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|   | · | Entered into global XOMA 052 development and commercialization partnership: This agreement with Servier, a leading independent pharmaceutical company established in 140 countries with EUR3.7 billion in 2010 sales, includes the following: |
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|   | o | Retains for XOMA valuable commercial rights and options in the U.S. and Japan for multiple indications including Behcet’s uveitis and other inflammatory and oncology indications, |
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|   | o | Enables acceleration of XOMA 052 into Phase 3 development in 2011 in Behcet’s uveitis, an orphan indication, |
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|   | o | Advances the company’s strategy of focusing on near-term opportunities to develop and commercialize products in the U.S., and |
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|   | o | Increases XOMA’s cash resources and provides additional XOMA 052 licensing opportunities for XOMA in the U.S. and Japan for diabetes and cardiovascular disease. |
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|   | · | Completed enrollment in two Phase 2 trials of XOMA 052 in patients with Type 2 diabetes: To date, more than 600 patients have been enrolled in clinical trials of XOMA 052, including 74 patients in the Phase 2a trial and 420 patients in the multicenter, randomized, placebo-controlled Phase 2b dose-ranging trial. Later this month, XOMA plans to report top line results from the Phase 2b trial, including hemoglobin A1c levels and C-reactive protein, following six months’ treatment with XOMA 052 at one of four dose levels or placebo. Hemoglobin A1c is a measure indirectly reflecting blood glucose levels as averaged over a 90 to 120 day period and C-reactive protein is a biomarker of cardiovascular risk. |
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|   | · | Announced an interim review of three-month data from Phase 2a clinical trial of XOMA 052: This trial was designed to evaluate the overall safety and kinetics and was not designed to show statistically significant differences in measures of biological activity. A total of 74 patients with Type 2 diabetes, including 55 treated with XOMA 052 at a single dose level and 19 on placebo, were treated. At the three month interim review, XOMA 052 was shown to be well-tolerated with no drug-related serious adverse events and demonstrated evidence of biological activity, including a reduction in C-reactive protein levels and a modest reduction in hemoglobin A1c levels. In the final three months of the trial, patients in the XOMA 052 group receive the same, higher or lower dose level, and patients in the placebo group will continue to receive placebo. XOMA anticipates reporting the results from the full six months’ treatment in this trial during the second quarter of 2011. |
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|   | · | Received two new patents covering XOMA 052: The patents cover methods of treatment for Type 1 diabetes and certain cancers, including multiple myeloma, using XOMA 052 or other IL-1 beta antibodies with similar binding characteristics to XOMA 052. XOMA now has eight issued U.S. and European patents for the XOMA 052 program, demonstrating success in building a strong intellectual property portfolio to protect innovation around XOMA 052. |
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|   | · | Awarded approximately $1 million in grants under Patient Protection and Affordable Care Program: All four of XOMA’s grant applications were awarded the maximum allocation, providing funding for ongoing XOMA programs that address unmet medical needs in the areas of inflammation including diabetes and cardiovascular disease, biodefense, metabolic diseases and cancer. |
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|   | · | Reported XOMA 3AB results at national biodefense meeting: Several presentations highlighted advances in the development of XOMA 3AB, a novel combination of three antibodies in one product that bind to distinct regions of botulinum toxin type A, one of the most deadly bioterror threats. These included an invited oral presentation describing the successful lyophilization of XOMA 3AB, and studies demonstrating the stability of this formulation over time stored at a wide range of temperatures. The presentations were made at the Fifth Annual Public Health Emergency Medical Countermeasures Enterprise (PHEMCE) Stakeholders Workshop in Washington, DC. |
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|   | · | XOMA 052, a potentially best-in-class antibody that binds to the inflammatory cytokine interleukin-1 beta, or IL-1 beta. XOMA 052 is entering Phase 3 clinical development in Behcet’s uveitis, an orphan indication, and is in Phase 2 clinical development for diabetes with cardiovascular disease biomarkers. Les Laboratoires Servier is XOMA’s development and commercialization partner for XOMA 052. |
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|   | · | XOMA 3AB, a novel combination of three antibodies in one product under development to prevent and treat botulism poisoning caused by exposure to botulinum neurotoxin Type A, among the most deadly bioterror threats. XOMA 3AB is under development through funding provided by the National Institute of Allergy and Infectious Diseases of the National Institutes of Health (Contract # HHSN266200600008C). |
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|   | · | A preclinical pipeline with candidates in development for autoimmune, cardio-metabolic, inflammatory and oncologic diseases. |
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|                                                                |   | Three months endedDecember 31, |    |   | Year endedDecember 31, |   |
|---------------------------------------------------------------------|--------|-----------------------------------------------|---------|--------|----------------------------------|--------|
|                                                                |   | 2010                                          |    |   | 2009                             |   |   | 2010 |   |   | 2009 |   |
| Revenues:                                                           |   |                                          |    |   |                             |   |   |   |   |   |   |   |
| License and collaborative fees                                      |   | $                                             | 433     |   |                             | $      | 14,546 |   |   | $ | 2,182 |   |   | $ | 43,822 |   |
| Contract and other revenue                                          |   |                                          | 9,150   |   |                             |   | 6,830 |   |   |   | 27,174 |   |   |   | 25,492 |   |
