective as of May 2, 2008, by and
between Verenium Corporation (n/k/a BP Biofuels Advanced
Technology Inc.) and XOMA Ireland Limited
8-K/A 000-14710
2
03/19/2004
10-Q
000-14710
10.3
11/06/2014
10-K
000-14710 10.25A
03/10/2011
10.41†
Secured Note Agreement, dated as of May 26, 2005, by and
between Chiron Corporation and XOMA (US) LLC
10-Q
000-14710
10.3
08/08/2005
10.42†
10.43†
Amended and Restated Research, Development and
Commercialization Agreement, executed November 7, 2008, by
and between Novartis Vaccines and Diagnostics, Inc. (formerly
Chiron Corporation) and XOMA (US) LLC
Amendment No. 1 to Amended and Restated Research,
Development and Commercialization Agreement, effective as of
April 30, 2010, by and between Novartis Vaccines and Diagnostics,
Inc. and XOMA (US) LLC
10-K
000-14710 10.24C
03/11/2009
10-K
000-14710 10.25B
03/14/2012
10.44†
Collaboration Agreement, dated as of November 1, 2006, between
Takeda Pharmaceutical Company Limited and XOMA (US) LLC
10-K
000-14710
10.46
03/08/2007
10.45
10.46
First Amendment to Collaboration Agreement, effective as of
February 28, 2007, between Takeda Pharmaceutical Company
Limited and XOMA (US) LLC
Second Amendment to Collaboration Agreement, effective as of
February 9, 2009, among Takeda Pharmaceutical Company
Limited and XOMA (US) LLC
10-Q/A 000-14710
10.48
03/05/2010
10-K
000-14710 10.31B
03/11/2009
10.47†
License Agreement, effective as of August 27, 2007, by and
between Pfizer Inc. and XOMA Ireland Limited
8-K
000-14710
2
09/13/2007
10.48†
Discovery Collaboration Agreement dated September 9, 2009, by
and between XOMA Development Corporation and Arana
Therapeutics Limited
10.49†
Collaboration and License Agreement dated as of December 30,
2010, by and between XOMA Ireland Limited, Les Laboratoires
Servier and Institut de Recherches Servier
10.50†
Amended and Restated Collaboration and License Agreement dated
as of February 14, 2012, by and between XOMA Ireland Limited,
Les Laboratoires Servier and Institut de Recherches Servier
10-Q/A 000-14710
10.35
03/05/2010
10-K
000-14710
10.42
03/10/2011
10-K
000-14710 10.41A
03/14/2012
Exhibit
Number
10.51†
10.52†
10.53†
10.54†
10.55
10.56
10.57
Exhibit Description
Form
SEC File No. Exhibit
Filing Date
Loan Agreement dated as of December 30, 2010, by and between
XOMA Ireland Limited and Les Laboratoires Servier
10-K/A 000-14710 10.42A
05/26/2011
Incorporation By Reference
Amended and Restated License and Commercialization Agreement
effective as of January 11, 2012, by and between Les Laboratoires
Servier and XOMA Ireland Limited
Amendment No. 2, effective January 9, 2015, to the Loan
Agreement, effective December 30, 2010, by and among XOMA
(US) LLC, Les Laboratoires Servier and Institut de Recherches
Servier
Amendment No. 2, effective January 9, 2015, to the Amended and
Restated Collaboration and License Agreement, effective February
14, 2012, by and among XOMA (US) LLC, Les Laboratoires
Servier and Institut de Recherches Servier
Amendment No. 1, effective November 4, 2014, to the Amended
and Restated Collaboration and License Agreement, effective
February 14, 2012, by and among XOMA (US) LLC (assigned
from XOMA Ireland Limited), Les Laboratoires Servier and
Institut de Recherches Servier
Amendment No. 1 (Consent, Transfer, Assumption and
Amendment), effective January 9, 2015, to the Loan Agreement,
effective December 30, 2010, by and among XOMA (US) LLC,
Les Laboratoires Servier and Institut de Recherches Servier
Loan and Security Agreement, dated February 27, 2015, by and
among XOMA Corporation, XOMA(US) LLC and XOMA
Commercial as borrowers and Hercules Technology Growth
Capital, Inc., as agent and lender
10-K
000-14710
10.44
03/14/2012
10-K
000-14710
10.71
03/11/2015
10-K
000-14710
10.72
03/11/2015
10-K
000-14710
10.73
03/11/2015
10-K
000-14710
10.74
03/11/2015
10-Q
000-14710
10.3
05/07/2015
10.58
Letter Agreement, dated June 19, 2015, by and between XOMA
(US) LLC and Novartis Vaccines and Diagnostics, Inc.
