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 March 31, 1997;

                                         or

|_|    Transition Report Pursuant to Section 13 or 15(d)
       of the Securities Exchange Act of 1934
       For Transition Period from             to
                                  -----------    ---------

                           Commission File No. 0-14710

                                XOMA CORPORATION
-------------------------------------------------------------------------------
             (Exact Name of Registrant as specified in its charter)


               Delaware                               94-2756657
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   (State or other jurisdiction of         (I.R.S. Employer Identification No.)
    incorporation or organization)


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

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

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

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

                       YES   X                NO  __

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

    Common stock, par value $.0005                        39,635,387
----------------------------------------      ---------------------------------
                 Class                          Outstanding at March 31, 1997


<PAGE>
                                XOMA CORPORATION

                                Table of Contents

                                                                            Page

Part I   FINANCIAL INFORMATION

Item 1   Financial Statements

         Condensed Balance Sheets as of
         March 31, 1997 and December 31, 1996..........................       1

         Condensed Statements of Operations for the
         Three Months Ended March 31, 1997 and 1996....................       2

         Condensed Statements of Cash Flows for the
         Three Months Ended March 31, 1997 and 1996....................       3

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

Item 2   Management's Discussion and Analysis of Financial 
         Condition and Results of Operations...........................       6

Part II  OTHER INFORMATION

Item 1   Legal Proceedings.............................................       8

Items    2 through 6 are either inapplicable or nonexistent
         and therefore are omitted from this report

Signatures.............................................................       9



<PAGE>
                                XOMA CORPORATION
                            CONDENSED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                          March 31                 December 31
                                                                            1997                       1996
                                                                         (Unaudited)               (Unaudited)
                                                                         -----------               -----------
<S>                                                                      <C>                        <C>

Assets:
      Cash and cash equivalents                                         $       5,188             $        1,213
      Short-term investments                                                   34,097                     45,447
      Notes, interest and other receivables                                       806                      1,123
      Other current assets                                                        347                        219
                                                                        -------------             --------------
              Total current assets                                             40,438                     48,002

      Property and equipment                                                   29,348                     29,191
      Accumulated depreciation                                                (24,581)                   (24,093)
      Assets held for sale                                                      4,442                      4,442
      Other assets                                                                133                        133
                                                                        -------------             --------------

                                                                        $      49,780             $       57,675
                                                                        =============             ==============


Liabilities and Stockholders' Equity:
      Accounts payable                                                  $       1,295             $        1,778
      Other current liabilities                                                 7,103                      6,901
                                                                        -------------             --------------
              Total current liabilities                                         8,398                      8,679

Non-current Liabilities:
      Convertible notes, principal and interest                                14,037                     13,545
      Other non-current liabilities                                               570                        703
                                                                        -------------             --------------

              Total non-current liabilities                                    14,607                     14,248

      Stockholders' equity                                                     26,775                     34,748
                                                                        -------------             --------------

                                                                        $      49,780             $       57,675
                                                                        =============             ==============


</TABLE>


See accompanying notes to financial statements.

                                       1
<PAGE>
                                XOMA CORPORATION

                       CONDENSED STATEMENTS OF OPERATIONS
                 (Unaudited, in thousands except per share data)
<TABLE>
<CAPTION>


                                                                               Three Months Ended
                                                                                    March 31
                                                                         1997                      1996
                                                                         ----                      ----
<S>                                                                 <C>                         <C>


Revenues:
       License and other revenue                                     $        657                $          --
       Product sales                                                           17                           17
                                                                     ------------                -------------
                                                                              674                           17
                                                                     ------------                -------------

Expenses:
       Research and development                                             7,470                        5,985
       General and administrative                                           1,578                        1,264
                                                                     ------------                -------------
                                                                            9,048                        7,249
                                                                     ------------                -------------

Loss From Operations                                                       (8,374)                      (7,232)

Other Income (Expense):
       Investment income                                                      592                          377
       Other income (expense)                                                (232)                        (142)
                                                                     ------------                -------------

Net Loss                                                             $     (8,014)               $      (6,997)
                                                                     =============               ==============

Net Loss Per Common Share                                            $      (0.20)               $       (0.25)


Weighted average common shares outstanding                                 39,619                       28,202


</TABLE>


See accompanying notes to financial statements.

