Document:

EXHIBIT 10.4

                                  XOMA (US) LLC
                               2910 Seventh Street
                               Berkeley, CA 94710

                                                                   June 30, 2003

Baxter Healthcare Corporation
1627 Lake Cook Road
Deerfield, IL  60015
Attention:  Victor W. Schmitt

                       Re: Termination of Supply Agreement
                           -------------------------------

     Reference is made to that certain Supply Agreement effective as of January
25, 2000 (the "Supply Agreement") between XOMA (US) LLC, a Delaware limited
liability company ("XOMA"), and Baxter Healthcare Corporation, a Delaware
corporation ("Baxter"). Capitalized terms used and not defined herein shall have
the meanings ascribed to them in the Supply Agreement.

     We have been informed that XOMA Ireland Limited and you have agreed to
terminate the License Agreement dated as of January 25, 2000 pursuant to a
letter agreement dated the date hereof. Accordingly, the parties hereto agree
that, pursuant to Section 8.3 of the Supply Agreement, the Supply Agreement will
terminate in its entirety and be of no further force and effect as of June 30,
2003, except for the provisions specified below, which shall survive the
termination of the Supply Agreement. In consideration thereof, Baxter agrees to
pay to XOMA on or prior to January 5, 2004, by wire transfer payment of
immediately available funds to the account of XOMA designated to Baxter in
advance in writing, the sum of US$3,040,000. Upon timely payment in full of such
amount, any other amounts then due and owing relating to the purchase of Product
or Bulk Product in connection with the Development Program and any future
expenses due related to the Development Program shall be extinguished.

     Upon execution hereof by both parties, Baxter, on behalf of itself and its
parents, subsidiaries, assigns, successors, stockholders, directors, officers,
employees, and agents, hereby releases and forever discharges XOMA, and each of
its parents, subsidiaries, assigns, successors, stockholders, directors,
officers, employees, attorneys and agents, of and from any and all claims,
counterclaims, rights, demands, costs, damages, losses, liabilities, actions and
causes of actions whatsoever, whether in law or equity, arising from or related
to

<PAGE>
                                      -2-

the Supply Agreement existing as of the date hereof. Upon timely payment in full
of the amount referred to in the third sentence of the preceding paragraph,
XOMA, on behalf of itself and its parents, subsidiaries, assigns, successors,
stockholders, directors, officers, employees, and agents, shall be deemed to
have released and forever discharged Baxter, and each of its parents,
subsidiaries, assigns, successors, stockholders, directors, officers, employees,
attorneys and agents, of and from any and all claims, counterclaims, rights,
demands, costs, damages, losses, liabilities, actions and causes of actions
whatsoever, whether in law or equity, arising from or related to the Supply
Agreement existing as of the date hereof.

     For the avoidance of doubt, the parties acknowledge that the termination
provided for herein is mutual and that Section 8.4 shall not apply.
Notwithstanding the foregoing, the provisions of Article 6 and Sections 10.2,
10.6.1, and 10.8 through 10.11 shall survive this termination.

     The parties agree that any action or dispute arising from or relating to
this agreement may only be brought in the Superior Court of the State of
California or a United States District Court in the State of California.

     This letter shall be governed by and construed in accordance with the laws
of the State of California, without regard to principles of conflicts of laws.
This letter may be executed in counterparts and delivered by facsimile
transmission.

<PAGE>
                                      -3-

     Please acknowledge your agreement with all of the foregoing by signing
below, whereupon this letter shall become a binding agreement between us.

                                      Very truly yours,

                                      XOMA (US) LLC

                                      By:
                                           ----------------------------------
                                           Name:  Christopher J. Margolin
                                           Title: Vice President, General
                                                  Counsel and Secretary

ACKNOWLEDGED and AGREED
as of the date first above written:

BAXTER HEALTHCARE CORPORATION

By:
    -------------------------------------
    Name: Victor W. Schmitt
    Title: President, Venture Management

Cc: General Counsel, Baxter Healthcare Corporation
    President, Baxter BioScienceInvestor and Media Contacts:
Laura Zobkiw                                           Peter Davis
Corporate Communications & Investor Relations          Chief Financial Officer
(510) 204-7200                                         (510) 204-7200

               XOMA Reports Second Quarter 2003 Financial Results
      *********************************************************************
             Raptiva(TM) FDA Advisory Panel Scheduled for September

Berkeley, CA - August 13, 2003-- XOMA Ltd. (Nasdaq: XOMA), a biopharmaceutical
development company, today announced financial results for the quarter ended
June 30, 2003.