10-Q
000-14710
10.1
08/10/2015
10.59†
License Agreement, dated September 30, 2015, by and between
XOMA (US) LLC and Novartis Institutes for Biomedical Research,
Inc.
10.60
Amended Secured Note Agreement, dated September 30, 2015, by
and between XOMA (US) LLC and Novartis Institutes for
Biomedical Research, Inc.
10.61†
Amendment to Amended and Restated Research, Development and
Commercialization Agreement, dated September 30, 2015, by and
between XOMA (US) LLC and Novartis Institutes for Biomedical
Research, Inc.
10.62
Sales Agreement, dated November 12, 2015, by and between
XOMA Corporation and Cowen and company, LLC
10.63+†
10.64+
License Agreement, dated December 1, 2015, by and between
XOMA (US) LLC and Novo Nordisk A/S
Settlement and Amended License Agreement dated December 3,
2015, by and between XOMA (US) LLC, as a successor-in-interest
of XOMA Ireland Limited and Pfizer Inc.
10-Q
000-14710
10.2
11/06/2015
10-Q
000-14710
10.3
11/06/2015
10-Q
000-14710
10.4
11/06/2015
8-K
001-14710
10.1
11/12/2015
Exhibit
Number
10.65+†
21.1+
23.1+
24.1+
31.1+
31.2+
32.1+
Exhibit Description
Form
SEC File No. Exhibit
Filing Date
Incorporation By Reference
Asset Purchase Agreement dated November 5, 2015 by and
between the Company and Agenus West, LLC
Subsidiaries of the Company
Consent of Independent Registered Public Accounting Firm
Power of Attorney (included on the signature pages hereto)
Certification of Chief Executive Officer, as required by Rule 13a-
14(a) or Rule 15d-14(a)
Certification of Chief Financial Officer, as required by Rule 13a-
14(a) or Rule 15d-14(a)
Certification of Chief Executive Officer and Chief Financial
Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and
Section 1350 of Chapter 63 of Title 18 of the United States Code
(18 U.S.C. §1350)(1)
99.1+
Press Release dated March 9, 2016
101.INS+ XBRL Instance Document
101.SCH+ XBRL Taxonomy Extension Schema Document
101.CAL
+
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF+ XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
+
XBRL Taxonomy Extension Labels Linkbase Document
101.PRE+ XBRL Taxonomy Extension Presentation Linkbase Document
†
Confidential treatment has been granted with respect to certain portions of this exhibit. This exhibit omits the information
subject to this confidentiality request. Omitted portions have been filed separately with the SEC.
Indicates a management contract or compensation plan or arrangement.
Filed herewith
*
+
(1) This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K),
irrespective of any general incorporation language contained in such filing.
Subsidiaries of the Company
XOMA Ireland Limited
XOMA Technology Ltd.
XOMA (US) LLC
XOMA Commercial LLC
XOMA CDRA LLC
XOMA UK Limited
Jurisdiction of Organization
Ireland
Bermuda
Delaware
Delaware
Delaware
United Kingdom
Exhibit 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 of XOMA Corporation (Nos. 333-108306,
333-151416, 333-171429, 333-174730, 333-181849 and 333-198719) pertaining to the 1981 Share Option Plan, the Restricted Share
Plan, the 1992 Directors Share Option Plan, the Amended and Restated 1998 Employee Stock Purchase Plan, the 2007 CEO Share
Option Plan and the Amended and Restated 2010 Long Term Incentive and Stock Award Plan and in the Registration Statement on
Form S-3 of XOMA Corporation (Nos. 333-183486, 333-191078, 333-196707 and 333-201882) and the related Prospectuses of
XOMA Corporation, of our reports dated March 9, 2016, with respect to the consolidated financial statements of XOMA Corporation,
and the effectiveness of internal control over financial reporting of XOMA Corporation included in this Annual Report (Form 10-K)
for the year ended December 31, 2015.