                                       2
<PAGE>
                                XOMA CORPORATION

                       CONDENSED STATEMENTS OF CASH FLOWS
                            (Unaudited, in thousands)
<TABLE>
<CAPTION>



                                                                                                   Three Months Ended
                                                                                                        March 31
                                                                                              1997                     1996
                                                                                              ----                     ----

<S>                                                                                       <C>                      <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
               Net cash provided by (used in) operating activities                        $      (7,140)           $     (3,987)
                                                                                          -------------            ------------


CASH FLOWS FROM INVESTING ACTIVITIES:
               Proceeds from sale of short-term investments                                      46,699                    3,098
               Payments for purchase of short-term investments                                  (35,434)                    (13)
               Capital expenditures                                                                (160)                   (115)
                                                                                          -------------            -------------

               Net cash provided by (used in)
               investing activities                                                              11,105                    2,970
                                                                                          -------------            -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
               Capital lease principal payments                                                    (116)                   (221)
               Proceeds from issuance of common and preferred stock                                 126                    6,775
                                                                                          -------------            -------------


               Net cash provided by (used in) financing activities                                   10                    6,554
                                                                                          -------------            -------------

               Net increase (decrease) in cash and cash equivalents                               3,975                    5,537
               Cash and cash equivalents at beginning of period                                   1,213                   20,400
                                                                                          -------------            -------------

               Cash and cash equivalents at end of period                                 $       5,188            $      25,937
                                                                                          =============            =============

</TABLE>



See accompanying notes to financial statements.

                                       3
<PAGE>
                                XOMA CORPORATION

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)



1.        Basis of Presentation

     The interim information contained herein is unaudited but, in management's
opinion, includes all normal recurring adjustments which are necessary for a
fair presentation of results for the periods presented. Interim results are not
necessarily indicative of results to be expected for the full year. The
financial statements should be read in conjunction with the Company's financial
statements for the year ended December 31, 1996.


2.        Litigation Accrual

     In the securities class action lawsuit Warshaw, et al. v. XOMA Corporation,
et al., the defendants and plaintiffs reached an agreement on March 14, 1997 to
settle all claims for $3.75 million in cash and $2.25 million in XOMA common
stock. It is anticipated that all of the cash portion of the settlement will be
covered by insurance. The Company retains the option, up to fifteen days after
the later of the date that the court's approval becomes final or processing of
claims is substantially complete, to pay the stock portion in cash. The
settlement is subject to court approval after notice to stockholders. In the
fourth quarter of 1996, the Company recorded a provision of $2.5 million for the
settlement and estimated 1997 legal expenses not covered by insurance.

     The activities through March 31, 1997 affecting the litigation accrual
established in the fourth quarter of 1996 are as follows:

                                                          In Millions
                                                          -----------

Original amount accrued                                      $2.5
Charges against the accrual                                   0.1
Adjustments to the accrual                                    0.0

3.        Supplemental Cash Flow Information

     The Company contributed $0.1 million to the Company's bonus programs using
19,191 shares of common stock.


4.        Subsequent Event

     On April 24, 1997, XOMA and Pfizer decided to discontinue the U.S. clinical
trial of the E5(R) monoclonal antibody product as a treatment for gram negative
sepsis. The financial impact


                                       4
<PAGE>


of this decision is to reduce cash requirements (approximately $300,000 in
1996) and eliminate a contingent liability for legal and clinical trial costs to
be repaid from future royalties on U.S. sales of E5(R) ($22.4 million as of
December 31, 1996).


