Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
XOMA > SEC Filings for XOMA > Form 10-Q on 7-Nov-2013All Recent SEC Filings

Show all filings for XOMA CORP

Form 10-Q for XOMA CORP


7-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the "safe harbor" created by those sections. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to them. In some cases you can identify forward-looking statements by words such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" and similar expressions intended to identify forward-looking statements. Examples of these statements include, but are not limited to, statements regarding: the implications of interim or final results of our clinical trials, the progress of our research programs, including clinical testing, the extent to which our issued and pending patents may protect our products and technology, our ability to identify new product candidates, the potential of such product candidates to lead to the development of commercial products, our anticipated timing for initiation or completion of our clinical trials for any of our product candidates, our future operating expenses, our future losses, our future expenditures for research and development, and the sufficiency of our cash resources. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A of this Quarterly Report on Form 10-Q and our other filings with the SEC. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from those we expect. Except as required by law, we assume no obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with the audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2012.

Overview

XOMA discovers and develops innovative antibody-based therapeutics. Our lead drug candidate, gevokizumab, is a potent, fully humanized monoclonal antibody with unique allosteric modulating properties that binds to the inflammatory cytokine interleukin-1 beta ("IL-1 beta"). We believe, by targeting IL-1 beta, gevokizumab has the potential to address the underlying inflammatory causes of a wide range of diseases that have been identified as unmet medical needs.

Together with our development partner, Les Laboratoires Servier ("Servier"), we initiated three Phase 3 clinical trials evaluating gevokizumab for the treatment of non-infectious uveitis ("NIU") involving the intermediate and/or posterior segment of the eye and Behçet's uveitis, a severe subset of NIU. XOMA is responsible for all of the clinical study sites in the United States, and Servier is responsible for all of the clinical study sites outside of the United States. These studies are known as the EYEGUARD™ program, which includes EYEGUARD-A (patients with acute NIU), EYEGUARD-B (patients with Behçet's uveitis), and EYEGUARD-C (patients with NIU controlled with corticosteroids, with or without immunosuppressive medications). As of September 30, 2013, we have over 60 of the targeted 70 clinical sites up and running in the U.S. where we are working to accelerate enrollment, and we are working closely with SERVIER to identify ways to expedite the site activation process outside the United States. We anticipate disclosing the top-line results of the EYEGUARD studies in 2014.

In October 2013, we announced three-month results from our gevokizumab Phase 2 clinical study in patients with erosive osteoarthritis of the hand ("EOA") who also have C-reactive protein ("CRP") levels greater than or equal to 2.5 mg/L. The three-month results demonstrated that gevokizumab has a clinical effect on the target patient population. The study will continue on a blinded basis until all patients receive the full six months of treatment. We will review the six-month results along with the three-month results from our gevokizumab Phase 2 clinical EOA study in patients who do not have elevated CRP levels, at which time we will make final decisions regarding a potential Phase 3 program in EOA.

In June 2013, we launched a pilot study in inflammatory pyoderma gangrenosum ("PG"), and in tandem, treated two patients with generalized pustular psoriasis ("GPP") under compassionate use protocols. PG and GPP are two rare diseases classified as neutrophilic dermatoses. In October 2013, we selected PG as the next indication for Pivotal clinical development based on compelling results from the pilot study. We will request a meeting with the FDA to review the data and discuss the requirements to move gevokizumab into a pivotal Phase 3 program in this indication.


Table of Contents
Two additional studies are being conducted in collaboration with the United States National Institutes of Health ("NIH"). In March 2013, we announced that a gevokizumab study in patients with non-infectious anterior scleritis had opened for enrollment at the National Eye Institute ("NEI"), and in August 2013, we announced a gevokizumab clinical study in patients with inflammatory autoimmune inner ear disease ("AIED") will be run by the North Shore-Long Island Jewish Health System in collaboration with the National Institute on Deafness and Other Communication Disorders.

Separately, Servier instituted its own active development program for gevokizumab beyond the NIU and Behçet's uveitis Phase 3 program. In 2012, Servier initiated a gevokizumab Phase 2 study in patients with acute coronary syndrome, a cardiovascular disease. Servier also began testing gevokizumab in a variety of small clinical studies, including polymyositis/dermatomyositis and Schnitzler syndrome. Servier indicated these are the first studies in an extensive multi-indication exploratory program it expects to be conducting.

Our proprietary preclinical pipeline includes classes of antibodies that activate, sensitize or deactivate the insulin receptor in vivo, which we have named XMet. This portfolio of antibodies represents potential new therapeutic approaches to the treatment of diabetes and several diseases that have insulin involvement, which we believe may be orphan drug opportunities.

