UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
on
FORM 10-Q/A
(mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended September 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Transition Period from _____ to _____
Commission File No. 0-14710
XOMA CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 94-2756657
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2910 Seventh Street, Berkeley, CA 94710
(Address of principal executive offices) (Zip Code)
(510) 644-1170
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock $.0005 par value 44,874,067
- - ----------------------------- -----------------------------------------
Class Outstanding at September 30, 1998
XOMA CORPORATION
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations ...................................................3
Signatures....................................................................6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Revenues of $0.8 million in the third quarter and the first nine months of 1998
were primarily related to licensing of the Company's expression technology.
Revenues in the first nine months of 1997 of $1.0 million were also due to
technology licensing.
Research and development expenses were $12.7 million and $32.6 million in the
three and nine month periods ended September 30, 1998, compared with $7.1
million and $22.4 million in the comparable 1997 periods. This increase was due
to accelerated patient accrual in NEUPREX(R) and hu1124 clinical trials, as
well as costs related to preparing for regulatory submissions for NEUPREX(R).
The Company anticipates research and development expenses to continue at similar
or higher levels at least for the next six months. General and administrative
expenses were approximately 9% lower in both the three and nine month 1998
periods when compared with the prior year.
Results for the first nine months of 1998 also include a non-recurring provision
of $2.4 million related to an exclusive license with Incyte for all of Incyte's
patents and patent applications relating to BPI. (See Footnote 6 - Non-recurring
License Fee.)
Investment income was slightly higher in the first nine months of 1998 compared
to the same period in 1997 due to a higher average investment balance. The
increase in interest expense and other in the first nine months of 1998 over the
same period in 1997 was primarily due to interest on a $11.0 million higher
balance of the convertible note payable to Genentech on which interest accrues
at six-month LIBOR plus 1%.
Liquidity and Capital Resources:
The Company's cash, cash equivalents and short-term investments totaled $36.2
million as of September 30, 1998 compared with $55.1 million as of December 31,
1997. Net cash used in operating activities was $29.9 million in the first nine
months of 1998, compared with $21.3 million in the 1997 period. The Company's
cash, cash equivalents and short-term investments are expected to continue to
decrease while the Company pursues U.S. Food and Drug Administration licensure
except to the extent the Company secures additional funding.
The Company has been able to control its operating cash consumption by carefully
monitoring its costs. As a result, its cash position and resulting investment
income are sufficient to finance the
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Company's currently anticipated levels of spending for at least one year. The
Company continues to evaluate a variety of arrangements which would further
strengthen its competitive position and provide additional funding, but cannot
predict when or whether any such arrangement or additional funding will be
secured.
Year 2000 Exposure:
Year 2000 ("Y2K") exposure is the result of computer programs using two instead
of four digits to represent the year. These computer programs may erroneously
interpret dates beyond the year 1999, which could cause system failures or other
computer errors, leading to disruptions in operations.
The Company has begun to develop a three-phase program to limit or eliminate Y2K
exposures. Phase I is to identify those systems, applications and third-party
relationships from which the Company has exposure to Y2K disruptions in
operations. Phase II is to develop and implement action plans to achieve Y2K
compliance in all areas before the end of 1999. Also included in Phase II is the
development of contingency plans to be implemented should Y2K compliance not be
achieved when required to avoid disruptions in operations. Phase III is the
final testing or equivalent certification of each major area of exposure to
ensure compliance. The Company intends to complete all phases before the end of
1999.
The Company has identified three major areas as critical for successful Y2K
compliance: Area 1, which includes the Company's financial, clinical and
regulatory informational systems applications that rely on computer software;
Area 2, which includes the Company's manufacturing, quality, and research
applications that rely on computer programs embedded in microprocessors; and
Area 3, which includes third-party relationships which may be affected by Area
1, 2 or 3 exposures that exist in other companies. Material third-party
relationships include contract research organizations which provide clinical and
data management services, raw materials suppliers and testing services involved
in the manufacture and testing of the Company's products, and contractors
involved in packaging and shipping of the Company's products. Each of these
relationships is essential to the development of the Company's products.
The Company, in accordance with Phase I of the program, is conducting an
internal review and contacting all software suppliers to determine major areas
of Y2K exposure in Area 1. In manufacturing, quality and research (Area 2), the
Company has engaged a consultant to help identify its exposures. With respect to
Area 3, the Company plans to evaluate its reliance on third parties for its
operations, and to contact these third parties in order to determine whether
their Y2K compliance will adequately assure the Company's uninterrupted
operations.
Although the Company has yet to complete Phase I of its Y2K program with respect
to all three of the major areas, the Company believes that it relies on systems,
applications and third-party relationships which, if not Y2K compliant prior to
the end of 1999, could have a material adverse impact on its operations. Because
the Company has not completed Phase II contingency planning, it can not describe
what action it would take should Y2K compliance not be achievable in time.
As of September 30, 1998, the Company has identified costs of approximately $0.2
million to replace or
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remediate and test its Area 1 computer information systems and costs of $0.2
million to identify and replace its Area 2 manufacturing, quality and research
applications. There have been no expenditures to date in either of Areas 1 or 2.
Not having completed its Phase I and II evaluations of all three areas, the
Company can not at this time estimate the total potential cost of its Y2K
compliance programs. The funds for these costs will be part of the Company's
cash flow from operations and capital expenditures.
Assuming that the Company's efforts to mitigate its Y2K exposure in any of the
three Areas described above are unsuccessful, the most reasonably likely worst
case scenario is an interrpution of ongoing clinical trials, including delays in
gathering and evaluating clinical data, and a disruption of the Company's
manufacturing operations.
Forward Looking Statements:
Certain statements contained herein that are not related to historical facts may
constitute "forward looking" information, as that term is defined in the Private
Securities Litigation Reform Act of 1995. Such statements are based on the
Company's current beliefs as to the outcome and timing of future events; actual
results may differ materially from those projected or implied in the forward
looking statements. Further, certain forward looking statements are based upon
assumptions of future events which may not prove to be accurate. These
statements involve risks and uncertainties including, but not limited to, risks
and uncertainties related to regulatory approvals, product efficacy and
development, the Company's financing needs and opportunities, scale-up and
marketing capabilities, intellectual property protection, competition, the
Company's ability to be Y2K compliant, stock price volatility and other risk
factors referred to herein and in other of the Company's Securities and Exchange
Commission filings.
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XOMA CORPORATION
SIGNATURES
Pursuant to the requirements 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.
XOMA CORPORATION
Date: November 25, 1998 By: /s/ John L. Castello
------------------------------------
John L. Castello
Chairman of the Board, President and
Chief Executive Officer
Date: November 25, 1998 By: /s/ Peter B. Davis
------------------------------------
Peter B. Davis
Vice President, Finance and
Chief Financial Officer