XOMA - NASDAQ

Ashleigh Barreto - IR John Varian - CEO Paul Rubin - SVP, R&D and CMO Tom Burns - VP, Finance and CFO

Phil Nadeau - Cowen and Company Liana Moussatos - Wedbush Securities Matt Kaplan - Ladenburg Thalmann

Good afternoon, ladies and gentlemen and welcome to the XOMA Corporation's Corporate Update and Second Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host for today, Ashleigh Barreto, Investor Relations of XOMA. You may begin.

Thank you, operator and good afternoon everyone. Please note the call today is accompanied by a presentation that can be found on the webcast link of the Investors & Media section available on the Web site. Joining us on the call today are John Varian, Chief Executive Officer; Paul Rubin, Senior Vice President, Research and Development and Chief Medical Officer and Tom Burns, Chief Financial Officer. Before we begin, I'd like to remind everyone this conference call will contain forward-looking statements about the company. These statements are subject to risks and uncertainties that could cause actual results to differ. Please note that these forward-looking statements reflect our opinions only as of the date of this call. We will undertake no obligation to revise or publicly release results of any revisions to these forward-looking statements in light of new information or future events. Factors that could cause our actual results or outcomes to differ materially from those expressed in or implied by such forward-looking statements are discussed in greater detail in the most recent filings on Form 10-K and other SEC filings. I would now like to turn the call over to John.