We have developed these and other antibodies using some or all of our ADAPT™ antibody discovery and development platform, our ModulX™ technologies for generating allosterically modulating antibodies, and our OptimX™ technologies for optimizing biophysical properties of antibodies, including affinity, immunogenicity, stability and manufacturability.

Our biodefense initiatives include XOMA 3AB, a biodefense anti-botulism product candidate comprised of a combination of three antibodies. XOMA 3AB is directed against botulinum toxin serotype A and has been developed through funding from the National Institute of Allergy and Infectious Diseases ("NIAID"), a part of the NIH. All volunteers have been enrolled and dosed with XOMA 3AB in a Phase 1 clinical trial sponsored by NIAID. In January 2012, we announced we will complete NIAID biodefense contracts currently in place but will not actively pursue future contracts. Should the government choose to acquire XOMA 3AB or other biodefense products in the future, we expect to be able to produce these antibodies through an outside manufacturer.

We also have developed antibody product candidates with premier pharmaceutical companies including Novartis AG ("Novartis") and Takeda Pharmaceutical Company Limited ("Takeda"). Two antibodies developed with Novartis, LFA102 and HCD122 (lucatumumab), are in Phase 1 and/or Phase 2 clinical development by Novartis for the potential treatment of breast or prostate cancer and hematological malignancies, respectively.

Significant Developments in the First Nine Months of 2013

Gevokizumab

· In January 2013, we announced preliminary top-line data from an interim analysis of our Phase 2 proof-of-concept study to evaluate the safety and efficacy of gevokizumab for the treatment of moderate-to-severe inflammatory acne. Preliminary data from the 125-patient trial demonstrated clear activity according to the Investigator's Global Assessment ("IGA") parameter. Gevokizumab was well-tolerated in this trial, with no significant differences in adverse events between gevokizumab and placebo and no serious drug-related adverse events were reported.

· In April 2013, the NEI opened a non-infectious, active, anterior scleritis trial for patient enrollment. The open-label single-arm Phase 1/2 study is designed to assess the safety and potential efficacy of gevokizumab in patients experiencing non-infectious, active, anterior scleritis, which is the inflammation of the sclera.

· In May 2013, we announced we had initiated a second clinical study in inflammatory osteoarthritis of the hand based upon our findings that patients who met all of the eligibility criteria for our original study were not able to participate due to the requirement C-reactive protein (CRP) levels must be greater than or equal to 2.5 mg/L. This second study has the same design and eligibility requirements with the exception that participants with a CRP level of less than 2.5 mg/L may enroll. The study is capturing the same pain and functional endpoints as the primary study, yet the design does not include radiographic/MRI images of the affected joints.


Table of Contents
· In June 2013, we opened enrollment in an open-label pilot study to determine gevokizumab's potential to treat acute inflammatory PG. In October 2013, we announced that we will be requesting a meeting with the FDA to review the data and discuss the requirements to move gevokizumab into a pivotal Phase 3 program in this indication. Our decision is the result of data generated from our open-label pilot study in PG.

· In June 2013, Servier launched its own independent proof-of-concept clinical program to evaluate the safety and efficacy of gevokizumab in indications different from ours. The first such studies are in polymyositis/dermatomyositis and Schnitzler syndrome.

· In July 2013, we announced the completion of patient enrollment in our Phase 2 proof-of-concept study in EOA.

· In August 2013, we announced that a gevokizumab clinical study in patients with AIED will be run by the North Shore-Long Island Jewish Health System in collaboration with the National Institute on Deafness and Other Communication Disorders.

Perindopril Franchise

· In July 2013, we transferred U.S. development and commercialization rights to the perindopril franchise to Symplmed. Under the terms of the arrangement, we received a minority equity position in Symplmed and up to double-digit royalties on sales of the first fixed-dose combination containing perindopril arginine and amlodipine besylate, if it is approved by the FDA. We recorded the minority equity position in the other assets line of our condensed consolidated balance sheets. Symplmed, under a sublicense agreement, assumes U.S. marketing responsibilities for ACEON (perindopril erbumine), and we continue to manage and be reimbursed for sales and distribution within its established commercial infrastructure until the ACEON New Drug Application ("NDA") is transferred to Symplmed. We also continue to record gross ACEON sales in the contracts and other revenue line of our condensed consolidated statements of comprehensive loss until the ACEON NDA is transferred. Following the ACEON NDA transfer, Symplmed will pay us single-digit royalties on sales of ACEON.

Management Addition

· On March 18, 2013, the Company announced Tom Klein has joined the Company as Vice President, Chief Commercial Officer, a newly created position reporting to John Varian, Chief Executive Officer.

