UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(mark one)

              [X] Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                  For Quarterly Period Ended September 30, 2001

                                       or

              [ ] Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
               For Transition Period from __________ to __________

                           Commission File No. 0-14710

                                    XOMA Ltd.

             (Exact Name of Registrant as specified in its charter)

             Bermuda                                   52-2154066
 (State or other jurisdiction of          (I.R.S. Employer Identification No.)
 incorporation or organization)

                     2910 Seventh Street, Berkeley, CA 94710
               (Address of principal executive offices) (Zip Code)

                                 (510) 644-1170
              (Registrant's telephone number, including area code)

                                 Not Applicable
              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                Yes X     No
                                   ---

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Common shares US$.0005 par value          70,102,372
Class                                     Outstanding at September 30, 2001



<PAGE>



                                    XOMA Ltd.

                                TABLE OF CONTENTS


                                                                            Page

PART I  FINANCIAL INFORMATION

        Item 1  Condensed Consolidated Financial Statements (unaudited)

                Condensed Consolidated Balance Sheets as of
                September 30, 2001 and December 31, 2000 ....................1

                Condensed Consolidated Statements of Operations for
                the Three and Nine Months Ended September 30,
                2001 and 2000................................................2

                Condensed Consolidated Statements of Cash Flows for
                the Nine Months Ended September 30, 2001 and 2000............3

                Notes to Condensed Consolidated Financial Statements ........4

        Item 2  Management's Discussion and Analysis of Financial
                Condition and Results of Operations..........................7

PART II OTHER INFORMATION

        Item 1  Legal Proceedings...........................................10

        Item 2  Changes in Securities and Use of Proceeds...................10

        Items 3, 4, 5 and 6 are either inapplicable or nonexistent and
        therefore are omitted from this report

        Signatures   .......................................................11



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<PAGE>



<TABLE>
<CAPTION>
                                    XOMA Ltd.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

                                                                                September 30,        December 31,
                                                                                     2001                2000
                                                                                 (Unaudited)           (Note 1)
Assets:
<S>                                                                                    <C>                 <C>
     Cash and cash equivalents                                                         $ 64,677            $ 35,043
     Short-term investments                                                                  23                 172
     Related party receivable                                                               427                 237
     Receivables (net)                                                                    1,716               1,008
     Inventory                                                                              714                   -
     Prepaid expenses and other                                                             136                 162
                                                                                       --------            --------
         Total current assets                                                            67,693              36,622
     Property and equipment, net                                                         12,623               8,421
     Deposits and other                                                                     169                 169
                                                                                       --------            --------
                                                                                       $ 80,485            $ 45,212
                                                                                       ========            ========
Liabilities and Shareholders' Equity (Net Capital Deficiency):
     Accounts payable                                                                  $  2,180            $  2,515
     Accrued liabilities                                                                  4,308               4,311
     Capital lease obligations - current                                                    333                 185
     Deferred revenue - current                                                           4,733               3,333
                                                                                       --------            --------
         Total current liabilities                                                       11,554              10,344
     Capital lease obligations - long term                                                1,094                 361
     Deferred revenue - long term                                                         3,445               3,609
     Convertible subordinated note                                                       44,104              39,488
                                                                                       --------            --------
         Total liabilities                                                               60,197              53,802
                                                                                       --------            --------
Shareholders' equity (net capital deficiency)                                            20,288              (8,590)
                                                                                       $ 80,485            $ 45,212
                                                                                       ========            ========
</TABLE>


Note 1 - Amounts derived from the Company's audited financial statements
appearing in the Annual Report on Form 10-K for the year ended December 31, 2000
as filed with the Securities and Exchange Commission.

     See accompanying notes to condensed consolidated financial statements.