For the second quarter of 2003, the Company recorded a net loss of $16.1 million
($0.22 per share), compared with $10.1 million ($0.14 per share) for the second
quarter of 2002. The Company's net loss for the six-month period ended June 30,
2003 was $29.2 million ($0.41 per share), compared with $16.1 million ($0.23 per
share) in the prior year period.

Revenues for the second quarter of 2003 decreased to $2.4 million compared with
$4.7 million in the same period of 2002. Revenues for the first half of 2003
decreased to $5.5 million compared with $13.9 million for the prior year period.
This decrease was primarily due to lower recognition of deferred revenue from
license fees and milestone payments related to the NEUPREX(R) license agreement
with Baxter Healthcare Corporation as a result of achieving full amortization in
the first quarter of 2003 and the fourth quarter of 2002, respectively, as well
as to lower development service revenues from Onyx Pharmaceuticals, Inc. The
Company also recorded revenue of $5.0 million in the first quarter of 2002
related to the licensing of its bacterial cell expression technology to
MorphoSys AG.

Research and development expenses for the second quarter of 2003 increased to
$13.5 million compared with $10.8 million in the same period of 2002. Research
and development expenses for the first half of 2003 were $25.5 million, compared
with $20.7 million in the 2002 period. The increase in expenses reflects
increased costs related to collaborations with Genentech, Inc. on Raptiva(TM)
and Millennium Pharmaceuticals, Inc. on MLN2201 and CAB-2, as well as the
internal development of XOMA's proprietary XMP.629 compound, which is under
development for acne. These increases were partially offset by decreased
spending on Onyx-015, NEUPREX(R), and ING-1.

Marketing, general and administrative expenses for the second quarter of 2003
increased to $4.7 million, compared with $3.8 million for the same period in
2002 and decreased to $8.6 million for the six-month period ending June 30,
2003, compared with $8.7 million for the same period in 2002. The higher
marketing, general and administrative expenses reported for the second quarter
of 2003 primarily related to pre-launch activities for Raptiva(TM) and to
business development activities, partially offset by reduced legal expenses,
which in the 2002 period included litigation expenses relating to matters that
have since been settled.

The Company continues to anticipate a higher net loss in 2003 compared with
2002, primarily due to the following factors:

     o    The Millennium collaboration and increased spending on Raptiva(TM),
          including pre-launch activities in anticipation of possible approval
          for marketing in the United States, and

     o    Reduced revenues under the Baxter and Onyx agreements.

However, the Company anticipates net losses will be lower in the second half of
2003 compared with the first six months. This lower anticipated loss reflects
higher license fee revenue including the $11.0 million in termination fees from
Baxter and Onyx.

                                    - More -

<PAGE>

The size of the Company's net loss and year-end cash position for 2003 may also
be impacted by: 1) any new licensing agreements or collaborations entered into
by XOMA, the likelihood of which cannot be assured or predicted; and 2) any
decisions XOMA and its collaborators may make regarding whether products in
development should continue into later stages of development, which are
generally more costly.

As of June 30, 2003, XOMA held $29.5 million in cash, cash equivalents and
short-term investments, and restricted cash compared with $38.2 million at
December 31, 2002. The Company estimates that it has sufficient cash resources,
together with sources of funding available to it, to meet its currently
anticipated operational needs through at least the end of 2004.

"While we continue to focus considerable attention on potential Raptiva(TM)
approval and launch in moderate-to-severe psoriasis, we are also making progress
in moving other programs in our pipeline forward," said John L. Castello, XOMA's
chairman, president, and chief executive officer. "We have now completed
enrollment in a study testing Raptiva(TM) in psoriatic arthritis, we have
initiated a healthy volunteer Phase I study of MLN2201, and we are working
towards moving both CAB-2 and XMP.629, our acne compound, into the clinic later
this year."

