SecProbe.io

CORRESP
1
filename1.htm

    xomarespltr_100510.htm

[LETTERHEAD OF CAHILL GORDON & REINDEL LLP]

(212) 701-3265

October 5, 2010

Re:

XOMA Ltd.

Form 10-K for the Fiscal Year Ended December 31, 2009

Filed March 11, 2010

Form 10-K/A filed April 30, 2010

File No. 000-14710

Dear Mr. Riedler:

On behalf of and as counsel to XOMA Ltd. (the “Company”), we are responding to your letter dated September 21, 2010 (the “Comment Letter”) relating to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (the “Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2010, and Amendment No. 1 on Form 10-K/A filed with the SEC on April 30, 2010 (the “Form 10-K/A”) (File No. 000-14710).

For your convenience, the Company’s responses below are numbered to correspond to the comments in the Comment Letter (the “Comments”).

Form 10-K for the fiscal year ended December 31, 2009

Item 1. Business, page 1

General

Comment No. 1:  We note your discussion throughout the Business section of various material license and collaboration agreements with third parties.  Please provide draft disclosure to be included in an amended Form 10-K quantifying the total potential milestone payments due under each agreement to the extent not already disclosed, a range of royalties to be paid within a ten percent range, and the duration and termination provisions of each.

Response No. 1:  Attached to this letter as Annex 1 is draft disclosure to be included in a further amendment to the Form 10-K in response to this Comment.

Signatures, page 71

Comment No. 2:  We note that your chief executive officer and chief financial officer have signed the Form 10-K on behalf of the registrant and in their own capacities, but it does not appear that the filing has not been signed by your controller or principal accounting officer in those capacities as required by Form 10-K.  Please ensure that your amendment to the Form 10-K includes the signature of the person acting in such capacity, as required by Instruction D.2(a) of Form 10-K.

Response No. 2:  The Company’s Vice President, Finance and Chief Financial Officer also acts as principal accounting officer.  Any further amendment to the Form 10-K will clarify that he is also signing in this additional capacity.

Form 10-K/A filed April 30, 2010

Compensation Components, page 5

Comment No. 3:  We note your disclosure regarding your long-term incentive program on page 5 of the filing.  Please provide draft disclosure to be included in an amended Form 10-K discussing the actual award made to each named executive officer for the 2009 fiscal year and the conclusions reached by the compensation committee in determining each award.  For instance, you note the factors considered by the committee.  Your disclosure should discuss how each factor was evaluated or measured and how the totality of the factors resulted in the award made to each named executive officer.

Response No. 3:  Attached to this letter as Annex 2 is revised disclosure, taken from the Company’s definitive proxy statement on Schedule 14A filed with the SEC on June 9, 2010 and marked to show changes from the corresponding sections in the Form 10-K/A, which we believe addresses the staff’s concerns as expressed in this Comment.

Comment No. 4:  We note your disclosure regarding the CEO Incentive Compensation Plan and Management Incentive Compensation Plan on pages 5 and 6 of the filing.  Please provide draft disclosure to be included in an amended Form 10-K which discusses the following information:

·

the “discretionary” and “individual” objectives referenced in the first and fifth paragraphs on page 6;

·

the level of achievement of each objective;

·

how such level of achievement translated into the awards made to each named executive officer on an individual basis;

·

the amount of the target incentive compensation pool and how such pool was adjusted at year-end to reflect the company’s performance in achieving its corporate objectives; and

-2-

·

any other factors considered by the committee that impacted the amount of incentive compensation awarded to the named executive officers.

Response No. 4:  Attached to this letter as Annex 2 is revised disclosure, taken from the Company’s definitive proxy statement filed with the SEC on June 9, 2010 and marked to show changes from the corresponding sections in the Form 10-K/A, which we believe addresses the staff’s concerns as expressed in this Comment.

Compensation Risk Assessment, page 7

Comment No. 5:  We note your disclosure in response to Item 402(s) of Regulation S-K on page 7 of the filing.  Please describe the process you undertook to reach your conclusion and provide an analysis supporting your determination that your compensation policies and practices are not reasonably likely to have a material adverse effect on the company.

