Description
Filed with the SEC from July 12 to July 18:
Xoma (XOMA)
Health-care-focused investment firm Baker Bros. Advisors has told Xoma that it would like to nominate a candidate for the board, and that it expects Xoma's directors to consider the request at their next meeting. Baker Bros. noted that one of its representatives currently serves as an observer to the board. Baker Bros. reported owning 23,127,674 shares (30.6%).
BUSINESS OVERVIEW
Overview
XOMA Corporation (“XOMA” or the “Company”), a Delaware corporation, discovers and develops innovative antibody-based therapeutics. Our lead drug candidate is gevokizumab (formerly XOMA 052), a humanized antibody that binds to the inflammatory cytokine interleukin-1 beta (“IL-1 beta”). In collaboration with our partner, Les Laboratoires Servier (“Servier”), we expect gevokizumab to enter global Phase 3 clinical development in 2012 for non-infectious uveitis (“NIU”) and Behçet’s uveitis. We anticipate Servier will enter gevokizumab into a Phase 2 study in a cardiovascular disease indication during 2012. Separately, we have launched a Phase 2 proof-of-concept program for gevokizumab to evaluate additional indications for further development, including a clinical trial in moderate-to-severe inflammatory acne, which began enrolling patients in December 2011, and a clinical trial in erosive osteoarthritis of the hand, for which we plan to initiate enrollment in the second quarter of 2012.
We have entered into a license and collaboration agreement with Servier to jointly develop and commercialize gevokizumab in multiple indications. Gevokizumab is designed to inhibit the pro-inflammatory cytokine IL-1 beta, which is believed to be a primary trigger of pathologic inflammation in multiple diseases. Under the terms of the agreement, Servier has worldwide rights to gevokizumab for cardiovascular disease and diabetes indications and rights outside the U.S. and Japan to all other indications. We retain development and commercialization rights in the U.S. and Japan to all indications except cardiovascular disease and diabetes and have an option to reacquire rights to these indications from Servier in these territories. Should we exercise our option to reacquire rights to either or both of the cardiovascular disease or diabetes indications in the U.S. and Japan, we will be required to pay Servier an option fee and partially reimburse its incurred development expenses.
Our proprietary preclinical pipeline includes classes of antibodies that activate or sensitize the insulin receptor in vivo and represent potential new therapeutic approaches to the treatment of diabetes. 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.
In January 2012, we announced that we had acquired U.S. rights to the perindopril franchise from Servier. The agreement includes ACEON® (perindopril erbumine), a currently marketed angiotensin converting enzyme (“ACE”) inhibitor, and a portfolio of three fixed-dose combination product candidates where perindopril is combined with another active ingredient(s), such as a calcium channel blocker. The longest of the patents relating to the proprietary form of perindopril in each of the combination product candidates expires in December 2023. We assumed commercialization activities for ACEON® in January 2012 following the transfer from Servier’s previous licensee. In late February 2012, we initiated enrollment in a Phase 3 trial for the first fixed-dose combination product candidate from the perindopril franchise we acquired from Servier, which combines perindopril arginine and amlodipine besylate (“FDC1”). The trial, named PATH ( P erindopril A mlodipine for the T reatment of H ypertension), is expected to enroll approximately 816 patients with hypertension to determine the safety and efficacy of the fixed-dose combination versus either perindopril or amlodipine alone. The primary and secondary endpoints are reduction in sitting diastolic and systolic blood pressure, respectively, from baseline after six weeks of treatment. Based on regulatory interaction to date, if positive, this trial is expected to be the only additional efficacy trial needed to complement the existing clinical data in support of the submission of an application to the FDA seeking approval for this product candidate. Partial funding for the PATH trial will be provided by Servier; the balance of study expenses, consisting primarily of costs generated by our contract research organization, are expected to be paid by us over time from any profits generated by our ACEON® sales.
XOMA 3AB, a biodefense anti-botulism product candidate comprised of a combination of antibodies, was developed through funding from the National Institute of Allergy and Infectious Diseases (“NIAID”) of the U.S. National Institutes of Health (“NIH”). Enrollment has been completed in a Phase 1 clinical trial sponsored by NIAID. In January 2012, we announced that 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 provide 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 2 clinical development by Novartis for the potential treatment of breast or prostate cancer and hematological malignancies, respectively.
In January 2012, we implemented a restructuring designed to sharpen our focus on value-creating opportunities led by gevokizumab and our antibody discovery and development capabilities. The restructuring plan includes a reduction of our personnel by 84 positions, or 34%, of which approximately 50 were eliminated immediately and the remainder will be eliminated by April 6, 2012. These staff reductions result primarily from our 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.
Product Development Strategy
We are advancing a pipeline of antibody product candidates using our proven expertise, technologies and capabilities from antibody discovery through product development. We seek to expand our pipeline by developing additional proprietary products and technologies and by entering into licensing and collaborative arrangements with pharmaceutical and biotechnology companies. The principal elements of our strategy are to:
• Focus on advancing gevokizumab, our lead product candidate. Using our proprietary antibody technologies, capabilities and expertise, we discovered gevokizumab, an antibody that inhibits IL-1 beta. Gevokizumab has the potential to address the underlying inflammatory causes of a wide range of unmet medical needs by targeting IL-1 beta, a cytokine that triggers inflammatory pathways in the body.
In December 2010, we entered into an 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 we received in January 2011. In connection with this agreement, Servier is funding the first $50.0 million of gevokizumab global clinical development and chemistry and manufacturing controls (“CMC”) expenses and 50% of further expenses for the Behçet’s uveitis indication. Servier has agreed to include the NIU Phase 3 trial discussed below under the terms of the collaboration agreement for Behçet’s uveitis as long as the European Medicines Agency (“EMA”) enables the results of the trial to be included in regulatory submissions in the European Union (“EU”).
In January 2011, we received the full €15.0 million advance allowed under our loan agreement with Servier dated December 30, 2010, converting to U.S. dollar proceeds of approximately $19.5 million at the date of funding.
In March 2011, we announced our Phase 2b trial of gevokizumab in 421 Type 2 diabetes patients did not achieve the primary endpoint of reduction in hemoglobin A1c (“HbA1c”) after six monthly treatments with gevokizumab compared to placebo. However, significant decreases in C-reactive protein (“CRP”), a biomarker for the risk of heart attack, stroke and other cardiovascular and inflammatory diseases, were observed in all dose groups versus placebo. Results from a Phase 2a gevokizumab trial in 74 patients with Type 2 diabetes, announced in June 2011, were consistent with the Phase 2b results. Gevokizumab was well tolerated in these trials, with no significant differences in adverse events between gevokizumab and placebo and no serious drug-related adverse events.
Servier and we are implementing an expanded gevokizumab clinical development plan. The plan includes a global Phase 3 trial in active and controlled NIU involving the intermediate and/or posterior segments of the eye, including Behçet’s uveitis, and a Phase 3 trial outside the U.S. in Behçet’s uveitis. We expect these trials will be designed to meet the FDA requirement for ophthalmic indications that at least 300 patients be treated for at least six months and 100 patients for 1 year at the to-be-marketed dose. We anticipate we will have preliminary top-line results from the first NIU Phase 3 trial approximately 18 to 24 months after we enroll our first patient. Based upon the timing of anticipated regulatory interactions, we anticipate initiating the first NIU Phase 3 trial in the second quarter of 2012.
In addition, we announced a Phase 2 proof-of-concept clinical program to identify additional conditions that may respond to treatment with gevokizumab. The program will study gevokizumab in three separate diseases that have demonstrated IL-1 beta involvement. The first study in moderate to severe inflammatory acne began enrolling patients in December 2011. During the second quarter of 2012, we are planning to initiate enrollment in the second clinical study in this program, which will study gevokizumab in patients with erosive osteoarthritis of the hand. Later in 2012, we plan to announce the final proof-of-concept indication. Based upon our discussions, we believe Servier intends to advance gevokizumab into Phase 2 development for cardiovascular disease in 2012.
•Advance our proprietary preclinical pipeline candidates and generate revenues from our proprietary technologies. We will continue to develop our proprietary preclinical pipeline, primarily focusing on the development of allosteric modulating monoclonal antibodies. Our first program, which targets the insulin receptor, has generated two new classes of fully human monoclonal antibodies that activate (XMetA) or sensitize (XMetS) the insulin receptor in vivo. XMetA and XMetS represent the potential for distinct, new therapeutic approaches to the treatment of patients with diabetes. Separate studies of XMetA and XMetS demonstrated they reduced fasting blood glucose levels and improved glucose tolerance in mouse models of diabetes.
Historically, we have established technology collaborations with several companies to provide access to multiple XOMA proprietary antibody discovery and optimization technologies. In addition, we have licensed our BCE technology to more than 60 companies in exchange for license, milestone and other fees, royalties and complementary technologies; a number of licensed product candidates are in clinical development. We believe we can continue to generate significant revenue from our proprietary technologies and programs in the future.