Thank you, Ashleigh. I’d like to thank everyone for joining us today. This is a very exciting day for us because we finally get to roll-out our endocrine franchise, which we committed ourselves to well over a year ago. At that time we knew if we had some very interesting assets in the endocrine space approaching the clinic. We were also able to regain right to another clinical stage endocrine antibody we discovered under a joint collaboration we had with Chiron, Novartis. With this growing opportunity we committed to additional early research programs to complement this endocrine focus. Earlier this year, our Board of Directors formally endorsed our therapeutic focus in endocrine as part of our strategic planning process. And we had intended to communicate this major initiative this summer or fall in anticipation of what’s next question. But with the EYEGUARD-B clinical results we announced two weeks ago it more directly addressed the, what now version of the question. Paul Rubin will take you through this exciting portfolio, but I’d like to first give you an update on our learnings and evolving thinking regarding gevokizumab. During our most recent call, we were focused almost exclusively on the EYEGUARD-B data and the implications they had on XOMA. Yet there is another constituency that is highly impacted of Behçet disease population. It's hard for any of us to really be able to put ourselves in their shoes to understand what life is like when you have Behçet disease and uveitis. Pain, deteriorating vision, the ever present risk that you may lose your vision, a process of trialing area to finally get a diagnosis, trialing area of different medications to treat the symptoms, the damage that occurs from chronic steroid usage, having to succumb to intravitreal injections, it's hard to imagine. This is a constituency that really lost. Sitting in church on the Sunday is leading up to our results, my prayers were that the study would come out well they were if gevokizumab would truly be a benefit to Behçet sufferers then our study would show that. Clinical research is just that, a set of trials you can’t know the answer to until you’ve completed them. Drug development is inherently risky, but above all else it's about the patients, it's about doing something to make their world better, sometimes it is securing disease, sometimes it's just easing a symptom nerve so the patient can enjoy the things in life that we take for granted. XOMA’s commitment to improving a patient’s life hasn’t lessened. As we and our partner Servier dig deeper into their EYEGUARD-B data and integrate our learnings with data generated in previous gevokizumab studies, our views on where gevokizumab might be successful have evolved. In EYEGUARD-B we see that IL-1 beta modulation seems to show its maximum effect in the most severe patients who have active disease. For instance, our more detailed review of the EYEGUARD-B patients, we had most active diseases at entry as evidenced by a vitreous haze score equal to or greater than one plus on the SUN scale, show that none zero out of six of the gevokizumab patients at a first ocular exacerbation, compared to almost 60%, seven out of 12 of the patients in the control arm. Also as suggested from the initial results, the more detail review of macular edema results and measures of macular fitness provide a picture that is serious inflammatory conditions is less profound in gevokizumab patients. This could suggest that the role of IL-1 beta and the likely increased ocular by availability in elevated inflammatory stage favors the use of gevokizumab. We continue to review and update our thinking as we learn more from these results. We are beginning to believe that modulation of IL-1 beta with gevokizumab has its highest chance of success in acute, hyperostotic inflammatory situations, condition as Paul refers to as the hot state. As new information is generated it must be incorporated into our decisions going forward, it speaks to my comment on our last call, as a pitcher you can only control the next pitch that you throw. There are some key parameters for us to consider now. As we said consistently we need two pivotal EYEGUARD studies for approval in the broad non-infectious uveitis indication. We are now dependent on success in the jointly run EYEGUARDS A and C for approval. EYEGUARD-C’s design is very similar to the Servier EYEGUARD-B study. The one key exception is that unlike the Behçet population non-infectious uveitis patients in EYEGUARD-C have their steroids taper to zero rather than five milligrams daily. EYEGUARD-C has 255 of its 300 target enrollments as of now and has enrolled 10 to 16 patients each of the past six months. But with the six month endpoint, the results won’t be available until mid-2016 if enrollment continues at its current pace. The costs of allowing the study to just run out are high. EYEGUARD-A enrollment is behind EYEGUARD-C so if run to completion data from it would likely be later, still and also at a substantial cost. With that said, the patient population design of EYEGUARD-A is more similar to the population design where we observed benefit in our Phase 2 studies and in the severe Behçet disease uveitis patients who enrolled in EYEGUARD-B. Our executive team and Board have had some very difficult discussions regarding what we’ve observed about gevokizumab and what to do with EYEGUARD-A, C in U.S. each has presented their views and have supported his or her position. The patients were the primary reason to keep the studies going to completion. At the same time we have to accept they were not in the financial to do so with the need for both A and C to come out well and the loss of a potential key differentiator that is positive pivotal data in the Behçet disease uveitis sub set of patients. We believe that to just stay the course would be a mistake. We have spoken informally with FDA about the EYEGUARD-B study results. And their potential impact on our thinking about NIU. They two were disappointed for the Behçet patients that we were not able to show what we had hoped. We sought their input as to what would be best to do in our situation. From our discussion we believe that if we close down the ongoing studies in an orderly manner which would not jeopardized the integrity of the data any positive results could be presented. And FDA will consider the results we generate. While we clearly understand that early termination would decrease the power of the study, based on our overall assessment we believe this option is the preferred one for XOMA in our key territory the United States. We have already started discussions with Servier through the joint development committee where each partner has equal power. We are still finalizing the path forward but it is already clear from the JDC interactions that we have agreement between the parties that there will be a significant reduction in XOMA's future spend on the EYEGUARD program. We believe pyoderma gangrenosum is worth pursuing. As we've laid out we have more evidence than IL-1 beta may be an important driver of acute or episodic inflammatory diseases. Pyoderma gangrenosum fits this pattern. In our Phase 2 studies of active disease uveitis and Pyoderma's patients, Servier’s sniflers disease study and several competitors’ acute gout studies IL-1 beta treatment resulted in rapid disease response. Therefore as we are going to continue our -- therefore we are going to continue our pyoderma gangrenosum program. At the same time we want to move forward in a controlled and disciplined manner we have to balance this opportunity with our financial resources. We are building blinded futility analyses into the Phase 3 clinical program to allow informed go no go decisions for gevokizumab in this indication. Pyoderma gangrenosum patients need and deserve better treatments for the severely debilitating disease. Evidenced to-date indicates that gevokizumab may fill this need. We are dedicated to find out of it well in a thoughtful way. This is a good time for Tom to explain how these decisions impact our finances going forward. Tom?