                                      -1-
<PAGE>


<TABLE>
<CAPTION>
                                    XOMA Ltd.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Unaudited, in thousands except per share data)

                                                         Three Months Ended                  Nine Months Ended
                                                            September 30,                      September 30,
                                                       -------------------------          --------------------------
                                                       2001              2000              2001             2000
                                                       ---------       ---------          ---------       ----------
Revenues:
<S>                                                     <C>                <C>            <C>                <C>
     License fees and contract revenue                  $ 3,285            $ 851          $ 11,353           $ 5,706
                                                       ---------       ---------          ---------       ----------
Operating Costs and Expenses:
     Research and development                             8,162            6,821            26,097            21,405
     General and administrative                           2,002            1,361             5,707             4,476
                                                       ---------       ---------          ---------       ----------
                                                         10,164            8,182            31,804            25,881
                                                       ---------       ---------          ---------       ----------

Loss from operations                                     (6,879)          (7,331)          (20,451)          (20,175)

Other Income (Expense):
     Investment  and other income                           611              615             1,590             2,091
     Interest and other expense                            (551)            (682)           (2,181)           (1,924)
                                                       ---------       ---------          ---------       ----------
Net loss
                                                    $    (6,819)     $    (7,398)      $   (21,042)      $   (20,008)
                                                    ============     ============      ============      ============
Basic and diluted  net loss per share               $     (0.10)     $     (0.11)      $     (0.31)      $     (0.31)

Shares used in computing basic and diluted net
   loss per share                                        70,008           65,730            67,502            64,269
</TABLE>


     See accompanying notes to condensed consolidated financial statements.






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<PAGE>


                                    XOMA Ltd.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Unaudited, in thousands)


                                                              Nine Months Ended
                                                                September 30,
                                                          ----------------------
                                                             2001       2000
                                                          ----------  ----------
Cash Flows From Operating Activities:
     Net cash used in operating activities                $ (18,610)  $ (15,887)
                                                          ----------  ----------
Cash Flows From Investing Activities:
     Proceeds from sale of short-term investments               253         506
     Capital expenditures                                    (4,134)       (849)
                                                          ----------  ----------
         Net cash (used in) investing activities             (3,881)       (343)
                                                          ----------  ----------
Cash Flows From Financing Activities:
     Proceeds from issuance of common shares, net            48,201      33,836
     Proceeds related to convertible note                     4,115       2,150
     Payments under capital leases                             (191)         --
                                                          ----------  ----------
         Net cash provided by  financing activities          52,125      35,986
                                                          ----------  ----------
Net increase  in cash and cash equivalents                   29,634      19,756
Cash and cash equivalents at beginning of period             35,043      18,539
                                                          ----------  ----------
Cash and cash equivalents at end of period                 $ 64,677    $ 38,295
                                                          ==========  ==========

     See accompanying notes to condensed consolidated financial statements.




                                      -3-
<PAGE>


                                    XOMA Ltd.

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)


     1. Basis of Presentation

     The interim information contained in this report is unaudited but, in
management's opinion, includes all normal recurring adjustments necessary for a
fair presentation of results for the periods presented. Interim results may not
be indicative of results to be expected for the full year. The consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements for the year ended December 31, 2000 included
in its Annual Report on Form 10-K. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect (1) the reported amounts of assets
and liabilities, (2) the reported amounts of revenues and expenses during the
reporting period, and (3) the disclosure of contingent assets and liabilities,
if any, at the date of the financial statements. Actual results could differ
materially from those estimates.

     2. Recent Accounting Pronouncements

     In June of 1998, the Financial Accounting Standards Board, or FASB, issued
Statements of Financial Accounting Standards, or SFAS, No. 133, "Accounting for
Derivative Instruments and Hedging Activities." XOMA adopted SFAS No. 133 on
January 1, 2001. Because the Company currently holds no derivative financial
instruments and does not currently engage in hedging activities, adoption of
SFAS No. 133 had no impact on the Company's financial position or results of
operations.

     In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." The new rules require
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting and goodwill acquired after this date will no
longer be amortized, but will be subject to annual impairment tests. All other
intangible assets will continue to be amortized over their estimated useful
lives. Companies are required to adopt SFAS No. 142 for fiscal years beginning
after December 15, 2001. The Company did not complete any business combinations
through the nine months ended September 30, 2001, as a result these standards
did not have a material impact on its financial position or operating results.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets and supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be



                                      -4-
<PAGE>

Disposed Of." SFAS No. 144 will be effective on April 1, 2002. The adoption of
SFAS No. 144 is not expected to have a significant impact on the Company's
financial position.