•Complete current biodefense contracts. To date, we have been awarded four contracts, totaling up to approximately $120 million, from NIAID to support development of XOMA 3AB and additional product candidates for the treatment of botulism poisoning. In addition, our biodefense programs included two subcontracts from SRI International totaling $4.3 million, funded through NIAID, for the development of antibodies to neutralize H1N1 and H5N1 influenza viruses and the virus that causes severe acute respiratory syndrome (“SARS”).
NIAID is conducting a Phase 1 trial of XOMA 3AB, a novel formulation of three antibodies designed to prevent and treat botulism poisoning. This double-blind, dose-escalation study in approximately 24 healthy volunteers is designed to assess the safety and tolerability and determine the pharmacokinetic profile, of XOMA 3AB.
In January 2012, we announced that 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 provide these antibodies through an outside manufacturer.
Commercialization Strategy
We are committed to establishing XOMA as a commercial organization in the U.S. in order to derive appropriate value from our product discovery and development programs. In January 2012, we announced we had acquired U.S. rights, and we assumed commercialization activities, for the branded antihypertensive product ACEON® (perindopril erbumine), an FDA-approved ACE inhibitor, from Servier’s previous U.S. licensee. In addition to ACEON®, the acquisition includes a portfolio of three fixed-dose combination product candidates where perindopril is combined with other active ingredient(s), such as a calcium channel blocker.
ACEON® is subject to competition from multiple approved generic perindopril erbumine products, and our commercialization activities are limited to distribution and post marketing regulatory responsibilities as the current holder of the ACEON® New Drug Application, or NDA. We have contracted with third parties to manufacture and distribute ACEON®.
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:
•Gevokizumab is a potent monoclonal antibody with the potential to improve the treatment of patients with a wide variety of inflammatory diseases. Gevokizumab binds strongly to IL-1 beta, a pro-inflammatory cytokine involved in the development of NIU and Behçet’s uveitis, moderate-to-severe inflammatory acne, erosive osteoarthritis of the hand, cardiovascular disease, rheumatoid arthritis, gout and other diseases. By binding to IL-1 beta, gevokizumab inhibits the activation of the IL-1 receptor, thereby preventing the cellular signaling events that produce inflammation. Gevokizumab is a humanized IgG2 antibody. Based on its binding properties, specificity for IL-1 beta and its half-life (the time it takes for the amount administered to be reduced by one-half) in the body, gevokizumab may provide convenient dosing of once per month or less frequently.
In December 2010, we entered into an agreement with Servier to jointly develop and commercialize gevokizumab in multiple indications.
•XOMA Metabolic Activating and Sensitizing Antibodies. Insulin receptor-activating antibodies, such as XMetA, are designed to provide long-acting insulin-like activity to diabetic patients who cannot make sufficient insulin, potentially reducing the number of insulin injections needed to control their blood glucose levels. Insulin receptor-sensitizing antibodies, such as XMetS, are designed to reduce insulin resistance and could enable diabetic patients to use their own insulin more effectively to control blood glucose levels.
Studies presented on XMetA demonstrated it reduced fasting blood glucose levels and improved glucose tolerance in a mouse model of diabetes. After six weeks of treatment, mice treated with XMetA had a statistically significant reduction in HbA1c levels, a standard measure of average blood glucose levels over time, compared to the control mice. In addition, there was a statistically significant reduction in elevated non-HDL cholesterol levels.
We studied XMetS in a mouse model of obesity-induced insulin resistance. In mice treated with XMetS, we saw enhanced insulin sensitivity and statistically significant improvements in fasting blood glucose levels and glucose tolerance as compared to the control mice. In addition, there was a statistically significant reduction in elevated non-HDL cholesterol levels.
Historically, we have established technology collaborations with several companies to provide access to multiple XOMA proprietary antibody discovery and optimization technologies. In addition, we have licensed our BCE technology to more than 60 companies in exchange for license, milestone and other fees, royalties and complementary technologies; a number of licensed product candidates are in clinical development. We believe we can continue to generate significant revenue from our proprietary technologies and programs in the future.
•Complete current biodefense contracts. To date, we have been awarded four contracts, totaling up to approximately $120 million, from NIAID to support development of XOMA 3AB and additional product candidates for the treatment of botulism poisoning. In addition, our biodefense programs included two subcontracts from SRI International totaling $4.3 million, funded through NIAID, for the development of antibodies to neutralize H1N1 and H5N1 influenza viruses and the virus that causes severe acute respiratory syndrome (“SARS”).
NIAID is conducting a Phase 1 trial of XOMA 3AB, a novel formulation of three antibodies designed to prevent and treat botulism poisoning. This double-blind, dose-escalation study in approximately 24 healthy volunteers is designed to assess the safety and tolerability and determine the pharmacokinetic profile, of XOMA 3AB.
In January 2012, we announced that 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 provide these antibodies through an outside manufacturer.
Commercialization Strategy
We are committed to establishing XOMA as a commercial organization in the U.S. in order to derive appropriate value from our product discovery and development programs. In January 2012, we announced we had acquired U.S. rights, and we assumed commercialization activities, for the branded antihypertensive product ACEON® (perindopril erbumine), an FDA-approved ACE inhibitor, from Servier’s previous U.S. licensee. In addition to ACEON®, the acquisition includes a portfolio of three fixed-dose combination product candidates where perindopril is combined with other active ingredient(s), such as a calcium channel blocker.
ACEON® is subject to competition from multiple approved generic perindopril erbumine products, and our commercialization activities are limited to distribution and post marketing regulatory responsibilities as the current holder of the ACEON® New Drug Application, or NDA. We have contracted with third parties to manufacture and distribute ACEON®.
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:
•Gevokizumab is a potent monoclonal antibody with the potential to improve the treatment of patients with a wide variety of inflammatory diseases. Gevokizumab binds strongly to IL-1 beta, a pro-inflammatory cytokine involved in the development of NIU and Behçet’s uveitis, moderate-to-severe inflammatory acne, erosive osteoarthritis of the hand, cardiovascular disease, rheumatoid arthritis, gout and other diseases. By binding to IL-1 beta, gevokizumab inhibits the activation of the IL-1 receptor, thereby preventing the cellular signaling events that produce inflammation. Gevokizumab is a humanized IgG2 antibody. Based on its binding properties, specificity for IL-1 beta and its half-life (the time it takes for the amount administered to be reduced by one-half) in the body, gevokizumab may provide convenient dosing of once per month or less frequently.
In December 2010, we entered into an agreement with Servier to jointly develop and commercialize gevokizumab in multiple indications.
•XOMA Metabolic Activating and Sensitizing Antibodies. Insulin receptor-activating antibodies, such as XMetA, are designed to provide long-acting insulin-like activity to diabetic patients who cannot make sufficient insulin, potentially reducing the number of insulin injections needed to control their blood glucose levels. Insulin receptor-sensitizing antibodies, such as XMetS, are designed to reduce insulin resistance and could enable diabetic patients to use their own insulin more effectively to control blood glucose levels.
Studies presented on XMetA demonstrated it reduced fasting blood glucose levels and improved glucose tolerance in a mouse model of diabetes. After six weeks of treatment, mice treated with XMetA had a statistically significant reduction in HbA1c levels, a standard measure of average blood glucose levels over time, compared to the control mice. In addition, there was a statistically significant reduction in elevated non-HDL cholesterol levels.
We studied XMetS in a mouse model of obesity-induced insulin resistance. In mice treated with XMetS, we saw enhanced insulin sensitivity and statistically significant improvements in fasting blood glucose levels and glucose tolerance as compared to the control mice. In addition, there was a statistically significant reduction in elevated non-HDL cholesterol levels.
Collaboration and Licensing Agreements
Servier -- Gevokizumab
We have entered into a license and collaboration agreement with Servier to jointly develop and commercialize gevokizumab in multiple indications, which provided a non-refundable upfront payment of $15 million, which we received in January 2011. Under the terms of the agreement, Servier has worldwide rights to cardiovascular disease and diabetes indications and rights outside the U.S. and Japan to all other indications, including Behçet’s uveitis and other inflammatory and oncology indications. XOMA retains development and commercialization rights in the U.S. and Japan for all indications (including NIU, Behçet’s uveitis and other inflammatory disease and oncology indications) except cardiovascular disease and diabetes. XOMA also has an option to reacquire rights to cardiovascular disease and diabetes indications from Servier in these territories (the “Cardiometabolic Indications Option”). Should we exercise the Cardiometabolic Indications Option, we will be required to pay Servier an option fee and partially reimburse their incurred development expenses. Each party has the right in certain circumstances to pursue development in indications not specified in the agreement, and in such event the other party will have the option to participate in such development in certain circumstances, including reimbursement of a portion of the developing party’s expenses.
Under this agreement, Servier will fully fund activities to advance the global clinical development and future commercialization of gevokizumab in cardiovascular-related diseases and diabetes. Also, Servier will fund $50 million of future gevokizumab global clinical development and CMC expenses and 50% of further expenses for the Behçet’s uveitis indication. Servier has agreed to include the NIU Phase 3 trial under the terms of the collaboration agreement for Behçet’s uveitis discussed above as long as the EMA enables the results of the trial to be included in regulatory submissions in the EU.