Thank you, John. Good afternoon everyone. As John stated we are enacting a number of operational changes to substantially reduce both external and internal resources spent on gevokizumab. In the first half of 2015 the gevokizumab Phase 3 clinical programs accounted for approximately half of our $39.7 million R&D spend. We expected to spend an additional 20 million on the EYEGUARD program to see it through completion. We now believe that money is best spent in that and other programs at XOMA. We are working with Servier to reach agreements on the EYEGUARD spending plans under the collaboration to reduce our portion of expenses as quickly as possible. We are coordinating with Servier on how this can be done in the best interest of the companies, the patient’s current enrolled in the study, [indiscernible] to aggregate the data. If we fully reduce XOMA’s exposure to new expenses related to the remaining EYEGUARD clinical development program and implement strict go no go checkpoints in the PG studies as planned. We anticipate we can save us substantial amount in external R&D expenses through 2016. Internal expense savings will also be significant. In addition to reducing our expenses we believe we have several assets that we used as sources of capital to fund our ongoing clinical development activities. The licensing qualifications for XOMA-089 our anti-TGF beta antibody are underway with companies interested in developing as an immuno oncology compound. While this antibody biased targeting and built in by XOMA’s scientists represents a great opportunity immuno oncology is outside our chosen areas of therapeutic focus. Negotiations are also on our way to out license XMet A to treat type 2 diabetics. Type 2 diabetes is outside our chosen scope of development and commercial capabilities. We have received multiple term sheets in our negotiating to secure the best partner on the best terms we can for each program. Our decisions need to take into account our capital needs today while recognizing the significant potential future value of these assets. While we cannot guarantee any of these negotiations will result in a successful transaction. We hope to close one or both of these transactions in the near-term based upon the stage of the conversations. Additionally, we have become more expansive in our business development activities. We are assessing options for our G&P manufacturing capabilities. Our Anti-Botulinum program and related assets, the impact those options have on the company. We have begun these assessments so they are at an early stage. However we are committed to making these decisions in a short timeframe and have them implemented prior to year end. All of these operational cuts in both the R&D and G&A infrastructures are being made to ensure we have the right sized company in August to support the advancement of our endocrine pipeline primarily XOMA 358 which Paul will take you through very shortly. We ended the first half of the year with 51 million in cash. This cash taking into account both our current spend levels and paying down the Novartis debt instrument on September 30 would last us six months. The substantial cuts that are planned it will be discussed further on this call would extend that runway. More importantly, the licensing yields at the levels we would anticipate based on the ongoing conversations should dramatically improve our cash runway. We are removing the previously stated cash burn guidance of 60 million to 65 million. With that I’ll turn the call back to John.

Thanks Tom. As you heard from Tom about our ongoing and accelerating efforts to use certain high value assets to revive the fund to advance our core assets in endocrinology, while no deal is ever done until it's done and things change all the time, we have enough interest, momentum and potential value that I am committed to fully focusing our capital raising efforts on getting these deals done rather than raising money by selling XOMA’s stock. We believe our current stock price does not fairly reflect any of the assets we have at XOMA, at these prices I do not plan to raise capital to support our development efforts. We are talking to the right companies who appear to see the value these assets have and their potential to offer hope to patients who have to live with some very serious diseases. Paul will take us through these assets and XOMA’s endocrine program.