"In the first half of this year, XOMA's financial results were in line with our
expectations and we gained greater flexibility going forward by amending both
our Genentech and Millennium financing arrangements," said Peter B. Davis,
XOMA's vice president finance and chief financial officer. "Our agreement with
Baxter to regain our NEUPREX(R) rights will provide us with a cash infusion of
$10 million, and we will continue to pursue options to further strengthen our
financial position."

XOMA also intends to file a registration statement with the SEC to increase the
common shares available to be issued under its current "shelf" registration,
which was filed in November 2000, by an additional 13 million shares. This
brings the total number of common shares available to be issued under the
"shelf" registration to 20 million. Once this registration statement becomes
effective, the Company will be able to issue these shares from time to time in
response to market conditions or other circumstances. This media release does
not constitute an offer to sell or the solicitation of offers to purchase any
securities.

Product Collaboration Highlights

Raptiva(TM) (Efalizumab) with Genentech, Inc.: In July 2003, Genentech and XOMA
announced that on September 9, 2003, the U.S. Food and Drug Administration`s
Dermatologic and Ophthalmic Drugs Advisory Committee (DODAC) is scheduled to
review the companies' Biologic License Application (BLA) for Raptiva(TM) for the
treatment of moderate-to-severe plaque psoriasis in adults.

In July 2003, several dermatologist investigators presented new data at the
American Association of Dermatologists Summer meeting in Chicago, highlighting
positive results that further support the sustained and potentially increased
clinical benefit of continuous use of Raptiva(TM) in the treatment of
moderate-to-severe plaque psoriasis.

Twenty-four week data evaluating efficacy from an open label, extended treatment
arm following 12-weeks of treatment in a randomized, double-blind,
placebo-controlled Phase III study showed 44 percent (161/368) of patients
treated continuously with 1 mg/kg of Raptiva(TM) for up to 24 weeks achieved a
75 percent or greater improvement in Psoriasis Area and Severity Index (PASI)
scores (PASI 75).

                                    - More -

<PAGE>

Additionally, data taken after 21 months (84 weeks) from a separate open-label
study evaluating the long-term safety and tolerability of continuous Raptiva(TM)
was presented. In this study, patients received 2 mg/kg of Raptiva(TM) weekly
for an initial 12 weeks and subsequently received a once weekly dose of 1mg/kg
of Raptiva(TM) starting at week 13. For each successive three-month period of
treatment, dropouts during that period were analyzed using their last available
PASI assessment, but were excluded from subsequent cohorts. Among the 194
patients who remained in the trial through Week 84, 67 percent (130/194) of
patients achieved PASI 75 and 34 percent of patients (66/194) achieved PASI 90.

The safety of Raptiva(TM) for long term use was also supported in the 21 month
open label trial. During continuous therapy, the incidence of adverse events
decreased from 57% (Weeks 13-24) to 47.9% (Weeks 73-84). Data from more than
2,700 patients have been included in the Raptiva(TM) BLA, creating the largest
existing database of patients treated with a targeted biologic therapy for
psoriasis.

In April 2003, XOMA announced an expansion of the Genentech collaboration
including terms relating to participation by Genentech, XOMA, and Genentech's
licensees outside the U.S. in the development of all indications for
Raptiva(TM). The amended agreements also address Genentech's ongoing financing
of XOMA's share of development and commercialization costs, providing XOMA with
increased financing resources during preparations for a possible market launch
as well as greater flexibility in repayment terms.

Serono S.A., Genentech's marketing partner outside the U.S. and Japan, announced
in February 2003 that it had submitted a Marketing Authorization Application
(MAA) to the European Agency for the Evaluation of Medicinal Products (EMEA) for
European Union Approval of Raptiva(TM) in psoriasis. It has also submitted
Raptiva(TM) data for marketing approval in Australia, Canada and Switzerland.

Genentech has projected a single cycle (~10-month) regulatory review period for
Raptiva(TM) in the U.S. with FDA action expected in late 2003.