In addition, under the agreement, we are eligible to receive a combination of Euro- and U.S. Dollar (“USD”)-denominated, development and sales milestones for multiple indications aggregating to a potential maximum of approximately $460 million when converted using the December 31, 2011, Euro to USD exchange rate (the “12/31/11 Exchange Rate”), if XOMA reacquires cardiovascular and/or diabetes rights in the U.S. and Japan. If XOMA does not reacquire these rights, then the milestone payments aggregate to a potential maximum of approximately $800 million converted using the 12/31/11 Exchange Rate. Servier’s obligation to pay development and commercialization milestones will continue for so long as Servier is developing or selling products under the agreement.
We also are eligible to receive royalties on gevokizumab sales, which are tiered based on sales levels and range from a mid-single digit to up to a mid-teens percentage rate. Our right to royalties with respect to a particular product and country will continue for so long as such product is sold in such country.
The collaboration will be carried out and managed by committees mutually established by the parties. In general, in the event of any disputes, each party will have decision-making authority over matters relating to its areas of responsibility and territory, but neither party will have unilateral decision-making rights if the decision would have a material adverse impact on the other party’s rights in its territory. The agreement contains customary termination rights relating to matters such as material breach by either party, safety issues and patents. Servier also has a unilateral right to terminate the agreement on a country-by-country basis or in its entirety on six months’ notice.
We also have entered into a loan agreement with Servier, 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 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%. The interest rate was reset to 3.83% for the six-month period from July 2011 through January 2012 and 3.54% for the six-month period from January 2012 through July 2012. Interest is payable semi-annually; however, the 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 matures in 2016; however, after a specified period prior to final maturity, the loan is to be repaid (i) at Servier's option, by applying up to a significant percentage of any milestone or royalty payments owed by Servier under our collaboration agreement and (ii) using a significant percentage of any upfront, milestone or royalty payments we receive from any third-party collaboration or development partner for rights to gevokizumab in the U.S. and/or Japan. In addition, the loan becomes immediately due and payable upon certain customary events of default. At December 31, 2011, the outstanding principal balance under this loan was $19.4 million using the 12/31/11 Exchange Rate. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information regarding our loan agreement with Servier.
Servier – U.S. Perindopril Franchise
Effective January 11, 2012, we entered into an amended and restated agreement with Servier for the U.S. commercialization rights to ACEON® (perindopril erbumine), an ACE inhibitor, and the development and commercialization in the U.S. of up to three product candidates combining perindopril with other cardiovascular drugs in fixed-dose combinations, or FDCs. This agreement, together with a related trademark license agreement, provides us with exclusive U.S. rights to ACEON® and the first FDC product candidate, which combines perindopril arginine and amlodipine besylate, a calcium channel blocker, and options on two additional FDC product candidates. Under the arrangement, Servier is required to provide relevant data, patent rights and know-how to us, and we are required to use diligent efforts to (i) maintain the ACEON® marketing approval and commercialize ACEON® in a manner intended to maintain sales for a period of three years and (ii) develop and commercialize the first FDC product candidate and, if our options are exercised, the additional FDC product candidates. The arrangement also provides that Servier will supply to us, and we will purchase exclusively from Servier, the active ingredients in ACEON® and the FDC product candidates, in some cases for a limited period.
In connection with this arrangement, we paid a $1.5 million license fee to Servier in the third quarter of 2010. We also are required to pay a royalty on ACEON® sales at a rate that is tiered based on sales levels and ranges from a mid-single digit to a mid-teen percentage rate. If approved, we also will pay a royalty on sales of the FDC product candidates in the mid-teen percentage rate. The FDC royalty rate is subject to reduction in the event of generic competition or if other intellectual property rights are required. We may be required to pay the following milestones: development milestones aggregating $8.5 million (assuming we exercise our options on the additional FDCs) and sales milestones of up to an aggregate $15.1 million, in each case for all of the FDC product candidates. We also may be required to make certain additional payments if the FDC product candidates receive FDA approval but certain minimum sales levels are not reached. We generally will be responsible for our development and commercialization expenses, but Servier has agreed to partially fund development of the first FDC product candidate, FDC1.
By its terms, the arrangement, including our obligation to pay royalties and/or development and sales milestones, will continue until the later of July 2018 or the expiration of the last-to-expire Servier patent licensed to us under the arrangement, unless terminated earlier. The agreement contains customary termination rights relating to matters, such as material breach by either party, insolvency of either party or safety issues. Each party also has the right to terminate the arrangement if the first FDC product candidate does not receive FDA approval by December 31, 2014. Servier also has the right to terminate the arrangement if certain aspects of our commercialization strategy are not successful and Servier does not consent to an alternative strategy or, as to the FDC product candidates, if we breach our obligations to certain of our service providers.
CEO BACKGROUND
John Varian was appointed Chief Executive Officer in January 2012 after serving as Interim Chief Executive Officer since August 31, 2011. He has been a director of the Company since December of 2008. He served as Chief Operating Officer of Aryx Therapeutics from December of 2003 to August of 2011. Prior to joining Aryx Therapeutics, Mr. Varian was the Chief Financial Officer of Genset S.A., where he was a key member of the team negotiating the company’s sale to Serono S.A. in 2002. Mr. Varian served on the Board of Nventa Biopharmaceuticals Corporation until the company merged with Akela Pharma Inc. in March of 2009. From October of 1998 to April of 2000, Mr. Varian served as Senior Vice President, Finance and Administration of Elan Pharmaceuticals, Inc., joining the company as part of its acquisition of Neurex Corporation. Prior to the acquisition, he served as Neurex Corporation’s Chief Financial Officer from June of 1997 until October of 1998. From 1991 until 1997, Mr. Varian served as the Vice President Finance and Chief Financial Officer of Anergen Inc. Mr. Varian was an Audit Principal/Senior Manager at Ernst & Young from 1987 until 1991 where he focused on life sciences. He is a founding member of the Bay Area Bioscience Center and a former chairman of the Association of Bioscience Financial Officers International Conference. Mr. Varian received a B.B.A. degree from Western Michigan University. Mr. Varian has significant experience in building biopharmaceutical companies and brings a specific focus on financing, corporate financial management and related matters to the Company’s executive team and the Board.
Patrick J. Scannon, M.D., Ph.D. is one of the Company’s founders and has served as a director since its formation. Dr. Scannon became Executive Vice President and Chief Scientific Officer in February of 2011. Previously he was Executive Vice President and Chief Medical Officer beginning in March of 2009 and served as Executive Vice President and Chief Biotechnology Officer from May of 2006 until March of 2009, Chief Scientific and Medical Officer from March of 1993 until May of 2006, Senior Vice President from May of 1999 to May of 2006, Vice Chairman, Scientific and Medical Affairs from April of 1992 to March of 1993 and President from the Company’s formation until April of 1992. Dr. Scannon served on the National Biodefense Science Board, reporting to the Secretary of the Department of Health and Human Services from 2007 to January of 2012. He also serves on the Defense Sciences Research Council for the Defense Advanced Research Projects Agency (DARPA) and on the Threat Reduction Advisory Committee for the Department of Defense. In 2007, he was appointed to the Board of Directors of Pain Therapeutics, Inc., a biopharmaceutical company. From 1979 until 1981, Dr. Scannon was a clinical research scientist at the Letterman Army Institute of Research in San Francisco. A Board-certified internist, Dr. Scannon holds a Ph.D. in organic chemistry from the University of California, Berkeley and an M.D. from the Medical College of Georgia. Dr. Scannon’s experience in founding and building the Company is integral to the Company and its mission. His medical and scientific background, experience in all aspects of biopharmaceutical product discovery and development, board and government advisory experience and operational knowledge provide strategic guidance to the Company and the Board.
W. Denman Van Ness has been a director since October of 1981 and was appointed Lead Independent Director in January of 2008 and Chairman of the Board in August of 2011. He is Chairman of Hidden Hill Advisors, a venture capital consulting firm. From April of 1996 through October of 1999, he was a Managing Director of CIBC Capital Partners, an international merchant banking organization. From 1986 to 1996, Mr. Van Ness was a General Partner of Olympic Venture Partners II and Rainier Venture Partners, venture capital funds, and from 1977 until 1985, he was a General Partner of the venture capital group at Hambrecht & Quist, the manager of several venture capital funds. Mr. Van Ness brings to the Board an extensive understanding of corporate development and background in assessing a wide range of corporate funding sources and partnering opportunities. His leadership skills, including past service on the boards of other companies, contribute to his role as Chairman of the Board.
William K. Bowes, Jr. has been a director since February of 1986. He has been a General Partner of U.S. Venture Partners since 1981 and currently holds the position of Founding Partner. Mr. Bowes is a member of the Board or the Business Advisory Council of a number of academic initiatives at institutions such as Harvard University, Stanford University, the University of California, San Francisco and the University of California, Berkeley. Mr. Bowes provides exceptional knowledge and advice on capital markets and development strategies for biopharmaceutical companies.