     3. Accrued Liabilities

     Accrued liabilities consist of the following (in thousands):

                                          September 30,        December 31,
                                               2001                2000
                                          -------------        ------------
     Accrued payroll costs                   $ 2,109             $ 2,255
     Accrued clinical trial costs                730               1,151
     Other                                     1,469                 905
                                          -------------        ------------
                                             $ 4,308             $ 4,311
                                          =============        ============

     4. Revenue Recognition

     Research payments under collaborative arrangements and grants are
recognized as revenue based on research expenses incurred as provided for under
the terms of the arrangements.

     The Company previously recognized non-refundable license fees as revenue
when received and when all significant contractual obligations of the Company
relating to the fees had been met. Effective January 1, 2000, the Company
changed its method of accounting for non-refundable initial fees to recognize
such fees over the period of continuing involvement by the Company, such as the
research and development period or the manufacturing period of the agreement, as
applicable.

     In connection with the license and supply and development agreements with
Baxter Healthcare Corporation ("Baxter") executed on January 25, 2000, the
Company received $10.0 million as an initial, non-refundable fee. This initial
fee was deferred and is being amortized over the period of continuing
involvement, which period is estimated to be 36 months.

     In January of 2001, the Company entered into a strategic process
development and manufacturing agreement with Onyx Pharmaceuticals, Inc. ("Onyx")
which calls for the Company to scale-up production to commercial volume and
manufacture Onyx's CI-1042 product. The initial term of the agreement is five
years, with options to extend for additional periods. Terms of the agreement
include an initial payment of $2.0 million, payments for development work and
material produced, and payments upon achieving key milestones. XOMA's objectives
are to increase the fermentation volume to commercial scale, to improve the
purification process, to seek FDA licensure of its manufacturing facility for
CI-1042, and



                                      -5-
<PAGE>

to produce material for use in clinical testing and for commercial sale upon
approval. The initial payment was deferred and is being amortized over five
years.

     Milestone payments under collaborative arrangements are recognized as
revenue upon achievement of the incentive milestone event if such milestones
represent the culmination of the earnings process and the Company has no future
performance obligations related to the milestone payment. Milestone payments are
triggered either by the results of internal research efforts or by events
external to the Company, such as regulatory approval to market a product.
Milestone payments and amounts received in advance that are tied to future
service performance by the Company are recorded as deferred revenue and are
amortized over the period of continuing involvement.

     5. Comprehensive Loss

     Comprehensive loss includes certain changes in equity that are excluded
from net loss. Specifically, unrealized holding gains and losses in
available-for-sale investments, which were reported separately in shareholders'
equity, are included in accumulated other comprehensive income (loss).
Comprehensive loss and its components for the three- and nine-months ended
September 30, 2001 and 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                         Three Months Ended                  Nine Months Ended
                                                            September 30,                      September 30,
                                                    -----------------------------      ------------------------------
                                                       2001              2000              2001             2000
                                                    -------------    ------------      -------------     ------------
<S>                                                 <C>              <C>               <C>               <C>
Net loss                                            $    (6,819)     $    (7,398)      $   (21,042)      $   (20,008)
Unrealized gain (loss) on marketable
securities available-for-sale                               (17)            (262)              (17)              179
                                                    -------------    ------------      -------------     ------------
Comprehensive loss                                  $    (6,836)     $    (7,660)      $   (21,059)      $   (19,829)
                                                    =============    ============      =============     ============
</TABLE>


     6. Net Loss Per Share

     Basic and diluted net loss per share is based on the weighted average
number of common shares outstanding during the period in accordance with SFAS
No. 128. Common share equivalents were not included because they are
antidilutive in all periods presented.




                                      -6-
<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Results of Operations:

     Revenues in the third quarter of 2001 increased to $3.3 million, from $0.9
million in the third quarter of 2000. For the nine-month periods ended September
30, 2001, revenues were $11.4 million, compared with $5.7 million for the
comparable period in the prior year. Licensing revenue, primarily reflecting the
amortization into revenue of certain license fees and other payments received
from Baxter Healthcare Corporation and Onyx Pharmaceuticals, Inc., increased to
$1.3 million and $3.4 million in the three- and nine-month periods ended
September 30, 2001, respectively, compared to $0.8 million and $2.3 million in
the comparable periods in the prior year. Contract revenue increased to $2.0
million and $8.0 million in the three- and nine-month periods ended September
30, 2001 from $0 million and $3.4 million in the comparable periods in 2000.