| Royalties                                                           |   |                                          | 18      |   |                             |   | 221 |   |   |   | 4,285 |   |   |   | 29,116 |   |
| Total revenues                                                      |   |                                          | 9,601   |   |                             |   | 21,597 |   |   |   | 33,641 |   |   |   | 98,430 |   |
| Operating expenses:                                                 |   |                                          |    |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Research and development                                            |   |                                          | 19,134  |   |                             |   | 14,659 |   |   |   | 77,413 |   |   |   | 58,131 |   |
| Selling, general and administrative                                 |   |                                          | 6,520   |   |                             |   | 4,764 |   |   |   | 23,250 |   |   |   | 23,736 |   |
| Restructuring                                                       |   |                                          | 37      |   |                             |   | - |   |   |   | 82 |   |   |   | 3,603 |   |
| Total operating expenses                                            |   |                                          | 25,691  |   |                             |   | 19,423 |   |   |   | 100,745 |   |   |   | 85,470 |   |
| (Loss) income from operations                                       |   |                                          | (16,090 | )      |                             |   | 2,174 |   |   |   | (67,104 | ) |   |   | 12,960 |   |
| Other income (expense):                                             |   |                                          |    |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Investment and interest income                                      |   |                                          | 2       |   |                             |   | 2 |   |   |   | 16 |   |   |   | 49 |   |
| Interest expense                                                    |   |                                          | (104    | )      |                             |   | (110 | ) |   |   | (385 | ) |   |   | (4,888 | ) |
| Loss on debt extinguishment                                         |   |                                          | -       |   |                             |   | - |   |   |   | - |   |   |   | (3,645 | ) |
| Other (expense) income                                              |   |                                          | (1,556  | )      |                             |   | 561 |   |   |   | (1,256 | ) |   |   | 1,801 |   |
| Net (loss) income before taxes                                      |   |                                          | (17,748 | )      |                             |   | 2,627 |   |   |   | (68,729 | ) |   |   | 6,277 |   |
| Provision for income tax (expense) benefit                          |   |                                          | (10     | )      |                             |   | 356 |   |   |   | (27 | ) |   |   | (5,727 | ) |
| Net (loss) income                                                   |   | $                                             | (17,758 | )      |                             | $      | 2,983 |   |   | $ | (68,756 | ) |   | $ | 550 |   |
| Basic and diluted net (loss) income per common share                |   | $                                             | (0.84   | )      |                             | $      | 0.22 |   |   | $ | (3.69 | ) |   | $ | 0.05 |   |
|                                                                |   |                                          |    |   |                             |   |   |   |   |   |   |   |   |   |   |   |
| Shares used in computing basic net (loss) income per common share   |   |                                          | 21,195  |   |                             |   | 13,313 |   |   |   | 18,613 |   |   |   | 10,993 |   |
| Shares used in computing diluted net (loss) income per common share |   |                                          | 21,195  |   |                             |   | 13,645 |   |   |   | 18,613 |   |   |   | 11,313 |   |

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|                                           |   | December 31, |   |
|------------------------------------------------|--------|-------------------|--------|
|                                           |   | 2010              |   |   | 2009 |   |
| ASSETS                                         |   |
| Current assets:                                |   |              |   |   |   |   |
| Cash and cash equivalents                      |   | $                 | 37,304 |   |   | $ | 23,909 |   |
| Trade and other receivables, net               |   |              | 20,864 |   |   |   | 7,231 |   |
| Prepaid expenses and other current assets      |   |              | 712    |   |   |   | 1,012 |   |
| Total current assets                           |   |              | 58,880 |   |   |   | 32,152 |   |
| Property and equipment, net                    |   |              | 14,869 |   |   |   | 20,270 |   |
| Other assets                                   |   |              | 503    |   |   |   | 402 |   |
| Total assets                                   |   | $                 | 74,252 |   |   | $ | 52,824 |   |
|                                           |   |              |   |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY     |   |
|                                           |   |
| Current liabilities:                           |   |              |   |   |   |   |   |   |
| Accounts payable                               |   | $                 | 3,581  |   |   | $ | 2,942 |   |
| Accrued liabilities                            |   |              | 10,650 |   |   |   | 8,639 |   |
| Deferred revenue                               |   |              | 17,044 |   |   |   | 2,114 |   |
| Warrant liability                              |   |              | 4,245  |   |   |   | 4,760 |   |
| Other current liabilities                      |   |              | 8      |   |   |   | 223 |   |
| Total current liabilities                      |   |              | 35,528 |   |   |   | 18,678 |   |
| Deferred revenue – long-term             |   |              | 1,086  |   |   |   | 2,894 |   |
| Interest bearing obligations – long-term |   |              | 13,694 |   |   |   | 13,341 |   |
| Other long-term liabilities                    |   |              | 353    |   |   |   | 385 |   |
| Total liabilities                              |   |              | 50,661 |   |   |   | 35,298 |   |
| Shareholders’ equity                     |   |              | 23,591 |   |   |   | 17,526 |   |
| Total liabilities and shareholders' equity     |   | $                 | 74,252 |   |   | $ | 52,824 |   |

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