Thanks John. You will see in the ensuing talk and slides, is that we presently have six distinct assets in our endocrine portfolio. Now this portfolio actually started with considerable time and effort dedicated to studying the insulin receptor and that particular work has formed three distinct classes of antibodies each targeting a different allosteric site ambience and receptor. The one result of this effort was discovery of XMet A which activates the receptor. In animal models including spontaneously diabetic monkeys this class of antibodies has been shown to potently regulate blood glucose without relying upon insulin for its beneficial activity. As Tom mentioned we are working to out license XMet A as the development of a monoclonal antibody for Type 2 diabetes is not consistent with our mission in the rest of this presentation we will focus on our other endocrine assets which we do intend to take forward. I think moving on to Slide 9. For the past few years we’ve made a conservative effort within our discovery research division to find monoclonal antibodies to important targets in the endocrine space. Our technologies including our ability to interrogate allosteric sites as well as our ability to find binders to G couple protein receptors facilitates our ability to go in this direction. At present we have six separate antibody programs ranging from early preclinical to Phase 2 ready stages that fall within the endocrine area. Now in addition to our technologies giving us some edge in this direction, there are also other advantages in pursing this area as the development pathways generally take advantage of well elevated circuit endpoints and from a commercial perspective there is significantly overlap in the prescriber base. Now on the next slide you can see our lead asset is XOMA 358. It is a fully human antibody that blocks insulin signaling and can be useful for the treatment of multiple indications typified by the body producing too much insulin that results in dangerously low blood sugars. Our lead indications for this are congenital hyperinsulinism or CHI which first shows up in infancy and in acquired form in adults that occurs in a small percentage of patients who undergo gastric bypass for obesity. Proof-of-concept Phase 2 studies are designed and ready to initiate soon. Now we also have a more potent shorter acting molecules on the one to nine with a similar mechanism to XOMA 358 that maybe useful for hypoglycemia associated with insulin overdose as well as other drug induced hypoglycemias which is in this particular compound is in late preclinical studies. You could see XOMA 213 is our monoclonal antibody that blocks prolactin response and can be useful in patients with high levels of prolactin that are unresponsive too, on patients that cannot take other systemic therapies. This molecule has completed Phase 1 clinical development and we are ready to initiate Phase 2 proof-of-concept studies in patients. Now I mentioned XMet A as an out licensing candidate, but it actually represents a family of molecules that are active in stimulating glucose uptake into the cells in the absence of insulin it is still at the insulin receptor. Now in addition to potential use for the treatment of type 2 diabetes, these compounds also may be useful for the treatment of highly morbid forms of inherited defects of the insulin receptor. Finally as you could see on this list we have two earlier preclinical programs aimed at to therapies for the treatment of hypothyroidism and Cushing's disease. If you go onto the next slide, a bit more on XOMA 358 as I mentioned, this is an insulin antagonist which is a fully human monoclonal antibody and it potently binds to allosteric site on the insulin receptor that is a site where insulin does not bind. We have proven that it can block the effects of insulin both on in vitro cellular systems as well as in the in vivo models of disease. Now interestingly the effects can be reversed with insulin proving it as an allosteric binder, but also proving that it can be reversed in the case of too much drug being costumed. Going on to the next slide, although there are many underlying causes of hypoglycemia we are initially investigating CHI a disease that presents at birth and effects approximately 6,000 patients in the United States. And an acquired form of the syndrome that occurs in about 1% to 6% of patients who underwent a Roux-en-Y procedure for obesity. Of these post bariatric surgery patients who declare themselves one to three years post operating. In both cases patients become profoundly symptomatic with the occurrence of seizures, syncope, cardiovascular side effects and even death. There are no consistently safe and effective therapies available. The fact that the majority of these patients are seen in relatively few medical centers makes access to patients for clinical studies much-much complicated. Now moving on to the next slide, if you could see that we concluded a recently reported Phase 1 trial in normal volunteer subjects, this study looked at the safety and pharmacokinetics of escalating single doses of XOMA 358 administered intravenously. Now in addition to extensive safety analysis we looked at the drug’s effect on glucose, insulin, C-peptide and the ability of the drug to prevent hypoglycemia from occurring after administration of intravenous’s. The next slide shows our talks about the fact that the compound was well tolerated and demonstrated those dependent increases in glucose and insulin consistent with its mechanism of action and this occurred at doses as low as 0.3 milligrams per kilogram. The kinetics were linear and the elimination half way range from two to three weeks suggesting that it may be doses in frequently as once or twice a month. And the next slide shows that in our last cohort of patients in this Phase 1 trial those who received 3 milligrams per kilogram the administration of intravenous insulin in the absence of XOMA 358 resulted in an approximately 35% reduction in glucose on average. Single doses of XOMA 358 prevented this drop in glucose after the addition of injective insulin for at least five days after dosing. This test models may happen in the actual disease stage where endogenously producing some can result in similar hypoglycemic episodes and provide supportive evidence that the drug may be useful in preventing the signs and symptoms of low blood sugar. Slide 16. Now the results of our Phase 1 study helped to inform the design of our Phase 2 proof of concept studies. We expect to initiate these studies soon for both CHI in the U.S. and the UK and for post pediatric surgery induced type hypoglycemia which will be conducted in the United States. At the end of these studies we intend to meet with FDA to discuss design larger scale of valuation. Slide 17. Talks about XOMA 213 which is a humanized antibody that binds to the prolactin receptor and potently inhibits signaling, as John said it was originally discovered by XOMA for Chiron and then Novartis for the treatment of tumors that over express the prolactin receptor. The compound was tried in both breast and prostate cancers but the results do not warrant further development in those indications. XOMA reclaimed the asset to develop it as an alternative therapy for patient with hyperprolactinemia due to prolactinomas or drug induced hyperprolactinemia. A hyperprolactinemia can result in sexual dysfunction, infertility and large breast size in males and inappropriate production of milk as well as loss of bone density. As existing therapies predominantly dopamine agonist are not uniformly effective can cause intolerable side effects in some patients and must be used with caution in psychotic patients we felt that the development of an alternative to dopamine agonist was warranted as supporting toxicology in Phase 1 human clinical trials have already performed XOMA 213 is ready to enter proof of concept studies for the treatment of hyperprolactinemia. Next slide. Now once the proof of concept is established our intention is to develop the compound for prolactinoma patients who are either unresponsive or intolerant to the existing dopamine agonist therapies. In addition we may develop this compound for patients with hyperprolactinemia secondary to anti-psychotics. As the adverse effects of high prolactin can further lead to non-compliance of these patients with their anti-psychotic medication and the mechanism of existing treatments may actually potentiate psychotic events. Slide 19. XOMA 129 is a fab or a fragment of a more potent version of XOMA 358 our insulin receptor antagonist. Now the smaller size and higher potency can theoretically lead to a rapid onset in shorted duration of effect. We have proven that XOMA 129 can rapidly reverse the hypoglycemia seen in rodents after insulin administration and this therapy can last for at least three hours after a single dose. Next slide. If the benefits of XOMA 129 can be proven in the clinic it can be an important therapy for patients who over dose on their insulin or become significantly hypoglycemic after taking certain oral anti-diabetic agents. Approximately 10% of visits to the emergency room are for episodes related to these phenomena. XOMA 129’s three hour duration is specificity for the insulin receptor can't position it as an improved better tolerated option for these patients. Our intent is to complete IND enabling toxicology studies and submit an IND by the end of next year. Now on to Slide 21. Hypothyroidism due to increased parathyroid hormone results from gland high pituitary and can lead to abnormally high calcium levels. While about 90% of patients can be surgically treated, but 10% do not respond to surgery and require alternative therapies. In addition about 30% of patients with solid tumors produce PTHrP a protein that acts like PTH, but also results in all the symptoms of hypothyroidism without the ability to be cured with parathyroid surgery. Existing therapies for both groups do not work on all patients and alternatives are necessary. XOMA has discovered fully human antibodies that can diminish signaling in the presence of either the antagonist PTH or parathyroid hormone or PTHrP or the parathyroid like protein. We are presently in the process of selecting a lead candidate to be developed for the treatment of these diseases. Next Slide, Cushing’s disease results one of the nine tumor of the pituitary leads to over production of the adrenocorticotropic hormone which then stimulates the release of cortisol from the adrenal gland. The release of high levels of cortisol results in a series of significant signs and symptoms including weight gain, high glucose levels and osteoporosis. Present therapies have tolerability issues and side effects, which theoretically can be improved with the specificity of a monoclonal antibody. XOMA has discovered antibodies that bind ACTH and diminish its ability to stimulate release of cortisol. We are presently seeking a lead candidate. Slide 23, openly by this time next year we could be finalizing the plans for two Phase 3 programs that have two additional compounds poised to enter Phase 1. I’ll now turn the call back to John.