Peter Barton Hutt, former Chief Counsel for the Food and Drug Administration (FDA), became a director in May of 2005. Mr. Hutt is currently Senior Counsel to the Washington, D.C. law firm of Covington & Burling, specializing in food and drug law. Since 1994, he has taught a course on food and drug law at Harvard Law School and taught the same course at Stanford Law School in 1998. He is also a co-author of Food and Drug Law: Cases and Materials. Mr. Hutt is a member of the Institute of Medicine (IOM) of the National Academy of Sciences (NAS). He presently serves on the Working Group on Innovation in Drug Development and Evaluation of President Obama’s Council of Advisors on Science and Technology (PCAST). He has served on a wide variety of academic and advisory boards, including the Panel on the Administrative Restructuring of the National Institutes of Health (NIH). Formerly, he has served on the IOM Executive Committee, Advisory Committee to the Director of the NIH, the NAS Committee on Research Training in the Biomedical and Behavioral Sciences, and the National Committee to Review Current Procedures for Approval of New Drugs for Cancer and AIDS established by the President’s Cancer Panel of the National Cancer Institute at the request of President George Bush. Mr. Hutt received his undergraduate degree from Yale University, and law degrees from Harvard University and New York University. Mr. Hutt currently serves as a director of Ista Pharmaceuticals, and Momenta Pharmaceuticals. Mr. Hutt’s extensive and unique combination of legal, government, and industry experience is a key asset to the Board. He brings significant insight into the regulatory aspects of pharmaceutical development.
Timothy P. Walbert has been a director since November of 2010 . Mr. Walbert is Chairman, President and Chief Executive Officer of Horizon Pharma, a publicly traded biopharmaceutical company focused on developing and commercializing innovative medicines for unmet therapeutic needs in arthritis, pain and inflammatory diseases. From 2007 until 2009, Mr. Walbert was President, Chief Executive Officer and a director of IDM Pharma, Inc., a publicly traded oncology-focused biotechnology company. During his tenure, he drove the process of achieving European regulatory approval for MEPACT™ for the treatment of osteosarcoma, reorganized the company and its management team, and led the successful acquisition of IDM by Takeda America in June 2009. Prior to IDM, he was Executive Vice President of Commercial Operations for NeoPharm, Inc., a publicly traded biopharmaceutical company, where he oversaw global marketing, sales, reimbursement, manufacturing and business development. From 2001 to 2005, Mr. Walbert was with Abbott in positions of increasing responsibility, most recently as Vice President, International Marketing responsible for overseeing strategy for the global cardiovascular franchise. As Abbott’s Divisional Vice President and General Manager for Immunology, Mr. Walbert created and had full P&L management of the global immunology franchise that led the global development and launch of HUMIRA ® , the multi-indication biologic which achieved almost $8 billion in 2011 sales. Prior to his tenure at Abbott, Mr. Walbert was with Searle/Pharmacia where he held several marketing roles for CELEBREX ® in North America and coordinated international CELEBREX ® launch and post-launch activities in key international markets. Mr. Walbert currently serves on the Board of Directors of Raptor Pharmaceutical Corp., the Board of the Biotechnology Industry organization, or BIO, the Board of the Illinois Biotechnology Association, or iBIO, and the Board of the Greater Chicago Arthritis Foundation. Mr. Walbert holds a B.A. degree from Muhlenberg College, Allentown, PA. Mr. Walbert provides the Board with extensive, executive experience in publicly traded biotechnology companies with a focus on commercial operations, finance and strategic planning.
Jack L. Wyszomierski has been a director since August of 2010 . From 2004 until his retirement in 2009, Mr. Wyszomierski was Executive Vice President and Chief Financial Officer of VWR International, LLC, a global laboratory supply, equipment and distribution business that serves the world’s pharmaceutical and biotechnology companies, as well as industrial and governmental organizations. At Schering-Plough, a global health care company which had worldwide sales of over $8 billion in 2004, Mr. Wyszomierski held positions of increasing responsibility from 1982 to 2004 culminating in his appointment as Executive Vice President and Chief Financial Officer. Mr. Wyszomierski also serves on the Board of Directors of Athersys, Inc., Exelixis, Inc. and Unigene Laboratories, Inc. He holds an M.S. in Industrial Administration and a B.S. in Administration, Management Science and Economics from Carnegie Mellon University. Mr. Wyszomierski brings his considerable financial expertise to the Board and the Audit Committee.
MANAGEMENT DISCUSSION FROM LATEST 10K
Overview
We are a leader in the discovery and development of innovative antibody-based therapeutics. Our lead drug candidate is gevokizumab (formerly XOMA 052), a humanized antibody that binds to the inflammatory cytokine interleukin-1 beta (“IL-1 beta”). In collaboration with our partner, Les Laboratoires Servier (“Servier”), gevokizumab is expected to enter global Phase 3 clinical development in 2012 for non-infectious uveitis (“NIU”) and Behçet’s uveitis. We anticipate Servier will enter gevokizumab into a Phase 2 study in a cardiovascular disease indication during 2012. Separately we have launched a Phase 2 proof-of-concept program for gevokizumab to evaluate additional indications for further development, including a clinical trial in moderate-to-severe inflammatory acne, which began enrolling patients in December 2011, and a clinical trial in erosive osteoarthritis of the hand, for which we plan to initiate enrollment in the second quarter of 2012.
We have entered into a license and collaboration agreement with Servier to jointly develop and commercialize gevokizumab in multiple indications. Gevokizumab is designed to inhibit the pro-inflammatory cytokine IL-1 beta, which is believed to be a primary trigger of pathologic inflammation in multiple diseases.
Our proprietary preclinical pipeline includes classes of antibodies that activate or sensitize the insulin receptor in vivo and represent potential new therapeutic approaches to the treatment of diabetes. 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.
In January 2012, we announced that we had acquired U.S. rights to the perindopril franchise from Servier. The agreement includes ACEON® (perindopril erbumine), a currently marketed angiotensin converting enzyme (“ACE”) inhibitor, and a portfolio of three fixed-dose combination product candidates where perindopril is combined with another active ingredient(s), such as a calcium channel blocker. The proprietary form of perindopril in each of the combination product candidates provides patent protection until December 2023. We assumed commercialization activities for ACEON® in January 2012 following the transfer from Servier’s previous licensee. In late February 2012, we initiated enrollment in a Phase 3 trial for perindopril arginine and amlodipine besylate, the first fixed-dose combination product candidate from the perindopril franchise we acquired from Servier. Partial funding for the Phase 3 trial will be provided by Servier; the balance of study expenses, consisting primarily of costs generated by our contract research organization, are expected to be paid by us over time from any profits generated by our ACEON® sales.
Our biodefense initiatives currently include a $65.0 million multiple-year contract funded by the National Institute of Allergy and Infectious Diseases (“NIAID”), a part of the National Institutes of Health (“NIH”), to support our ongoing development of anti-botulism antibody product candidates, of which the first, XOMA 3AB, is in a Phase 1 clinical trial. This contract is the third that NIAID has awarded us for the development of botulinum antitoxins. In October 2011, we announced that we had been awarded a fourth contract for up to $28.0 million over five years to develop broad-spectrum antitoxins for the treatment of human botulism poisoning, bringing the program’s total potential awards to approximately $120 million. In January 2012, we announced that 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 provide 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 2 clinical development by Novartis for the potential treatment of breast or prostate cancer and hematological malignancies, respectively.
Significant Developments in 2011
Gevokizumab
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In December 2010, we entered into an 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 we received in January 2011. In connection with this agreement, Servier will fully fund the first $50.0 million of future gevokizumab global clinical development and chemistry and manufacturing controls (“CMC”) expenses, and 50% of further expenses for the Behçet’s uveitis indication. Servier has agreed to include the NIU Phase 3 trial discussed below under the terms of the collaboration agreement for Behçet’s uveitis discussed above so long as the European Medicines Agency enables the results of the trial to be included in regulatory submissions in the EU. Based upon the timing of anticipated regulatory interactions, we anticipate initiating the NIU Phase 3 trial in the second quarter of 2012.
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In January 2011, we received the full €15.0 million advance allowed under our loan agreement with Servier dated December 30, 2010, converting to U.S. dollar proceeds of approximately $19.5 million.
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In March 2011, we announced that our Phase 2b trial of gevokizumab in Type 2 diabetes in 421 patients did not achieve the primary endpoint of reduction in hemoglobin A1c (“HbA1c”) after six monthly treatments with gevokizumab compared to placebo. Significant decreases were observed in C-reactive protein (“CRP”), a biomarker for the risk of heart attack, stroke and other cardiovascular diseases, in all dose groups versus placebo. In addition, significant improvements in high-density lipoprotein (“HDL”), or “good” cholesterol, were observed in two of four gevokizumab dose groups versus placebo. 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.
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In June 2011, we announced top line trial results from our six-month Phase 2a trial in 74 patients where gevokizumab was shown to be well-tolerated with no significant differences in adverse events between gevokizumab and placebo and no serious drug-related adverse events. Evidence of biological activity was observed including a reduction in CRP. There were no differences in glycemic control between the drug and placebo groups as measured by HbA1c levels.