In January 2003, Genentech and XOMA announced the initiation of a Phase II study
evaluating Raptiva(TM) in patients with psoriatic arthritis and enrollment has
been completed. Genentech and XOMA continue to assess additional indications for
Raptiva(TM).

MLN2201 and CAB-2 with Millennium Pharmaceuticals, Inc.: These two products are
currently under development as part of an ongoing collaboration with Millennium
(Nasdaq: MLNM).

In June 2003, XOMA announced initiation of a Phase I clinical trial of MLN2201
(formerly known as MLN01), a humanized monoclonal antibody being developed for
conditions related to inflammation of the heart and blood vessels. This
open-label, dose-escalating study will evaluate the safety, tolerability,
pharmacokinetics and pharmacodynamics of MLN2201 in healthy volunteers, who will
each receive a single intravenous infusion, followed by monitoring and
evaluation.

CAB-2 continues in preclinical testing, and if successful, the Company is
targeting the initiation of clinical testing later this year.

                                    - More -

<PAGE>

In May 2003, XOMA announced the amendment of certain terms of its investment
agreement with Millennium. Under the original investment agreement signed in
2001, Millennium committed to purchase, at XOMA's option, up to $50 million
worth of common shares over a three year-period, through a combination of
convertible debt and equity at prevailing market prices. Key new elements of the
revised payment and investment agreement include an extension of the maturity
date of a $5.0 million outstanding convertible note from May 2003 to February
2004, and a re-scheduling of XOMA's decision points on whether to sell the
remaining common shares from three option dates through May 2004, to six option
dates through February 2005. In June 2003, XOMA exercised an option to sell
608,766 shares to Millennium for $4.0 million or $6.57 per share, leaving an
additional $33.5 million available to XOMA under this arrangement, excluding the
convertible debt.

 NEUPREX(R) with Baxter Healthcare Corporation: NEUPREX(R) is an injectable
formulation of rBPI-21, a genetically engineered fragment of human
bactericidal/permeability-increasing protein (BPI). In July 2003, XOMA announced
the termination of its license and supply agreements with Baxter Healthcare
Corporation for this product. In return for a release from its obligations under
the agreements, Baxter has agreed to a one time $10 million payment to XOMA to
be made no later than January 2004. Until such payment is made, Baxter is
committed to reimburse XOMA for a portion of certain development expenses which
may be incurred.

XOMA had previously disclosed that it and Baxter were seeking an additional
pharmaceutical company partner to support the companies' efforts in developing
NEUPREX(R) for systemic anti-infective and anti-endotoxin indications. Going
forward, Baxter will have no involvement with the product. XOMA is evaluating
future options for developing the product in multiple indications, including
seeking a pharmaceutical partner.

 ONYX-015 with Onyx Pharmaceuticals, Inc.: In June 2003, Onyx announced that it
is discontinuing its therapeutic virus program, which includes the ONYX-015
product - a therapeutic, modified adenovirus genetically engineered to destroy
cancer cells. Onyx has also notified XOMA of its intent to terminate the related
process development and manufacturing agreement, which involves termination
payments and is effective 120 days from the date of notification. Onyx is
obligated to pay $0.5 million as a facility fee plus $1.0 million as a
termination fee by the end of the 120-day notification period.

Additional Ongoing Development Programs

ING-1: ING-1 is a recombinant monoclonal antibody that binds with high affinity
to an antigen expressed on epithelial cell cancers (breast, colorectal, prostate
and others) and is designed to destroy cancer cells by recruiting a patient's
own immune system. Two Phase I studies have been completed testing an
intravenous formulation of ING-1, and a third is in progress to evaluate the
safety, subcutaneous administration and other features of ING-1 and to document
any observed anti-tumor activity. XOMA's plans for further internal development
and/or outlicensing will be determined based on the results of these studies.

XMP.629 compound for acne: XOMA is currently evaluating a topical anti-bacterial
formulation of a BPI-derived compound as a possible treatment for acne.
Propionibacterium acnes, a microbe commonly found on human skin, is associated
with inflammatory lesions in acne patients. The emergence of strains resistant
to current antibiotics used to treat acne has encouraged XOMA researchers to
review the anti-P. acnes properties of the compound for this dermatological
indication. The Company plans to initiate clinical testing in the second half of
2003, pending positive results of toxicology testing in progress.