Financing

· In August 2013, we completed an underwritten public offering of 8,736,187 share of our common stock for gross proceeds of $31.6 million, before deducting underwriting discounts and commissions and estimated offering expenses totaling approximately $2.2 million.

Results of Operations

Revenues

 Total revenues for the three and nine months ended September 30, 2013 and 2012,
were as follows (in thousands):

                               Three Months Ended September 30,                   Nine Months Ended September 30,
                                                           Increase                                           Increase
                           2013             2012          (Decrease)          2013              2012         (Decrease)
License and
collaborative fees      $    1,574       $    1,127      $         447     $     2,578       $    4,665     $      (2,087 )
Contract and other           4,738            6,124             (1,386 )        20,339           21,725            (1,386 )
Total revenues          $    6,312       $    7,251      $        (939 )   $    22,917       $   26,390     $      (3,473 )

License and Collaborative Fees

License and collaborative fee revenue includes fees and milestone payments related to the out-licensing of our products and technologies. The increase in license and collaborative fee revenue for the three months ended September 30, 2013, as compared to the same period of 2012, was due primarily to a $0.6 million increase in milestone payments. The decrease in license and collaborative fee revenue for the nine months ended September 30, 2013, as compared to the same period of 2012, was due primarily to a $2.2 million decrease in licensing fees from two licensing contracts, partially offset by a $0.2 million increase in milestone payments. The generation of future revenue related to license fees and other collaborative arrangements is dependent on our ability to attract new licensees to our antibody technologies and new collaboration partners. We expect license and collaboration fee revenue in the remainder of 2013 to be comparable to 2012 levels.


Table of Contents
Contract and Other Revenue

Contract and other revenues include agreements where we provide contracted
research and development services to our contract and collaboration partners,
including Servier and NIAID. The following table shows the activity in contract
and other revenue for the three and nine months ended September 30, 2013 and
2012 (in thousands):

                                  Three Months Ended September 30,                   Nine Months Ended September 30,
                                                              Increase                                           Increase
                              2013             2012          (Decrease)          2013              2012         (Decrease)
Servier                    $    1,399       $    3,461      $      (2,062 )   $    11,882       $   10,715     $       1,167
NIAID                           2,614            2,074                540           6,770            9,106            (2,336 )
Other                             725              589                136           1,687            1,904              (217 )
Total contract and other   $    4,738       $    6,124      $      (1,386 )   $    20,339       $   21,725     $      (1,386 )

The decrease in revenue from Servier for the three months ended September 30, 2013, as compared to the same period of 2012, is due primarily to our collaboration with Servier meeting the initial $50 million cap of fully reimbursable NIU costs during the third quarter of 2013. Servier and XOMA will each pay 50% of remaining NIU clinical development and CMC costs. The increase in revenue from Servier for the nine months ended September 30, 2013, as compared to the same period of 2012, is due primarily to an increase in reimbursable clinical development activity with Servier. This increase is partially offset by a decrease in NIAID revenue due primarily to decreased activity under NIAID Contract No. HHSN272200800028C ("NIAID 3") and the recognition of $2.0 million in revenue during the first quarter of 2012 related to an adjustment to previously-reported revenue from NIAID resulting from an audit by NIAID's contracting office. This revenue, which was previously deferred, was recognized upon the completion of negotiations with and approval by the NIH in March 2012.

Based on expected levels of revenue generating activity related to our Servier and NIAID contracts, we expect contract and other revenue in the remainder of 2013 to be comparable to 2012 levels.

Research and Development Expenses

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. Our research and development expenses currently include costs of personnel, supplies, facilities and equipment, consultants, other third-party costs and expenses related to preclinical and clinical testing.

Research and development expenses were $18.2 million and $51.9 million for the three and nine months ended September 30, 2013, respectively, compared with $18.4 million and $52.7 million, respectively, for the same periods of 2012. The decrease of $0.2 million for the three months ended September 30, 2013, as compared to the same period in 2012, was due primarily to the absence of fixed dose combination ("FDC") clinical trial costs in Q3 2013, a decrease in internal facility costs as a result of the 2012 streamlining of operations, and a decrease in employee compensation costs, partially offset by higher internal proprietary project costs and professional service fees. The decrease of $0.8 million for the nine months ended September 30, 2013, as compared to the same period in 2012, was due primarily to decreases in FDC clinical trial costs, and internal facility costs as a result of the 2012 streamlining of operations, partially offset by increases in employee compensation costs and higher external manufacturing activity and internal proprietary project costs.