Exhibit 23.1
/s/ ERNST & YOUNG LLP
Redwood City, California
March 9, 2016
CERTIFICATION
Exhibit 31.1
I, John Varian, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of XOMA Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f))) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing
the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 9, 2016
/s/ JOHN VARIAN
John Varian
Chief Executive Officer
CERTIFICATION
Exhibit 31.2
I, Thomas Burns, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of XOMA Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f))) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing
the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 9, 2016
/s/ THOMAS BURNS
Thomas Burns
Vice President, Finance and Chief Financial Officer
CERTIFICATION
Exhibit 32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)
and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), John Varian, Chief Executive Officer of
XOMA Corporation (the “Company”), and Thomas Burns, Chief Financial Officer of the Company, each hereby certifies that, to the
best of his or her knowledge:
1.
as Exhibit 32.1, fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and
The Company’s Annual Report on Form 10-K for the year ended December 31, 2015, to which this Certification is attached
2.
operations of the Company.
The information contained in Exhibit 32.1 fairly presents, in all material respects, the financial condition and results of
IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 9th day of March, 2016.
/s/ JOHN VARIAN
John Varian
Chief Executive Officer
/s/ THOMAS BURNS
Thomas Burns
Vice President, Finance, and Chief Financial Officer
3.
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any filing of XOMA Corporation under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective
of any general incorporation language contained in such filing.
C O R P O R A T E I N F O R M A T I O N
DIRECTORS
EXECUTIVE OFFICERS
ANNUAL MEETING
W. Denman Van Ness 1,2,3
Chairman of the Board
Hidden Hill Advisors
William K. Bowes, Jr. 3
Founding Partner
U.S. Venture Partners
Peter Barton Hutt 3
Senior Counsel
Covington & Burling LLP
John Varian
Chief Executive Officer
Patrick J. Scannon, M.D., Ph.D.
Executive Vice President and
Chief Scientific Officer
Paul D. Rubin, M.D.
Senior Vice President,
Research and Development and
Chief Medical Officer
Joseph M. Limber 2
President and Chief Executive Officer
Gradalis, Inc.
Thomas Burns
Vice President, Finance and
Chief Financial Officer
XOMA CORPORATION
2910 Seventh Street
Berkeley, CA 94710
Tel: (510) 204-7200
www.xoma.com
INDEPENDENT AUDITORS
Ernst & Young LLP
San Francisco, CA
TRANSFER AGENT AND
REGISTRAR
Wells Fargo Shareowner Services
P.O. Box 64874
St. Paul, MN 55164
www.shareowneronline.com
Tel: (800) 468-9716 or
(651) 450-4064
Patrick J. Scannon, M.D., Ph.D.
Executive Vice President and
Chief Scientific Officer
XOMA Corporation
John Varian
Chief Executive Officer
XOMA Corporation
Timothy P. Walbert 1,3
Chairman, President and
Chief Executive Officer
Horizon Pharma, Inc.
Jack L. Wyszomierski 1,2
Former Executive Vice
President and Chief Financial Officer
VWR International, LLC
1 Audit Committee
2 Compensation Committee
3 Nominating & Governance
Committee
The annual meeting of shareholders
will be held at 9:00 a.m. on May 19,
2016 at the company’s offices at 2910
Seventh Street, Berkeley, CA
SOURCES OF INFORMATION
XOMA’s website, with news releases,
financial and other information, is
accessible on the internet at:
www.xoma.com
SEC FORM 10-K
A copy of XOMA’s annual report filed
with the Securities and Exchange
Commission on Form 10-K was made
available to all shareholders of record
and is available on XOMA’s website.
To request a copy contact:
Investor Relations
XOMA Corporation
2910 Seventh Street
Berkeley, CA 94710
Tel: (510) 204-7200
investorrelations@xoma.com
XOMA is an affirmative action,
equal-opportunity employer.
XOMA CORPORATION
2910 Seventh Street
Berkeley, CA 94710
(510) 204-7200