                                    - More -

<PAGE>

BPI-derived compounds for retinal disorders: Results of in vitro and in vivo
studies conducted by Joslin Diabetes Center at Harvard University showed that
certain BPI-derived compounds inhibit abnormal growth of blood vessels
(angiogenesis) in the retina while sparing key retinal cells (pericytes). These
data suggest that those compounds may have potential for treating eye diseases
such as diabetic retinopathy or macular degeneration, leading causes of adult
blindness, as well as other retinal diseases. XOMA is continuing its research
collaboration with Joslin.

XOMA Enabling Technologies & License Agreements

In July and August 2003, XOMA entered into licensing arrangements with two
companies, Crucell Holland B.V. and Xerion Pharmaceuticals AG, related to
antibody phage display. Under the agreements, each company receives a license to
use XOMA's antibody expression technology and XOMA will receive license and
royalty payments.

***
XOMA has scheduled an investor conference call regarding this announcement,
today, August 13, 2003 beginning at 4:00 PM EST (1:00 P.M. PST). Investors are
invited to listen to the conference call by phone or via XOMA's website,
HTTP://WWW.XOMA.COM/. The domestic dial-in number (U.S./Canada) for the live
call is 1-877-356-2902 and the conference ID number is 1427242. The
international dial-in number is 1-706-643-3700 and uses the same dial-in
conference I.D. number. To listen to the call via the Internet, go to XOMA's
website a few minutes before the start of the call to register, download, and
install any necessary audio software.

The audio replay of the call will be available beginning two hours following the
conclusion of the webcast through 6:00 p.m. EST (3:00 p.m. PST) on August 20,
2003. Access numbers for the replay are 1-800-642-1687 (U.S./Canada) or
1-706-645-9291(International); Conference I.D. 1427242.

About XOMA

XOMA develops and manufactures antibody and other protein-based
biopharmaceuticals for disease targets that include cancer, immunological and
inflammatory disorders, and infectious diseases. XOMA's programs include
collaborations with Genentech, Inc. on the Raptiva(TM) antibody for psoriasis
(BLA submission), psoriatic arthritis (Phase II) and other indications and with
Millennium Pharmaceuticals, Inc. on CAB-2 and MLN2201 for certain vascular
inflammation indications (preclinical and Phase I, respectively). Earlier stage
development programs focus on antibodies and other compounds developed by XOMA
for the treatment of cancer and infections. For more information about XOMA's
pipeline and activities, please visit XOMA's website at HTTP://WWW.XOMA.COM/.

Certain statements contained herein related to the relative size of the
Company's loss for 2003, the sufficiency of its cash resources, the DODAC
review, and the BLA review time frame, as well as other statements related to
the progress and timing of product development, present or future licensing or
collaborative arrangements and the Company's intentions with respect to
issuances of its securities, 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. Among other things, the actual loss for 2003
could be higher depending on revenues from licensees and collaborators, the size
and timing of expenditures and whether there are unanticipated expenditures; the
sufficiency of cash resources could be shortened if expenditures are made
earlier or in larger amounts than anticipated or are unanticipated or if funds
are not available on acceptable terms; regulatory approval could be delayed or
denied based on safety or efficacy issues relating to the products being tested;
action, inaction or delays by the FDA, European regulators and or their advisory
bodies; or analysis and interpretation by, or submission to, these entities and
others of scientific data.

                                    - More -

<PAGE>

 These and other risks, including those related to the results of pre-clinical
testing, the design and progress of clinical trials, changes in the status of
the existing collaborative relationships, availability of additional licensing
or 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 U.S. Food and Drug
Administration, the U.S. Patent and Trademark Office or the U.S. Securities and
Exchange Commission, scale up and marketing capabilities, competition,
international operations, share price volatility, the availability of financing
needs and opportunities, uncertainties regarding the status of biotechnology
patents, uncertainties as to the cost of protecting intellectual property and
risks associated with XOMA's status as a Bermuda company, are described in more
detail in the Company's most recent annual report on Form 10K and in other SEC
filings.