Response No. 5:  The Company has advised us that, in order to determine whether risks arising from the Company’s compensation policies and practices for its employees are likely to have a material adverse effect on the Company, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”), with the assistance of its independent compensation consultant, carefully reviewed and analyzed each element of employee compensation and determined the following: (1) significant weighting toward long-term incentive compensation discourages short-term risk-taking, (2) goals are appropriately set to avoid undue reliance on targets that, if not achieved, could result in a large percentage loss of compensation, (3) incentive awards are capped by the Compensation Committee, (4) compensation decisions include subjective considerations, described in the Compensation Disclosure and Analysis, which limit the influence of formulas or objective factors on excessive risk-taking, and (5) as a development-stage biopharmaceutical company, the Company does not face the same level of risks associated with compensation for employees at financial services companies, such as those related to traders who deal in high-risk financial instruments.  In light of the foregoing, the Compensation Committee concluded that its analysis supported the conclusions described in the Form 10-K/A.

Employment Contracts and Termination of Employment and Change of Control Arrangements, page 14

Comment No. 6:  We note that you have filed a form of employment agreement as Exhibit 10.7 to the filing.  Please also file each named executive officer’s executed employment agreement as an exhibit to the filing.

Response No. 6:  As requested, the Company will file each named executive officer’s executed employment agreement as an exhibit to a further amendment to the Form 10-K.

-3-

In addition, the Company acknowledges that:

·

the Company is responsible for the adequacy and accuracy of the disclosure in the filing;

·

staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and

·

the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

The Company believes that the response set forth above is responsive to the Comment.  Please direct any questions or further comments regarding this filing to the undersigned at the number indicated above.

Sincerely,

/s/ Kimberly C. Petillo

Kimberly C. Petillo

Jeffrey Riedler

Assistant Director

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C.  20549

VIA ELECTRONIC TRANSMISSION/BY HAND

cc:

Laura Crotty

Christopher J. Margolin

Geoffrey E. Liebmann

-4-

Annex 1

PART I

Item 1.

Business

*           *           *

Royalties and Technology Licenses

*           *           *

Technology Licenses

Below is a summary of certain proprietary technologies owned by us and available for licensing to other companies:

·

Antibody discovery technologies: XOMA uses human antibody phage display libraries in its discovery of therapeutic candidates, and we offer access to multiple libraries, including novel libraries developed internally, as part of our collaboration business. We believe that access to multiple libraries offers a number of benefits to XOMA and its partners, because it enables use of libraries best suited to the needs of a particular discovery project to increase the probability of technical and business success in finding rare and unique functional antibodies directed to targets of interest.

In 2009, we recognized $42.3 million in revenue related to the licensing of our antibody discovery technologies. In February of 2009, we expanded our existing collaboration with Takeda to provide Takeda with access to multiple antibody discovery technologies for a $29 million expansion fee, before taxes and other costs. In addition, in the second half of 2009, we entered into antibody discovery collaborations with Arana Therapeutics Limited, a wholly-owned subsidiary of Cephalon, Inc. (“Arana”), and The Chemo-Sero-Therapeutic Research Institute, a Japanese research foundation known as Kaketsuken, involving multiple proprietary XOMA antibody research and development technologies for fees of $6 million and $8 million, respectively. We may be entitled to future milestone payments and royalties on product sales related to the antibody discovery collaborations.

·

Bacterial Cell Expression: The production or expression of antibodies using bacteria is an enabling technology for the discovery and selection, as well as the development and manufacture, of recombinant protein pharmaceuticals, including diagnostic and therapeutic antibodies for commercial purposes. Genetically engineered bacteria are used in the recombinant expression of target proteins for biopharmaceutical research and development. Reasons include the relative simplicity of gene expression in bacteria as well as many years of experience culturing such species as E. coli in laboratories and manufacturing facilities. In support of our own biopharmaceutical development efforts, XOMA scientists have developed bacterial expression technologies for producing antibodies and other recombinant protein products.

We have granted over 50 licenses to biotechnology and pharmaceutical companies to use our patented and proprietary technologies relating to bacterial expression of recombinant pharmaceutical products. Bacterial antibody expression is also a key technology used in multiple systems for high-throughput screening of antibody domains. Expression of antibodies by phage display technology, for example, depends upon the expression and secretion of antibody domains from bacteria as properly folded, functional proteins.