Thank you, Paul. While we were surprised by our recent trial result, fortunate we have been working very hard to be prepared for it. As you just heard from Paul, we have a lot of exciting programs to move forward and the indications we are pursuing have well recognized mechanistic pathways and highly validated assays to confirm efficacy. We know the indications of these compounds can treat this will not be the case of letting the compound leading us to the next indication. While the majority of the indications our potential products are targeting are orphan in nature, collectively they can lead to a sizeable commercial opportunity. With a product portfolio of endocrinology assets, XOMA can commercialize to the endocrinologist in U.S. with a targeted salesforce that remains our goal. As we were making strategic business decisions about our new focus on endocrinology, it's always at the top of my mind that there are 180 dedicated employees at XOMA. Very few people have not been involved with gevokizumab at some point, it's personal to them. This was their baby, they worked really hard to get it to this point and they felt the disappointment as acutely as any of you or us. These are people we work with as colleagues and many of them have become friends. These are not easy decisions. There are people and families you know and care about impacted by our decisions. We’ve begun making the tough decisions that will allow XOMA to have the right structure and size for this new chapter in our history. Where the endocrine portfolio and XOMA 358 take center stage, the changes we expect to implement during this month include; first, a continued commitment to the research which has carried XOMA over its history, such that we now have a promising portfolio of assets to build upon and others to license and allow us to execute on these plans. Research and preclinical will be sized to specifically support the endocrine asset portfolio Paul discussed. Our clinical and regulatory groups will be sized to match the needs going forward, while there would be a tail of work to properly complete the EYEGUARD work that protects the studies and the asset the going forward needs will be lessened. G&A groups across the company will be reduced to reflect a reduction in required support levels and to ensure we are as lean an organization as possible. Lastly, we will launch an effort to consider strategic options for our manufacturing and bio defense operations and their support groups. These dedicated employees and their outstanding skills have had a great value for XOMA, but we need to determine if an alliance or other structure could better take advantage of their capabilities and potentially still serve XOMA’s needs. I know you all want specifics as to our plans, but I ask you to remember that our employees deserve to be and will be put first in our communication process. We do expect to communicate all changes this month for everyone’s sake. There is significant unrecognized value in XOMA. We are making the necessary to strategic and organizational decisions that give us the capital resources to fund XOMA 358 and 213 to value creating milestones. Based upon the status of our discussion to-date on our out licensing efforts and my thorough pressure testing of our budgetary assumptions for XOMA 358 and 213 and our earlier development efforts, I am confident we will be able to achieve this near-term goal. Operator we’re ready to open the floor for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Phil Nadeau with Cowen and Company. Your line is now open.