Salaries and related personnel costs are a significant component of research and development expenses. We recorded $6.4 million and $20.6 million in research and development salaries and employee-related expenses for the three and nine months ended September 30, 2013, respectively, as compared with $6.8 million and $19.8 million for the same periods of 2012. The decrease of $0.4 million for the three months ended September 30, 2013, as compared to the same period of 2012, was due primarily to a $0.8 million decrease in stock-based compensation, partially offset by a $0.4 million increase in salaries and benefits as a result of an increase in headcount. The increase of $0.8 million for the nine months ended September 30, 2013, as compared to the same period of 2012, is due primarily to a $0.9 million increase in salaries and benefits, the result of an increase in headcount.


Table of Contents
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. Also included in earlier-stage programs are costs related to excess manufacturing capacity, of which we expect to further decrease in 2013 due to our streamlining objective to utilize a contract manufacturing organization, which was implemented in 2012. Later-stage programs include clinical testing, regulatory affairs and manufacturing clinical supplies. The costs associated with these programs approximate the following (in thousands):

                                             Three Months Ended September 30,           Nine Months Ended September 30,
                                                2013                  2012                2013                  2012
Earlier stage programs                     $        10,310       $         8,954     $        28,429       $        27,066
Later stage programs                                 7,888                 9,455              23,476                25,636
Total                                      $        18,198       $        18,409     $        51,905       $        52,702

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 approximate the following (in thousands):

                                              Three Months Ended September 30,           Nine Months Ended September 30,
                                                 2013                  2012                2013                  2012
Internal projects                           $        10,915       $         8,426     $        30,892       $        23,860
Collaborative and contract arrangements               7,283                 9,983              21,013                28,842
Total                                       $        18,198       $        18,409     $        51,905       $        52,702

For the three and nine months ended September 30, 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. A second development programs, XMet, accounted for more than 20% but less than 30% 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. All remaining development programs accounted for less than 10% of our total research and development expenses for the three and nine months ended September 30, 2013. For the three and nine months ended September 30, 2012, the gevokizumab program accounted for more than 40% but less than 50% of our total research and development expenses, NIAID accounted for more than 20% but less than 30% of our total research and development expenses, and XMet accounted for more than 10% but less than 20% of our total research and development expenses. All remaining development programs accounted for less than 10% of our total research and development expenses for the three and nine months ended September 30, 2012.

We expect our research and development spending in the remainder of 2013 to increase compared to 2012 levels due primarily to our ongoing global Phase 3 clinical program for gevokizumab for the NIU indications, under our license and collaboration agreement with Servier, and our ongoing Phase 2 proof-of-concept program.

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.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include salaries and related personnel costs, facilities costs and professional fees. Selling, general and administrative expenses were $5.2 million and $13.4 million for the three and nine months ended September 30, 2013, respectively, compared with $4.7 million and $12.9 million for the same periods of 2012. The $0.5 million increase for the three months ended September 30, 2013, as compared to the same period of 2012, was due primarily to a $1.1 million increase in professional service fees, partially offset by a $0.4 million decrease in severance expense. The $0.5 million increase for the nine months ended September 30, 2013, as compared to the same period of 2012, was due primarily to a $0.7 million increase in stock-based compensation, partially offset by a $0.4 million decrease in severance expense.


Table of Contents
Streamlining and Restructuring Charges

In January 2012, we implemented a streamlining of operations, which resulted in a restructuring plan designed to sharpen our 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%, of which 52 were eliminated immediately and the remainder eliminated as of April 6, 2012. These staff reductions resulted primarily from our decision 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.

In connection with the streamlining of operations, we incurred restructuring charges in the first nine months of 2012 of $2.0 million related to severance, other termination benefits and outplacement services, $2.2 million related to the impairment and accelerated depreciation of various assets and leasehold improvements, and $0.7 million related to moving and other facility charges. In the first nine months of 2013, we have incurred $0.2 million in restructuring charges related to facility costs and do not expect to incur additional significant restructuring charges during the remainder of 2013 related to these streamlining activities.

Other Income (Expense)

Interest Expense

Interest expense and amortization of debt issuance costs and discounts are shown
below for the three and nine months ended September 30, 2013 and 2012 (in
thousands):

                          Three Months Ended September 30,                       Nine Months Ended September 30,
                                                        Increase                                              Increase
                    2013              2012             (Decrease)          2013              2012            (Decrease)
Interest
expense
Servier loan     $       547       $       558       $          (11 )   $     1,600       $     1,583      $           17
GECC term loan           508               475                   33           1,584             1,298                 286
Novartis note             90                99                   (9 )           272               298                 (26 )
Other                     14                12                    2              39                32                   7
Total interest
expense          $     1,159       $     1,144       $           15     $     3,495       $     3,211      $          284
. . .
  Add XOMA to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for XOMA - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.