Many licensees of our bacterial cell expression technology have developed, or are in the process of developing, antibodies for which we may be entitled to future milestone payments and royalties on product sales. Under the terms of our license agreement with Pfizer, signed in 2007, we received an up-front cash payment of $30 million and from 2008 through 2009 we received four milestone payments relating to four undisclosed product candidates, including a payment of $0.5 million for the initiation of a Phase 3 clinical trial. We aremay also be eligible for additional milestone, royalty and other fees payments aggregating up to $4.9 million relating to these four product candidates and low

single-digit royalties on future sales of all products subject to this license. In addition, we may receive potential milestone payments aggregating up to $1.7 million for each additional qualifying product candidate. Our right to milestone payments expires  on the later of the expiration of the last-to-expire licensed patent or the tenth anniversary of the effective date. Our right to royalties expires upon the expiration of the last-to-expire licensed patent.

Current licensees include but are not limited to the following companies:

Active Biotech AB

Crucell Holland B.V.

Novartis AG

Affimed Therapeutics AG

Dompe, s.p.a.

Pfizer, Inc.

Affitech AS

Dyax Corp.

Schering Corporation (now a

subsidiary of Merck & Co., Inc.)

Alexion Pharmaceuticals, Inc.

E.I. duPont de Nemours and

Company

Takeda Pharmaceutical Company Ltd.

Applied Molecular Evolution, Inc.

(now a subsidiary of Eli Lilly and

Company)

Eli Lilly and Company

The Medical Research Council

Avecia Limited

Genentech, Inc. (now a member of

the Roche Group)

UCB S.A.

Aventis Pharma Deutschland GmbH

(Hoechst) (now Sanofi-Aventis)

Invitrogen Corporation

Unilever plc

Bayer Healthcare AG

Merck & Co., Inc.

Verenium Corporation

BioInvent International AB

Mitsubishi Tanabe Pharma

Corporation

Wyeth Pharmaceuticals Division (now

a member of Pfizer, Inc.)

Centocor, Inc.

MorphoSys AG

ZymoGenetics, Inc.

These licenses are sometimes associated with broader agreements which may include expanded license rights, cell line development and process development.

·

Human Engineering™: Human Engineering™ is a proprietary technology that allows modification of non-human monoclonal antibodies to reduce or eliminate detectable immunogenicity and make them suitable for medical purposes in humans. The technology uses a unique method developed by us, based on analysis of the conserved structure-function relationships among antibodies. The method defines which residues in a non-human variable region are candidates to be modified. The result is a Human Engineered™ antibody with preserved antigen binding, structure and function, and with eliminated or greatly reduced immunogenicity. Human Engineering™ technology is used in development of XOMA 052 and certain other antibody products.

·

Targeted Affinity Enhancement™ (TAE): TAE is a proprietary technology involving the assessment and guided substitution of amino acids in antibody variable regions, enabling efficient optimization of antibody binding affinity and selectivity modulation. TAE generates a comprehensive map of the effects of amino acid mutations likely to impact binding. The technology is utilized by XOMA scientists and has been licensed to a number of our collaborators.

We also have access to certain intellectual property rights and services that augment our existing integrated antibody technology platform and development capabilities and further compress product development timelines. This broad antibody technology platform and expertise is available for building our antibody product pipeline as well as those of our collaborators.

-2-

*           *           *

Financial and Legal Arrangements of Product Collaborations, Licensing and Other Arrangements

Current Agreements

Takeda

In November of 2006, we entered into a fully funded collaboration agreement with Takeda for therapeutic monoclonal antibody discovery and development. Under the agreement, we will discover and optimize therapeutic antibodies against multiple targets selected by Takeda. Takeda will make up-front, annual maintenance and milestone payments to us, fund our research and development and manufacturing activities for preclinical and early clinical studies and pay royalties on sales of products resulting from the collaboration. Takeda will be responsible for clinical trials and commercialization of drugs after an IND submission and is granted the right to manufacture once a product enters into Phase 2 clinical trials. In the fourth quarter of 2009, certain discovery and development programs under this collaboration were discontinued following analysis of the research data. This resulted in the recognition of $2.8 million of the remaining unamortized balance in deferred revenue pertaining to the discontinued programs.

Under the terms of this agreement, we may receive potential milestone payments aggregating up to $20.75 million relating to one undisclosed product