Just to drill down on 358 a little bit more I apologize if you have said this and I missed it but kind of understand the future milestones that we could see in its development a little bit more would it first be a definition of exactly what Phase 2 trial you are going to do and initiation of that trial or are there other milestones too that we can look forward to?

So Phil we are at the point where the design of the study is actually in place and we are working to actually launch the study so I think I will have Paul talk a little bit about what those study designs are generally and then kind of what we would expect results wise in the couple of studies that he spoke to so Paul?

Okay. So our intent is to initiate two POC or proof of concept trails in the relatively near future one is in on the congenital version and the congenital version in both cases these would be single dose trials and remember with an antibody a single dose still you are looking at prolonged coverage and you look overtime at the ability to drug to work. What these studies will involve our patients known with the disease that we first document that they have a reproducible lower blood sugar or hypoglycemia event during the past which is the provocative event that causes these hypoglycemic events so we will document first prior to giving the drug that they have a reproducible low blood sugar response then give the drug and do these things fast overtime after drug administration so each patient would serve as his own control will show consistent response without the drug and then be able to prove that in the presence of the drug we can lock these hypoglycemic events and if successful how long that benefit lasts. So will be able to do good PKPT analysis obviously the end points are very well validated in essentially glucose and we will be able to take that data and inform how to dose and design our larger scale trials. In the post pediatric surgery patients it is a little bit different and rather than getting low blood sugar from fasting their blood sugar actually occurs after eating so these studies are designed again on multiple occasions documenting that with a specific meal they get a drop in blood sugar and then showing that in the presence of the drug with the same yield as blood sugar doesn’t drop doesn’t occur. So it's a very similar design except the provocation is different once fasting once eating and once in a younger age group than the other group obviously in the post pediatric surgery patients are over. Both of these again we intend to -- the protocols are complete the centers have been identified and we’re in the process of getting the protocols approved at the levels of the IRBs and then once that process is finished we can initiate.

And then once we initiate we will be able to give very clear guidance on when we should see result. One important piece of those censuses is single-dose and escalating doses. We don’t know exactly to which dose will see what we want to see but if we do believe that based upon the doses that we’re starting at we should see results fairly quickly but we will be able to predict those kind of dates once we get the study started.

And maybe just one more question here. I think

It's a great question. Who did you say was developing it?