                                       5
<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Results of Operations:

     Revenues in the first three months of 1997 were $0.7 million, primarily
related to licensing income. Revenues in the first three months of 1996 were
negligible.

     Research and development expenditures for the first three months of 1997
were $1.5 million (25%) higher than for the same period in 1996, reflecting
increased spending on clinical testing of Neuprex(TM) in multiple indications
and development costs for HU1124.

     For the first three months of 1997, general and administrative expenses
were $0.3 million (25%) higher compared with the same period in 1996, reflecting
higher salaries, recruiting and other administrative costs.

     Investment income was higher in the first three months of 1997 compared to
1996 due to higher interest rates and a higher average investment balance. Other
expenses in 1997 included interest on the Company's Convertible Notes and in
1996 included interest on the Company's 4% Convertible Subordinated Debentures.

Liquidity and Capital Resources:

     The Company's cash, cash equivalents and short-term investments totaled
$39.3 million as of March 31, 1997 compared with $46.7 million as of December
31, 1996. Of the $7.4 million net cash outflow during the quarter, $7.3 million
was the result of current operations. Cash increased by $2.5 million in the
comparable 1996 period as financing proceeds of $6.5 million were only partially
offset by cash used in operations. The Company's cash, cash equivalents and
short-term investments will continue to decrease while the Company pursues U.S.
Food and Drug Administration licensure or until the Company secures additional
sources of funds.

     Capital expenditures totaled $0.2 million and $0.1 million for the three
months ended March 31, 1997 and 1996 respectively.

     The Company's cash position and resulting investment income are sufficient
to finance the Company's currently anticipated levels of spending for more than
one year. The Company continues to evaluate a variety of arrangements which
would further strengthen its competitive position and provide additional
funding, but cannot predict whether any such agreement will be consummated or
whether additional funding will be available when required.

Forward Looking Statements:

     Certain statements contained herein that are not related to historical
facts may contain "forward looking" information, as that term is defined in the
Private Securities Litigation Reform Act of 1995. Such statements are based on
the Company's current beliefs as to the outcome and timing of future events, and
actual results may differ materially from those projected or implied in the
forward looking statements. Further, certain forward looking statements are
based upon

                                       6
<PAGE>


assumptions of future events which may not prove to be accurate. The forward
looking statements involve risks and uncertainties including, but not limited
to, risks and uncertainties related to regulatory approvals, product efficacy
and development, the Company's financing needs and opportunities, scale-up and
marketing capabilities, intellectual property protection, competition, stock
price volatility and other risk factors referred to herein and in other of the
Company's Securities and Exchange Commission filings.


                                       7
<PAGE>


PART II - OTHER INFORMATION



Item 1 Legal Proceedings.

       In the securities class action lawsuit Warshaw, et al. v. XOMA
       Corporation, et al., the defendants and plaintiffs reached an agreement
       on March 14, 1997 to settle all claims for $3.75 million in cash and
       $2.25 million in XOMA common stock. It is anticipated that all of the
       cash portion of the settlement will be covered by insurance. The
       Company retains the option, up to fifteen days after the later of the
       date that the court's approval becomes final or processing of claims is
       substantially complete, to pay the stock portion in cash. The
       settlement is subject to court approval after notice to stockholders.

Item 2 Change in Securities. None

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.

               (a) Exhibit 27.1. Financial Data Schedule

               (b) None


                                       8
<PAGE>


                                XOMA CORPORATION




                                   SIGNATURES

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

                               XOMA CORPORATION



Date:  April 30, 1997          By:      /s/ JOHN L. CASTELLO
                                        --------------------
                                        Chairman of the Board,
                                        President and Chief Executive Officer






Date:  April 30, 1997          By:      /s/ PETER B. DAVIS
                                        ------------------
                                        Vice President, Finance and
                                        Chief Financial Officer and Treasurer


                                       9