     Research and development expenses increased to $8.2 million and $26.1
million, respectively, in the three- and nine-month periods ended September 30,
2001, from $6.8 million and $21.4 million in the comparable prior year periods.
Spending in 2001 reflected increased development costs associated with
Xanelim(TM), ING-1 and Onyx's CI-1042 product. This was partially offset by
reduced spending on NEUPREX(R).

     General and administrative expenses increased from $1.4 million and $4.5
million, respectively, in the three- and nine-month periods ended September 30,
2000, to $2.0 million and $5.7 million in the same periods of 2001. This
increase is primarily due to expenses relating to litigation with Biosite
Incorporated.

     In the third quarter of 2001, the Company transferred $0.7 million in costs
related to the manufacture of certain of its products to inventory, and these
costs were included in the valuation of inventory as of September 30, 2001. In
the prior year period, no such transfer of costs to inventory was made.

     Interest expense was lower in the three months ended September 30, 2001 as
compared to the comparable period of 2000 due to lower interest rates and
interest expense was higher in the first nine months of 2001 compared to the
comparable period of 2000, reflecting a higher average outstanding balance of
the convertible subordinated note due to Genentech, Inc.



                                      -7-
<PAGE>

Liquidity and Capital Resources:

     XOMA ended the quarter with $64.7 million in cash, cash equivalents and
short-term investments, compared with $35.2 million at December 31, 2000. Net
cash used in operations in the first nine months of 2001 was $18.6 million,
compared with net cash used in operations of $15.9 million in the same period of
2000. The prior year cash flow benefited from $10.0 million in licensing fees
received from Baxter in January 2000, which is being recognized as revenue over
a 36-month period. See footnote 4, "Revenue Recognition," to the Consolidated
Financial Statements.

     Capital expenditures increased from $0.8 million in the first nine months
of 2000 to $4.1 million in the comparable period of the current year. Current
year spending included expenses related to the transfer of XOMA's technical
development operations from Santa Monica, California, to Berkeley, California,
as well as capacity expansion in our Berkeley manufacturing facility.

     For the full year 2001, the Company currently expects its net loss to be
somewhat lower than in 2000, with increased expense levels being more than
offset by higher revenues.

     Net proceeds from the issuance of common shares were $48.2 million for
the nine months ended September 30, 2001, compared to $33.8 million for the
comparable period of the prior year. The amount for the first nine months of
2001 resulted primarily from a registered offering of 3.0 million of the
Company's common shares in June 2001 for net proceeds of $43.3 million.

     The Company has been able to control its operating cash consumption by
carefully monitoring its costs. As a result, based on current spending levels
and taking into account partner funding, the Company believes its cash position
and resulting investment income are sufficient to finance the Company's
currently anticipated levels of spending through approximately the middle of
2004. Strategic arrangements with Onyx, Baxter and Genentech have reduced
Company spending levels by paying certain product development costs. The Company
continues to evaluate a variety of arrangements that would further strengthen
its competitive position and provide additional funding, but cannot predict
whether or when any such arrangement or additional funding will be consummated
or whether additional funding will be available. Without additional funding, the
Company may have to decrease or eliminate the development of some of its
products.

Quantitative and Qualitative Disclosures about Market Risk:

     Interest Rate Risk. The Company's exposure to market rate risk due to
changes in interest rates relates primarily to the Company's investment
portfolio. The Company does not use derivative financial instruments in its
investment portfolio. By policy, the Company places its investments with high
quality debt security issuers, limits the amount of credit exposure to any one
issuer, limits duration by restricting the term and holds investments to
matur-



                                      -8-
<PAGE>

ity except under rare circumstances. The Company classifies its cash equivalents
as fixed rate if the rate of return on an instrument remains fixed over its
term. As of September 30, 2001, all the Company's cash equivalents are
classified as fixed rate.

     The Company also has a long-term convertible note due to Genentech in 2005.
Interest on this note of LIBOR plus 1% is reset at the end of June and December
each year and is therefore variable.