I think it's

I know there is one Xx

Our next question comes from the line of Liana Moussatos with Wedbush Securities. Your line is now open.

What is the status of the Servier sponsored trials for diabetic neuropathy, ACS, sniflers and what’s going to happen with the non-infectious anterior scleritis trial?

So on anterior scleritis let Paul speak to that and we -- then I could speak to the rest of the Servier question.

Well, we’re kind of finishing up the study that was ongoing and then we’ll have that data and at least for the time being we don’t have any active plans to initiate any additional scleritis trials. And then the Servier trials, I think all we could say, I think it's known that they are all ongoing.

And it will be their decision. So Liana as we said during the call you can imagine this has been a couple of weeks right and so what’s been the partners have worked, and I will say this, the partners have worked incredibly well together Servier, you always learn more about your partner and that sort of thing in tough times. And I can tell you that throughout this process of un-blinding the data, going through the data, talking through what does it mean to each of the two companies, I could not be more impressed by how Servier has behaved and how they have tried to work with us to understand what’s the best path forward for both companies. So they have truly shown themselves to be -- as well as we thought of them before to be incredibly strong company with really good people who really care. So with that said, we’ve been able to communicate what our position is which is because of the length of time and cost for the high guard studies that doesn’t make sense for us, now what makes sense for them maybe different and what they and we are working together to figure out is can we both get what we need in a way that serves both companies. And I think very strong again because the way the companies are behaving that will happen and we’ll get what we need and what they need. When it comes to that is your question on the other program, they haven’t said what they will do with those programs accept for the -- at this point in time they intend to continue them until they change their mind. Right and so they will do something very similar to what we’re doing look through these results and figure out study-by-study, what could that mean and they will come to their own conclusions. And so just like we’ve come to the conclusion, we’re going to continue pyoderma, I think there is a high chance they will come to the conclusion some indications they will continue and there maybe others they don’t, but that’s going to be their decision which is the way the POC program is set up. So again I could not be more impressed by the quality of behavior of our partner during this process. So I think we’re going to good answers for both companies.

Our next question comes from the line of Matt Kaplan with Ladenburg Thalmann. Your line is now open.

Just a follow-up on both questions, can you just a little bit more color on 358 with respect to the cost of that program and what you're thinking right now in terms of the proof-of-concept studies and then kind of moving forward as well?

Yes this is Tom, thanks and as Paul has mentioned we’re completing the design right now right, so we’ve sketched it out I would that they are much cheaper than [Multiple Speakers] they are much -- and the good news is there I think there is going to be our burn as it exists today will be substantially lower on a go forward basis based on the trial themselves being of a smaller cost structure.

Yes so think of it this way and then talk to some of it particularly the Phase 2 studies are going to be at a couple of centers, a few centers in the world where basically the patients go those centers. You only need in our design, it's a handful of patients in the Phase 2’s, to figure out what the Phase 3’s would look like and even the Phase 3’s are going to be fairly small studies. So this is an orphan indication for congenital hyperinsulinism it is an orphan indication where the patients are in one place and you can actually see because of these very nice surrogate markers of insulin and glucose. You can see if the drug is working pretty quickly. So this will be a much less expensive program and it could be quicker too so Paul, I think you want to add on that something?

No, no that’s right, I mean these are actually the both indications going after are low prevalence, highly morbid indications and there should be president to do full development with a much smaller number of patients and obviously we won’t know for sure until we work it out with FDA, but these are, these full in the category, of these very low high value orphan indication. So you could kind of think of it in those terms.

And maybe you can help us put it in level of magnitude in terms of so look at your spending roughly $100 million per year wondering where are you could get that burn rate down to and continue the development of 358 maybe Tom can help us understand where you think…?

Matt no I think you have our expense structure correct, we also have things that are ongoing that offset that right just currently our bio defense et cetera from a burn, I think our guidance was the 60 million to 65 million for this year. As I mentioned we’re moving the guidance but really what I am saying there is the burn should be less than that on a go forward basis and it's on to combination of two things really these expense reductions that we’re putting in place as well as where we are in our licensing efforts and that I feel that giving me confidence to do that so from a burn perspective I mean it is going to be lower than in my guidance previously.