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In November 2011, we announced an expansion of our gevokizumab program together with our collaboration partner Servier. The expanded plan includes a global Phase 3 trial in NIU involving the intermediate and/or posterior segments of the eye, including Behçet’s uveitis and a Phase 3 trial outside the U.S. in Behçet’s uveitis.
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In December 2011, we initiated a Phase 2 proof-of-concept study to evaluate the efficacy and safety of gevokizumab for the treatment of inflammatory lesions seen in moderate to severe inflammatory acne vulgaris. Approximately 170 patients will be randomized to receive one or two dose levels of gevokizumab or placebo over a three-month period. Dosing in patients began in December 2011.
XMET Activating and Sensitizing Antibodies
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In June 2011, we announced our discovery of two new classes of fully-human monoclonal antibodies, XMetA and XMetS, which activate or sensitize the insulin receptor in vivo, each representing a distinct new therapeutic approach to the treatment of patients with diabetes. Studies of XMetA demonstrated that it reduced fasting blood glucose levels and improved glucose tolerance in a mouse model of diabetes. After six weeks of treatment, there was a statistically significant reduction in HbA1c levels, a standard measure of average blood glucose levels over time, in mice treated with XMetA compared to a control group, and there was a statistically significant reduction in elevated non-HDL cholesterol levels. Studies of XMetS showed enhanced insulin sensitivity and statistically significant improvements in fasting blood glucose levels and glucose tolerance in mice treated with XMetS as compared to a control group, and there was a statistically significant reduction in elevated non-HDL cholesterol levels. These data were presented at the American Diabetes Association’s 71 st Scientific Sessions.
XOMA 3AB
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In May 2011, the National Institute of Allergy and Infectious Diseases (“NIAID”), part of the National Institutes of Health (“NIH”), informed us that it is initiating a Phase 1 trial of XOMA 3AB, a novel formulation of three antibodies designed to prevent and treat botulism poisoning. This double-blind, dose-escalation study in approximately 24 healthy volunteers is designed to assess the safety and tolerability, and determine the pharmacokinetic profile, of XOMA 3AB.
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In October 2011, we announced that NIAID had awarded us a new contract under Contract No. HHSN272201100031C for up to $28.0 million over 5 years to develop broad-spectrum antitoxins for the treatment of human botulism poisoning.
Management Change
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On August 31, 2011, we announced that Steven B. Engle resigned as Chief Executive Officer, President and Chairman of the Board of the Company. On January 4, 2012, the Company’s Board of Directors appointed John Varian, a current Board member, as Chief Executive Officer after serving as Interim Chief Executive Officer for five months. W. Denman Van Ness will continue to serve as Chairman of the Board.
Financing-Related
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In 2011, we sold 821,386 shares of our common stock through Wm Smith & Co. (“Wm Smith”) and McNicoll, Lewis & Vlak LLC (now known as MLV & Co. LLC, “MLV”) under our At Market Issuance Sales Agreement dated October 26, 2010 (the “2010 ATM Agreement”), for aggregate gross proceeds of $4.4 million, and 5,286,952 shares of our common stock through MLV under our At Market Issuance Sales Agreement dated February 4, 2011 (the “2011 ATM Agreement”), for aggregate gross proceeds of $11.3 million.
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In April 2011, the 2,959 Series B convertible preference shares previously issued to Genentech, Inc. were converted by Genentech into 254,560 shares of our common stock, and the associated liquidation preference of $29.6 million was eliminated.
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In May 2011, we entered into two foreign exchange options contracts in order to manage our foreign currency exposure relating to principal and interest payments on our €15.0 million loan from Servier. Upfront premiums paid on these contracts totaled $1.5 million.
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In December 2011, we entered into a loan agreement (the “Loan Agreement”) with General Electric Capital Corporation (“GECC”) under which GECC agreed to make, and made, a term loan of $10 million. This loan accrues interest at a fixed rate of 11.71% per annum and is secured by substantially all of our existing and after-acquired assets, excluding our intellectual property assets. We are required to repay the principal amount over a period of 42 consecutive equal monthly installments of principal and accrued interest. The loan matures on June 30, 2015, at which time we will make an additional payment equal to 5% of the loan. We also issued to GECC unregistered stock purchase warrants, which 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 immediately exercisable and expire on December 30, 2016.
Other
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Effective December 31, 2011, we changed our jurisdiction of incorporation from Bermuda to Delaware and changed our name from XOMA Ltd. to XOMA Corporation. All outstanding common shares of the former XOMA Ltd. automatically converted into XOMA Corporation common stock on a one-for-one basis.
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. 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. Actual results may differ from these estimates under different assumptions or conditions.
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.
Revenue Recognition
In March 2010, Accounting Standards Codification Topic 605, Revenue Recognition was amended to define a milestone and clarify that the milestone method of revenue recognition is a valid application of the proportional performance model when applied to research or development arrangements. Accordingly, a company can make an accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. This guidance was adopted effective January 1, 2011 on a prospective basis and did not have a material effect on our consolidated financial statements.
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 expected period of the continuing performance obligation. We estimate the performance period at the inception of the arrangement and re-evaluate it each reporting 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.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Overview
We are a leader in the discovery and development of innovative antibody-based therapeutics. Our lead drug candidate is gevokizumab (formerly XOMA 052), a humanized antibody that binds to the inflammatory cytokine interleukin-1 beta (“IL-1 beta”). In collaboration with our partner, Les Laboratoires Servier (“Servier”), gevokizumab is expected to enter global Phase 3 clinical development in 2012 for non-infectious uveitis (“NIU”) and Behçet’s uveitis. We anticipate Servier will enter gevokizumab into a Phase 2 study in a cardiovascular disease indication during 2012. Separately we have launched a Phase 2 proof-of-concept program for gevokizumab to evaluate additional indications for further development, including a clinical trial in moderate-to-severe inflammatory acne, which began enrolling patients in December 2011, and a clinical trial in erosive osteoarthritis of the hand, for which we plan to initiate enrollment in the second quarter of 2012.
We have entered into a license and collaboration agreement with Servier to jointly develop and commercialize gevokizumab in multiple indications. Gevokizumab is designed to inhibit the pro-inflammatory cytokine IL-1 beta, which is believed to be a primary trigger of pathologic inflammation in multiple diseases.
Our proprietary preclinical pipeline includes classes of antibodies that activate or sensitize the insulin receptor in vivo and represent potential new therapeutic approaches to the treatment of diabetes. 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.
In January 2012, we announced that we had acquired certain U.S. rights to a portfolio of antihypertensive products from Servier. The portfolio includes ACEON® (perindopril erbumine), a currently marketed angiotensin converting enzyme (“ACE”) inhibitor, and three fixed-dose combination (“FDC”) product candidates where perindopril is combined with another active ingredient(s), such as a calcium channel blocker. The proprietary form of perindopril in each of the combination product candidates provides patent protection until December 2023. We assumed commercialization activities for ACEON® in January 2012 following the transfer from Servier’s previous licensee. In late February 2012, we initiated enrollment in a Phase 3 trial for perindopril arginine and amlodipine besylate, the first FDC product candidate. Partial funding for the Phase 3 trial will be provided by Servier; the balance of study expenses, consisting primarily of costs generated by our contract research organization, are expected to be paid by us over time from any profits generated by our ACEON® sales.
Our biodefense initiatives currently include a $65.0 million multiple-year contract funded by the National Institute of Allergy and Infectious Diseases (“NIAID”), a part of the National Institutes of Health (“NIH”), to support our ongoing development of anti-botulism antibody product candidates, of which the first, XOMA 3AB, is in a Phase 1 clinical trial. This contract is the third that NIAID has awarded us for the development of botulinum antitoxins. In October 2011, we announced that we had been awarded a fourth contract for up to $28.0 million over five years to develop broad-spectrum antitoxins for the treatment of human botulism poisoning, bringing the program’s total potential awards to approximately $120 million. In January 2012, we announced that 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 provide these antibodies through an outside manufacturer.
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, third party costs and other expenses related to preclinical and clinical testing.
Research and development expenses were $15.7 million for the three months ended March 31, 2012, compared with $17.3 million for the same period of 2011. The decrease of $1.6 million for the three months ended March 31, 2012, as compared to the same period in 2011, was primarily due to a decrease in salaries and related personnel costs.
Salaries and related personnel costs are a significant component of research and development expenses. We recorded $7.0 million in research and development salaries and employee-related expenses for the three months ended March 31, 2012, as compared with $8.8 million for the same period of 2011. The decrease of $1.8 million was primarily due to a decrease of $1.0 million in salaries and benefits due to decreased headcount in manufacturing as result of the 2012 streamlining of operations, and a $0.7 million decrease in stock-based compensation.
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 $4.7 million for the three months ended March 31, 2012, compared with $5.4 million for the same period of 2011. The $0.7 million decrease for the first quarter of 2012, as compared to the same period of 2011, was primarily due to a decrease of $0.6 million in salary and related personnel costs, including a $0.4 million decrease in stock-based compensation.
Streamlining and Restructuring Charges
In January 2012, we implemented a streamlining of operations, which resulted in a restructuring 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 result 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.