     The table below presents the amounts and related weighted interest rates of
the Company's cash equivalents and long-term convertible note at September 30,
2001:

<TABLE>
<CAPTION>
                                                                               Fair Value            Average
                                                            Maturity        ($ in millions)       Interest Rate
                                                           ----------       ---------------       -------------
<S>                                                           <C>                <C>                     <C>
Cash equivalents, fixed rate                                  Daily              $ 64.7                  3.1%
Long-term convertible note, variable rate                      2005                44.1                  4.9%
</TABLE>


     Other Market Risk. At September 30, 2001, the Company had a long-term
convertible note outstanding which is convertible into common shares based on
the market price of the Company's common shares at the time of conversion. A 10%
decrease in the market price of the Company's common shares would increase the
number of shares issuable upon conversion of either security by approximately
11%. An increase in the market price of Company common shares of 10% would
decrease the shares issuable by approximately 9%.

Forward Looking Statements:

     Statements made herein related to the estimated size of the Company's loss
for 2001, the estimated levels of its expenses and revenues for the balance of
2001, the sufficiency of its cash resources, present or future collaborative
arrangements and current plans for product development, or that otherwise relate
to future periods, are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. 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. These risks, including those
related to size and timing of expenditures, unanticipated expenditures,
availability of funds, changes in the status of the existing collaborative
relationships, availability of additional collaboration opportunities, the
timing or results of pending and future clinical trials, the ability of
collaborators and other partners to meet their obligations, market demand for
products, actions by the Food and Drug Administration or the U.S. Patent and
Trademark Office, and uncertainties regarding the status of biotechnology
patents, are discussed in the Company's most recent annual report on Form 10-K
and in other SEC filings.



                                      -9-
<PAGE>

                           PART II - OTHER INFORMATION


Item 1 Legal Proceedings. On October 15, 2001, XOMA filed an amended complaint
     in its case in the United States District Court for the Northern District
     of California, San Francisco Division, against Biosite Incorporated. The
     complaint seeks monetary damages, injunctive and other relief for
     infringement of XOMA's bacterial cell expression technology patents, fraud
     and misrepresentation, breach of contract, misappropriation and unfair
     business practices. As described in the amended complaint, XOMA believes
     that Biosite has made and continues to make use of XOMA's bacterial cell
     expression technology in an infringing manner not only in connection with
     Biosite's antibody phage display discovery program with various
     collaborators, but also in the development, manufacture and sale of
     Biosite's existing diagnostic and research products, reagents and kits,
     including its Triage brand of products. XOMA is seeking, among other
     things, an injunction prohibiting Biosite from manufacturing, using,
     offering to sell or selling any product or service that infringes the XOMA
     expression technology patents, as well as treble damages and attorney's
     fees for such infringement.

     In September 2001, the Court granted XOMA's motion to dismiss Biosite's
     previously filed declaratory judgment action against XOMA and denied
     Biosite's motion for a preliminary injunction because Biosite failed to
     demonstrate sufficient likelihood of success and irreparable harm. XOMA has
     terminated the three licenses previously granted to Biosite relating to
     XOMA's bacterial cell expression technology.

Item 2 Changes in Securities and Use of Proceeds. The Company continues to use
     the net proceeds from its June 2001 registered offering of common shares
     for general corporate purposes, including leasehold improvements, equipment
     acquisitions, current research and development projects, the development of
     new products or technologies, general working capital and operating
     expenses. Pending application of the net proceeds as described above, the
     Company has invested the remaining net proceeds of the offering in
     short-term, investment-grade, interest-bearing securities.

Item 3 Defaults Upon Senior Securities. None.

Item 4 Submission of Matters to a Vote of Security Holders. None

Item 5 Other Information. None.

Item 6 Exhibits and Reports on Form 8-K. None.



                                      -10-
<PAGE>

                                    XOMA Ltd.

                                   SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                  XOMA LTD.


Date:    November 14, 2001        By:    /s/ JOHN L. CASTELLO
                                         --------------------------------------
                                         John L. Castello
                                         Chairman of the Board, President and
                                         Chief Executive Officer


Date:    November 14, 2001        By:    /s/ PETER B. DAVIS
                                         --------------------------------------
                                         Peter B. Davis
                                         Vice President, Finance and
                                         Chief Financial Officer



                                      -11-