And so Matt and don’t forget that we also said that we are going to look at strategic alternatives for the manufacturing biotech defense business as Tom said and that's a substantial chunk of the spend here and then throughout as you heard throughout each of the different groups within the company we are going to make the organization as lean as possible and as Tom said correct me if it is wrong Tom but in the first half of the year I think you said the spend on the application that was about 30 the total R&D spend was 39.6 which advocates of it being half of that so that's €40 million if you analyze that so there is some real clear decisions we made that reduced the spend very dramatically and then we’re also working around the edges too and the replacement clinical trials are nothing like the cost of the clinical trials that are coming out of the spend okay so we will be clearer now that we are going to get these changes implemented and then be clearer about the forward spend okay.

Okay. Then just to be clear on the terms of what you are saying. You plan to continue the pyoderma gangrenosum study you are not going to continue your part of that AMC or the U.S. EYEGUARD program and so everything else is on pyoderma gangrenosum with Gevokizumab in your all the spend on that correct?

Correct. And I would make one also addition to that is for pyoderma gangrenosum we are implementing these strict go no go check-ins along the way so which of the other ways to if it doesn’t seem like we’re seeing anything that we would want to pursue then we can actually stop spending.

So we’re not committing to taking it to the full and unless we believe that we've significantly de-risked it on an ongoing basis.

Correct, yes.

Okay. Thomas do you think you ought to spend to de-risk it again?

Well there will be steps along the way and this is you can imagine right there will be a steps along the way where we take our first blinded look to see what we've got and there will be steps then that would define for the next step right so it's difficult to answer that question. But I think within six to nine months we can have our first look at kind of where we are that’s what we are trying to build it.

You have about [indiscernible] for the 47 almost $50 million in debt and I guess can you give us some color in terms of the timing of when it comes there and the terms of the debt to get what is secured by and do you have to keep a minimum cash balance as well based on the…?

Sure. So again we are happy to say it will take more than a time the Servier debt there is three time periods where we will be repaying it €3 million in January of 2016, 5 million in January of 2017 and 7 million in January of 2018. Note, interest rate is below 3% it is what they would or I would characterize as kind of the sweetheart deal as part of the collaboration so that's a total of €15 million there and spent overtime the Novartis debt conversation so just to spend a little bit of time on that it is $13.5 million but it's important to remember the debt is associated with assets under a collaboration we received a 7 million milestone under that collaboration back in 2014 and then a additional milestones that may take place. The royalties under the collaboration is staring in double digits and go to high teens and the fact that Novartis extended repayment terms back in June out to September also indicates that they see value in this program. The conversations are continuing and we hope to resolve prior to September 30th. And then finally as Hercules which is the issuance of 42 months instruments of which its interest only through July of 2016 and then there is a principle payment that starts to get paid down along the way so that's the landscape of where we're at.

Yes. And just to emphasize that Novartis debt is I think 3% or so also.

It's like 2.44.

Okay, so thanks Paul.

So in Hercules it is about [indiscernible] about 20 million to them [indiscernible]?

Hercules is 20 million. Yes so we have round everything up to your point it was about 48 million of total obligations.

Yes. And as Tom said on the Novartis debt we were ready to pay it in June and they asked us to let’s see if they can we can do something else as opposed to just paying it which is we got it moved to September so as Tom said there is clearly value they see in what they would hopefully for there is hand or it's always under this collaboration for these assets they are working under the related to this debt and maybe could make that will allow us to work out something that works for them and works for us on this debt payment so if we look at the debt but there is a huge asset behind that debt.

This does conclude today's Q&A session. I would now like to turn the call over to John Varian for closing remarks.

Thank you, operator and thanks to all of you for joining us today. We're going to be working very hard over these next few weeks and the remainder of the third quarter to monetize those assets that are outside of our endocrinology focus. We’re working with Servier to determine these next steps for NIU and the rest of the programs. And we’re going to put the right infrastructure in place to support XOMA’s clinical development effort in with XOMA 358 and with XOMA 213 and advance these earlier stage programs toward IND. We do look forward to communicating with you more on this as we progress these efforts and again we appreciate you listening today. Thank you.