During the three months ended March 31, 2012, in connection with this streamlining of operations, we recorded charges of $2.1 million related to severance, other termination benefits and outplacement services. We expect to incur an additional $0.1 million restructuring charge in the second quarter of 2012 related to severance, other termination benefits and outplacement services.
We plan to vacate two of our leased buildings in 2012 related to manufacturing operations and internal research functions. We did not incur any restructuring charges during the first quarter of 2012 in connection with the exit of these leased buildings as they were still in use; however, we expect to incur restructuring charges of approximately $1.2 million in the remainder of 2012, primarily related to the net present value of future minimum lease payments at the cease-use date, less potential estimated future sublease income.
As of March 31, 2012, we performed an impairment analysis of property and equipment and leasehold improvements related to our manufacturing operations. Since the estimated undiscounted future cash inflows from a certain group of these assets were less than the carrying value, we determined that these assets were impaired and recorded a related restructuring charge of approximately $0.8 million. Further, we changed the useful life of certain property and equipment and leasehold improvements impacted by our plans to vacate two leased buildings. As a result, we recorded accelerated depreciation of $0.9 million as a restructuring charge. We expect to incur additional restructuring charges of approximately $0.7 million in the remainder of 2012 related to the accelerated depreciation of leasehold improvements.
Revaluation of Contingent Warrant Liabilities
In March 2012, in connection with an underwritten offering, we 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 remote occurrence of a change in control, which would conditionally obligate us to repurchase the warrants for cash in an amount equal to their fair value using the Black-Scholes Option Pricing Model (the “Black-Scholes Model”) on the date of such change in control. We believe the likelihood of a change in control prior to the expiration of the warrants is remote; however, due to these provisions, we are required to account for the warrants issued in March 2012 as a liability at fair value. In addition, the estimated liability related to the warrants is required to be 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, or expiration of the warrants. At issuance, the fair value of the warrant liability was estimated to be $6.4 million using the Black-Scholes Model. We revalued the warrant liability at March 31, 2012 using the Black-Scholes Model and recorded an increase in the fair value of $14.7 million as a loss in the revaluation of contingent warrant liabilities line of our condensed consolidated statement of operations. As of March 31, 2012, 14,832,827 of these warrants were outstanding and had a fair value of $21.1 million. This increase in liability is primarily due to the excess of the market value of the Company’s common stock at March 31, 2012 compared to the warrant exercise price.
In February 2010, in connection with an underwritten offering, we issued five-year warrants to purchase 1,260,000 shares of XOMA’s common stock at an exercise price of $10.50 per share. These warrants contain provisions that are contingent on the remote occurrence of a change in control, which would conditionally obligate us to repurchase the warrants for cash in an amount equal to their fair value using the Black-Scholes Model the date of such change in control. We believe the likelihood of a change in control prior to the expiration of the warrants is remote; however, due to these provisions, we are required to account for the warrants issued in February 2010 as a liability at fair value. In addition, the estimated liability related to the warrants is required to be 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, or expiration of the warrants. At December 31, 2011, the fair value of the warrant liability was estimated to be $0.3 million using the Black-Scholes Model. At March 31, 2012, we changed our expected volatility assumption in the Black-Scholes Model from an estimate of volatility based on historical stock price volatility observed on XOMA’s underlying stock to a volatility estimate based on the volatility implied from warrants issued by XOMA in recent private placement transactions. We revalued the warrant liability at March 31, 2012 using the Black-Scholes Model and recorded a decrease in the fair value of $0.3 million as a gain in the revaluation of contingent warrant liabilities line of our condensed consolidated statement of operations. As of March 31, 2012, all of these warrants were outstanding.
In June 2009, we issued warrants to certain institutional investors as part of a registered direct offering. The warrants represent 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. These warrants contain provisions that are contingent on the remote occurrence of a change in control, which would conditionally obligate us to repurchase the warrants for cash in an amount equal to their fair value using the Black-Scholes Model on the date of such change in control. We believe the likelihood of a change in control prior to the expiration of the warrants is remote; however, due to these provisions, we are required to account for the warrants issued in June 2009 as a liability at fair value. In addition, the estimated liability related to the warrants is required to be 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, or expiration of the warrants. At December 31, 2011, the fair value of the warrant liability was estimated to be $0.1 million using the Black-Scholes Model. At March 31, 2012, we changed our expected volatility assumption in the Black-Scholes Model from an estimate of volatility based on historical stock price volatility observed on XOMA’s underlying stock to a volatility estimate based on the volatility implied from warrants issued by XOMA in recent private placement transactions. We revalued the warrant liability at March 31, 2012 using the Black-Scholes Model and recorded a decrease in the fair value of $0.1 million as a gain in the revaluation of contingent warrant liabilities line of our condensed consolidated statement of operations. As of March 31, 2012, all of these warrants were outstanding.
Cash Used in Operating Activities
Net cash used in operating activities was $11.7 million for the three months ended March 31, 2012, compared with $3.2 million for the same period in 2011. Net cash used in operating activities was $8.5 million higher in the first quarter of 2012 because a $15.0 million license fee was received in the first quarter of 2011 as consideration for the collaboration with Servier. In addition, accounts payable decreased and prepaid expenses increased.
Cash Used in Investing Activities
Net cash used in investing activities was $0.5 million for the three months ended March 31, 2012, compared with $0.9 million for the same period of 2011. Cash used in investing activities for the three months ended March 31, 2012 and 2011 primarily consisted of fixed asset purchases.
Cash Provided by Financing Activities
Net cash provided by financing activities was $38.8 million for the three months ended March 31, 2012, compared with $24.2 million for the same period of 2011. Cash provided by financing activities in the first quarter of 2012 related to net proceeds received from the issuance of common stock and warrants of $36.2 million in the March 2012 underwritten public offering and net proceeds of $3.2 million received from the issuance of common stock under the 2011 ATM Agreement, offset by $0.7 million principal payments on our loan with GECC. Cash provided by financing activities in the first quarter of 2011 related to proceeds received from the Servier loan for $20.1 million and the net proceeds of $4.1 million received from the issuance of common stock under the our previous at market issuance sales agreement.
Underwritten Offering and Amendment to Shareholder Rights Plan
On March 9, 2012, we completed an underwritten public offering of 29,669,154 shares of our common stock, and accompanying warrants to purchase one half of a share of common stock for each share purchased, at a public offering price of $1.32 per share. Total gross proceeds from the offering were approximately $39.2 million, before deducting underwriting discounts and commissions and estimated offering expenses totaling approximately $2.9 million. The warrants, which represent the right to acquire an aggregate of up to 14,834,577 shares of common stock, are immediately exercisable and have a five-year term and an exercise price of $1.76 per share.
We have amended our shareholder rights agreement to provide that it will not apply to any person or entity who becomes the beneficial owner of 20% or more but less than 40% of our outstanding common stock with the prior approval of our board of directors, and our board has approved purchasers in the March 2012 public offering becoming beneficial owners of 20% or more but less than 40% of our outstanding common stock as a result of their participation in the offering. As a result, such ownership by any such purchaser will not trigger the provisions of the rights agreement that would give each holder of the rights the right to receive upon exercise that number of common stock equivalents having a market value of two times the exercise price. The board's approval in this regard only applies to purchasers in such offering.
ATM Agreement
On February 4, 2011, we entered into the 2011 ATM Agreement with MLV, under which we may sell shares of our common stock from time to time through the MLV, as our agent for the offer and sale of the shares, in an aggregate amount not to exceed the amount that can be sold under our registration statement on Form S-3 (File No. 333-172197) filed with the SEC on February 11, 2011 and amended on March 10, 2011, June 3, 2011 and January 3, 2012, which was most recently declared effective by the SEC on January 17, 2012. MLV 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. MLV may also sell the shares in privately negotiated transactions, subject to our prior approval. From the inception of the 2011 ATM Agreement through May 4, 2012, we sold a total of 7,572,327 shares of common stock under this agreement for aggregate gross proceeds of $14.6 million.
Net proceeds received during the first quarter of 2012 from the March 2012 public offering and 2011 ATM Agreement were used to continue development of our gevokizumab product candidate and for other working capital and general corporate purposes.
CONF CALL
Ashleigh Barreto
Thank you, operator. Good afternoon and welcome to XOMA Corporation’s first quarter 2012 financial results and corporate update conference call. On our call today are John Varian, Chief Executive Officer; Dr. Paul Rubin, Senior Vice President, Research and Development and Chief Medical Officer; and Fred Kurland, Chief Financial Officer.
Certain statements made during this call concerning the timing of events related to clinical trials, anticipated size of clinical trials, continued sales of approved products, regulatory approval of unapproved product candidates and anticipated restructuring charges, sufficiency of our cash resources, and anticipated levels of cash utilization or that otherwise relate to future periods are forward-looking statements within the meaning of the Federal Securities laws. 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, the timing of events related to clinical trials and delayed or may never occur as a result of actions or inaction by regulators of present or future collaboration partners. Complications in the design implementation or third party approval of clinical trials, complications in the collection or interpretation of statistical data or unanticipated safety issues; clinical trials may not reach their anticipated size if trials are not initiated or due to enrollment issues such as unavailability of patients, competing product candidates or unanticipated safety issues.