                      Condensed Financial Statements Follow

<PAGE>

                                    XOMA Ltd.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

                                                  June 30,       December 31,
                                                    2003             2002
                                              ----------------- ----------------
ASSETS                                          (Unaudited)        (Note 1)
Current assets:
  Cash and cash equivalents                           $ 26,946         $ 36,262
  Short-term investments                                 2,592              391
  Restricted cash                                            -            1,500
  Receivables                                              484            8,656
  Related party receivables - current                      100              206
  Inventory                                              1,306            1,306
  Prepaid expenses and other                             1,044              449
                                              ----------------- ----------------
         Total current assets                           32,472           48,770
Property and equipment, net                             22,699           22,650
Related party receivables - long-term                      108              190
Deposits and other                                         159              172
                                              ----------------- ----------------
         Total assets                                 $ 55,438         $ 71,782
                                              ================= ================
<TABLE>
<CAPTION>

LIABILITIES AND SHAREHOLDERS' EQUITY (Net Capital Deficiency)

Current liabilities:
<S>                                                                      <C>               <C>
  Accounts payable                                                         $ 2,961           $ 3,201
  Accrued liabilities                                                        5,379             7,096
  Short-term loan                                                                -               763
  Capital lease obligations - current                                          542               667
  Deferred revenue - current                                                 1,650             1,729
  Convertible subordinated note - current                                    5,214             5,146
                                                                  ----------------- -----------------
         Total current liabilities                                          15,746            18,602

Capital lease obligations - long-term                                          497               729
Deferred revenue - long-term                                                    30               800
Note payable long-term                                                       5,260                 -
Convertible subordinated note - long-term                                   69,617            63,016
                                                                  ----------------- -----------------
         Total liabilities                                                  91,150            83,147

Shareholders' equity (Net capital deficiency):
  Common shares                                                                 36                36
  Additional paid-in capital                                               534,054           529,354
  Accumulated comprehensive income                                             228               121
  Accumulated deficit                                                     (570,030)         (540,876)
                                                                  ----------------- -----------------
         Total shareholders' equity (Net capital deficiency)               (35,712)          (11,365)
                                                                  ----------------- -----------------
         Total liabilities and shareholders' equity                        $55,438          $ 71,782
                                                                  ================= =================
</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, 2002
as filed with the Securities and Exchange Commission.

                                    - More -

<PAGE>

                                    XOMA Ltd.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (Unaudited, in thousands except per share amounts)

<TABLE>
<CAPTION>

                                                     Three months ended June        Six months ended
                                                               30,                      June 30,
                                                    ---------------------------  ----------------------------
                                                         2003          2002          2003           2002
                                                    ------------ --------------- ------------ ---------------

Revenues:
<S>                                                   <C>           <C>          <C>             <C>
   License and collaborative fees                         $ 920       $ 1,340      $ 2,075         $ 7,653
   Contract and other revenue                             1,441         3,384        3,450           6,293
                                                    -------------- ------------- ------------ ---------------

           Total revenues                                 2,361         4,724        5,525          13,946
                                                    --------------- ------------ ------------ ---------------

Operating costs and expenses:
   Research and development                              13,502        10,759       25,484          20,694
   Marketing, general and administrative                  4,698         3,849        8,603           8,698
                                                    --------------- ------------ ------------ ---------------
           Total operating costs and expenses            18,200        14,608       34,087          29,392
                                                    --------------- ------------ ------------ ---------------

            Loss from operations                        (15,839)       (9,884)     (28,562)        (15,446)

Other income (expense):
   Investment and other income                              268           232          383             504
   Interest expense                                        (489)         (493)        (975)         (1,142)
                                                    --------------- ------------ ------------ ---------------
         Net loss                                     $ (16,060)    $ (10,145)   $ (29,154)      $ (16,084)
                                                    =============== ============ ============ ===============

Basic and diluted net loss per common share              $ (.22)       $ (.14)      $ (.41)         $ (.23)
                                                    =============== ============ ============ ===============

Shares used in computing basic and diluted net
loss per common share                                    72,023        70,309       71,937          70,269
                                                    =============== ============ ============ ===============

</TABLE>

                                                        ###

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