Continued sale of approved products maybe impacted by XOMA’s ability to implement its marketing efforts, competition or unanticipated safety issues, regulatory approval of unapproved product candidates maybe affected by the results of future clinical trials, actions or inaction by the FDA or unanticipated safety issues. Restructuring charges maybe other than more anticipated if we are not estimate properly. Implement additional or different XOMA activities. The period for which our cash resources are sufficient could be shortened if expenditures are made earlier or in larger amounts than anticipated or are unanticipated, if anticipated revenues or cost sharing arrangements do not materialize, or if funds are not otherwise available on acceptable terms.
Anticipated levels of cash utilization maybe other than as expected, due to unavailability of additional licensing or collaboration opportunities. Inability to obtain the services of contract manufacturing or service providers on anticipated terms, higher than expected costs for clinical trials, outsourced manufacturing or other services, the effects of the pace of development spending in light of the terms of XOMA’s existing collaboration agreement or unanticipated changes in XOMA’s research and development programs or other businesses. These and other risks, are described in more detail on XOMA’s most recent filing on Form 10-K and then other SEC filings. Consider such risks carefully when considering XOMA’s prospects.
At this time, I would like to the call over to John Varian, CEO. John?
John W. Varian
Thanks, Ashleigh. Good afternoon, everyone and thank you for joining us. Our last corporate update call was less than six weeks ago, and we used that time to focus on the significant changes we had implemented and the tangible progress we have made since November of 2011. Today, instead of repeating those items, we’ll use time together to provide you with a brief update on our activities over the last six weeks, as well as our near-term clinical development plans. Since the majority of the questions, we’ve received from investors are directly related to these topics. I’ve asked Paul Rubin to conduct a through presentation of our non-infectious uveitis, acne and erosive osteoarthritis studies.
You all have seen in our release that our March fund raising has led to the adoption of several accounting principles that warrant, and I use that word intentionally, discussion. Fred Kurland will walk through the specific elements of our financial results to bear color or require clarity. We will leave plenty of time to address your questions before our hour with you concludes.
You all know XOMA’s express strategy by now, invest in value creating activities. My decision to integrate all our research and development activities under Paul’s leadership is a reflection of this strategy. I believe we must understand the desired clinical and commercial profile of our compounds from day one in order to deliver innovative and valuable products in the future. To achieve this, our diverse expertise in discovery and product development [less] function as one fluid team.
Beginning at the earlier stages of our discovery work in compound formulation, into manufacturing optimization and then throughout the preclinical and clinical development processes. Paul is like minded in appreciating the need to integrate desired commercial profile and an understanding of the anticipated future landscape into all of our product development activities. By embracing the changing market dynamics and future clinical needs, we believe we’ll be able to focus all our activities on bringing high value therapies to market.
We have a great molecule in gevokizumab. We have the right people in place to advance gevokizumab toward commercialization. The fourth quarter was centered on streamlining XOMA’s activities and identifying the most important activities that can create value. The first quarter was dedicated to telling the new XOMA story and culminated in attracting new capital from some of the leading biotech institutional investors. This gives us the ability to execute on our strategy. The team at XOMA understands the next six months must be focused on execution. We soon would have more people enrolled in XOMA-sponsored clinical studies than at any point in our history, which is exciting.
With that, I’ll turn the call over to Paul to review our clinical plans.
Paul D. Rubin
Thank you, John and hello everyone. Today I’m going to provide you with additional detail on the gevokizumab studies that we have discussed before. This update will include the soon-to-be-launched Phase 3 non-infectious uveitis and erosive osteoarthritis proof-of-concept trials, as well as the ongoing trial with moderate to severe inflammatory acne. We’re excited to get our NIU Phase 3 program underway. As you know, we are conducting this trial in tandem with Servier’s pivotal Behcet’s uveitis trial. Thus the trials must meet regulatory and commercial needs for all markets worldwide.
Both protocols are near final form and we continue to target first-patient enrolled by the end of June. Before I get into the nuances of the NIU Phase 3 study, the following are the top line details. The study will enroll 300 patients with active non-infectious intermediate posterior or pan uveitis with a vitreous haze score of greater than or equal to 2 using the standardization of uveitis nomenclature or SUN scale. We will be conducting the study in 100 to 120 centers with an approximately 50/50 split of patients between the U.S. and the rest of the world. These 300 patients will be randomized one to one to one, to either 30 milligrams of gevokizumab, 60 milligrams of gevokizumab or placebo, delivered via subcutaneous injection once every four weeks.
Patients will receive a total of 14 injections over a 12-month period. While patients will be dosed for one year, the primary endpoint is assessed on day 56. This primary endpoint is a proportion of patients demonstrating at least a two-unit improvement in the vitreous haze scores at day 56. The main objective of this study is to compare the effective dose of gevokizumab, at least one of the two doses, to placebo, in the treatment of patients with active non-infectious intermediate, posterior or pan uveitis.
To be enrolled in our study, participants must meet the following criteria. Patients must have at least one eye that fulfills the International Study Group Classification criteria of intermediate, posterior or pan uveitis and a diagnosis of NIU confirmed by documented medical history. They must have a vitreous haze score in at least one eye of 2 or higher using the SUN NEI criteria. The SUN NEI scale ranks the degree of vitreous haze on a zero to four point scale. Best corrected visual acuity, or BCVA by ETDRS, must range from 10 to 75 letters in the study eye.
Patients must be receiving background treatment for the ocular manifestation of uveitis. These treatments can include an oral dose of prednisone or an equivalent corticosteroid within a preset dose range per day and/or at least one systemic immunosuppressive drug. This can include azathioprine, cyclosporine, mycophenolate mofetil, mycophenolate sodium, tacrolimus, and/or methotrexate.
In addition to gevokizumab or placebo, patients will continue on these therapies throughout the study unless they need rescue criteria. For patients who need rescue criteria, the investigator may use his or her discretion to treat the patient with another appropriate compound, exclusive of additional study drug or steroid inserts. Patients who respond to rescue medication will be eligible to receive 60 milligram gevokizumab for 28 weeks in an open label treatment arm. Any patient who requires rescue medications will be considered a non-responder.
There are a number of secondary endpoints we will be assessing, including the proportion of responders at time points other than day 56, the mean change from baseline in vitreous haze score, the mean change from baseline in BCVA, the proportion of subjects with at least a 10 or 15 letter improvement in BCVA, the change in domains of vision-targeted health status, measured by composite score of the National Eye Institute Visual Functioning Questionnaire 25, the change in domains obtained through quality of life surveys.
The study will last 57 weeks, including the screening period of up to one week and a treatment follow-up period of 56 weeks. For patients who are rescued and choose to participate in the open label treatment arm, their participation will range from approximately seven months to 18 months, depending on when they were rescued.
In determining the sample size required to meet statistical significance, we have calculated that 93 subjects per treatment group will be sufficient for a 90% nominal power to detect a 25% absolute difference in response rate. We anticipate a 15% response rate for placebo, which conservatively based upon the historic average of 10%, and a 40% response rate for gevokizumab. Similar studies have reported a dropout rate of approximately 7%.
The study also includes stratification of patients for three baseline factors, and these are vitreous haze scores of 2 versus greater than 2, steroid dose less than 10 milligrams or greater than 10 milligrams per day, and duration of the patient’s disease, stratified by those who have experienced it for less than a year and those who have had it for longer than one year.
Now we anticipate it will take approximately 12 months to enroll the study. If our assumptions are correct, we will have top line data near the end of 2013. We are presently at the Association for Research in Vision and Ophthalmology Meeting in Florida and while here, we convened a meeting with our U.S. Expert Advisory Group. These conversations continue to give us a strong sense of their excitement to be a part of this study and it reemphasizes the need for additional therapies to benefit the approximately 150,000 patients that suffer from this serious disease.
I will now provide some detail regarding the Behcet’s pivotal trial. Now this study will be conducted solely by survey, so the final design and timing is at their discretion. This study is expected to enroll approximately 110 Behcet’s uveitis patients, randomized to one of two arms, comparing monthly injectors of gevokizumab to placebo.
Only those patients who are not exhibiting signs of their disease while on a stable dose of corticosteroid will be entered. Randomized patients will undergo a forced taper of their corticosteroids, which in many cases will be expected to result in exacerbation of their disease. The primary endpoint is time to exacerbation.
This is an events-driven study. The study will be complete when a predetermined number of exacerbations occur. Patients will be followed for six months after randomization. Assumptions as to anticipated exacerbation rates for the active and placebo arms were determined based upon prior studies and expert experience.
While we can’t speak for them, we know Servier is working to start the study in the fall of this year. As it’s an event-driven trial, the timing of completion will be dictated based on the enrollment rate and the accuracy of the estimated events rates in the study arms. Based on the existing assumptions, we would expect data from the Behcet’s study to be available approximately a quarter after our NIU study. We anticipate the successful completion of both trials could allow BLA submission by the second half of 2014.
Let’s turn to our moderate to severe inflammatory acne vulgaris Phase 2 proof-of-concept study. As we have indicated in prior communications, we are seeking to enroll 171 patients over 18 years of age, who are diagnosed with moderate to severe acne vulgaris that has been unresponsive to oral antibiotics. In this study, patients are being randomized one to one to one, with gevokizumab 0.3 milligrams per kilogram, 0.6 milligrams per kilogram or placebo, delivered subcutaneously once monthly for three months. This dosing is very similar to the 30 and 60 milligram doses we’ll be using in our other studies.
Our primary end point is the mean absolute change from baseline in inflammatory facial lesion count at day 84. The secondary end point is a comparison of the change from baseline on Investigator’s Global Assessment Scale or IGA. The trial is ongoing with about 35% of the enrollment complete. We are in the process of adding additional sites and launching an extensive recruitment program that takes advantage of commonly used social media sites. We are optimistic that we can accelerate patient study entry and still anticipate top line data for the end of this year.
Turning to our Phase 2 proof-of-concept study, you are aware we have selected erosive inflammatory osteoarthritis of the hand as our second trial. This is also known by the acronym EOA. EOA is a relatively common ailment. The literature states that up to 4 million Americans suffer from this condition. It is an important subtype of osteoarthritis, characterized by an aggressive clinical course with a significant inflammatory profile, including elevations, circulating C-reactive protein of validated marker of inflammation.
There is general agreement that treatments usually recommended for traditional osteoarthritis are frequently disappointing in the EOA patients. Recent researchers highlighted the role of IL-1 in EOA disease progression. Pro-inflammatory cytokines, such as interleukin-1 beta have been shown to play a key role in the destruction of the cartilage matrix in this subset of arthritis patients, which is not the case in patients afflicted with the more common form of the disease.
Furthermore, the IL receptor antagonist, anakinra, which inhibits the effect of IL-1 by blocking its interaction cell surface receptors’ has been looked at in a pilot study by (inaudible) in 2009 for the treatment of EOA. The results from this small trial suggested use of the drug resulted in a decrease in pain, a decrease in global handicap and a decrease in non-steroidal anti-inflammatory drug use.
During this quarter, we anticipate enrolling the first of around 90 patients with active erosive inflammatory arthritis of the hand in our placebo-controlled double-blind study. To qualify for this study, the patient must have a diagnosis of primary hand EOA, as evidenced by the following: pain, aching or stiffness for more than 15 days during the previous 30 days and at least one painful episode treated with pain medication during the previous year.
Bone enlargement of two or more of the following joints: second or third distal interphalangeal joints, second or third proximal interphalangeal joints and first metacarpal. Bone enlargement of two or more distal interphalangeal joints, fewer than three swollen metacarpophalangeal joints or MCP joints. At least two bone erosions, detectable in conventional radiograph of the hand at the first CMC, PIP and/or DIP joints.
At baseline, patient self assessment of pain during the previous 24 hours must be at least 40% on a 100 millimeter digital analog scale. Also, a baseline of documented evidence of at least moderate pain must be present, based upon a standardized pain scale and patient subset to be negative for rheumatoid factor and anti-CCP antibody.
Patients who meet the eligibility criteria will be randomized two to one to treatment with placebo or gevokizumab and be treated for approximately six months. Patients will be allowed Acetaminophen as needed for breakthrough pain. Exploratory measurements assessed at three and six months will include total pain, stiffness from physical function.
The primary end point is the improvement in the osteoarthritis hand scale. We also will set multiple outcome measurements in this study, including improvement in pain, stiffness in physical function in the osteoarthritis hand scales, change from baseline in C-reactive protein and erythrocyte sedimentation rate, a substantive amount of rescue medication required by patients, as well as safety in pharmacokinetics. This study is designed to show 80% power at a 0.05 significant level. With an assumed 10% dropout rate, we need around 90 patients at about 2:1 distribution or 60:30. We’re excited to get this study underway and we believe we’ll have the EOA study enrolling patients this quarter and enrollment should be completed towards the end of this year.
We continue to discuss the merits of multiple indications for our third POC study. Reflecting John’s earlier comments about knowing the products required commercial profile from the beginning of the process, our marketing team is gathering marketing assessments and analyzing the competitive landscape for the indication under internal discussion. I’m not going to discuss, which are we consider as (inaudible) which is a lead possibility at this time.
Now that I’ve given you your fill of medical and scientific information, I am going to turn the call to Fred to do the same on the financial side. Fred.
Fred Kurland
Thank you, Paul and good afternoon, everybody, and thanks for attending our call. As you know, we issued warrants in conjunction with our financing in March. Therefore I’m going to be making more detailed remarks than I have over the past few calls. As the streamlining and the financing has impacted our financial results. I know most of you joining us today understand warrant valuation accounting. But since many of our investors who listen to the replays of our call have varying experience with these matters, we believe we should walk through how the accounting for warrant works. So for those whom this is the standard procedure I hope you will hold on for just a few minutes.
In our statement of operations, we reported total revenues of $9.9 million in the 2012 first quarter, compared with $15.6 million in the first quarter of 2011, which included revenue from about a third of the $15 million upfront payment received from Servier for the Gevokizumab collaboration agreement.
As you all know, we began the process of streamlining our operations in early January, particularly the 34% reduction in personnel, which reduced our expenses during the first quarter of 2012. Research and development expenses for the first quarter of 2012 were $15.8 million, compared with $17.3 million in the corresponding period of 2011.
General and administrative expenses were $4.7 million in the first quarter of 2012, a 13% reduction from the $5.4 million incurred in the first quarter of 2011. The streamlining is expected to result in total charges of $5.9 million, of which $3 million will be cash charges in 2012. In the first quarter of this year, we took a restructuring charge of $3.8 million, primarily in severance-related costs and the impairment of various assets and leasehold improvements.
As a result of the increase in XOMA warrants that were granted as part of the equity financing in early March and a significant subsequent increase in our stock price. We’re required to take non-cash charge this quarter and we will mark-to-market the value of our warrants on a quarterly basis. This means the contingent value of warrants will increase or decrease each quarter based upon a formula that you will find spelled out in great detail in our Form 10-Q, which was released today.
On March 9, 2012, the fair market value of our warrants was estimated to be $6.4 million, using the Black-Scholes Model. In accordance with generally accepted accounting principles, or GAAP for those of you who prefer acronyms, we revalued the warrants liability on March 31 of this year, again using the same methodology. As our stock price has increased since the time we completed our financing, the warrants at the end of the quarter had a fair value of $21.1million. The increase in fair value was $14.4 million or $0.33 per share, which we book as a non-cash charge to the revaluation of contingent warrant liabilities line of the statement of operations.
For the quarter ended March 31, 2012, we reported a net loss of $30.4 million or $0.69 per share, compared with a net loss of $6.3 million or $0.22 per share for the quarter ended March 31, 2011. Excluding the $14.4 million of non-cash charge, reflecting the increase in the fair value of our warrant liabilities, our net loss per share was $0.36 in the first quarter of 2012.
At the end of the first quarter of 2012, we had cash and cash equivalents of $74.9 million, including the $36.2 million that was raised during the equity offering in the quarter and that compares with $48.3 million on December 31, 2011.
Today, we reaffirmed our 2012 guidance that we issued on January 5. We anticipate cash used in ongoing operating activities will be approximately $35 million. We expect our cash will be sufficient to fund our operations into 2014, and comfortably pass the time, when we expect to report top line data readouts on the clinical trials that Paul has just discussed. I will turn the call back to John now.
John W. Varian
Thanks, Fred and thanks, Paul. You see, Paul, what happens when you get promoted, you have to talk the most on the quarterly call. I’m sorry about that. Okay. There are two items that we haven’t touched on yet. The past study in hypertension is enrolling well and we continue to believe we’ll have the study completed in early 2013.
Commercially, the three primary wholesalers are set up for electronic ordering and have place orders for ACEON. All of the ACEON that was started by Abbott is now depleted and all ACEON that is being shipped has XOMA’s logo on the boxes and package inserts.
We are on track for our first full quarter of sales in the second quarter. The little we generated in the first quarter was barely a blip as we anticipated, so we didn’t call it out in our financials. I can tell you that April, our first full month selling ACEON, was at a level, which would support the 12 months trailing average of $2.8 million we had discussed previously.
Before I turn the call over for Q&A, I’d like to outline the milestones you should expect from us through the second quarter. First, we’ll open enrollment in our U.S. Phase 3 non-infectious uveitis study. We are targeting our first patient enrolled by the end of June. Second, we’ll initiate enrollment in our erosive osteoarthritis study. Third, we’ll book our first quarter revenues from ACEON sales. Additionally, we’ll be making presentations at scientific meetings through the end of June.
So as we have the operator set up the queue for your questions, I will repeat what I hope you have heard today. We have a great candidate in gevokizumab and a broad clinical plan that gives the product a good opportunity in its initial pivotal studies, as well as an opportunity to point us in the right direction for the next Phase 3 indication. We have the right people in place to grow the company and we have the financing in place to focus all our attention on executing on our strategy.
Operator, we’re ready for questions.
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Fund Letters
