Greetings, ladies and gentlemen, and welcome to the XOMA fourth quarter 2007 financial results conference call. (Operator Instructions) It is now my pleasure to introduce your host Mr. Greg Mann, Senior Director, Investor Relations and Corporate Communications. Thank you. You may begin.

Good afternoon and welcome to XOMA's 2007 conference call. About 30 minutes ago, XOMA filed its annual report on Form 10-K with the SEC for the year ended December 31, 2007 and issued a news release with 2007 financials. Each document is available on the XOMA website, www xoma.com. Today's webcast can be accessed via XOMA's website and will be available for replay until close of business on April 31, 2008. A telephone replay will be available beginning later this afternoon until close of business on March 25, 2008. Access numbers for the replay are listed in the news release that we issued this afternoon. Leading today's call will be Steven Engle, Chairman and Chief Executive Officer; Alan Solinger, MD, Vice President of Clinical Immunology; and David Boyle, Chief Financial Officer. Before beginning we wish to remind all listeners that certain statements made on the call today will be forward-looking. We have based those statements on assumptions that may not prove to be accurate. XOMA's actual results could differ materially from those we anticipate due to risks inherent in the biotechnology industry as well as for companies engaged in product development in a regulated market. These risks including the success of our existing collaborations, the marketing and sales efforts for RAPTIVA and LUCENTIS, the potential regulatory approval of CIMZIA, our ability to enter into additional arrangements, the size and timing of expenditures, the timing of clinical trials and other events, changes in our collaborative relationships, and actions by the Food and Drug Administration, international drug regulatory bodies and the US patent and trademark office are discussed in XOMA's Form 10-K for 2007 filed today and in other SEC filings. Please consider such risks carefully before making any investment decisions. I will now turn the call over to Steve Engle.

Thanks, Greg. We are pleased and excited to report our results for 2007. 2007 was a banner year for XOMA and shows the team's success during the past few years in building a business and a diverse set of revenue streams. In 2007, we more than doubled revenues growing them nearly a 190%. This increase reflects strong growth in technology licensing, our antibody collaborations, biodefense contracts and product royalties. A major contributor to the revenue growth was the $30 million upfront cash payment from Pfizer for our license to our bacterial cell expression technology. This was our largest technology license payment received to-date. The decision by Pfizer, the world's largest biopharmaceutical company, to take the license provides continued validation of the importance of XOMA technology in antibody discovery and development. Since we generate no additional expenses related to these BCE license agreements, the revenue we receive, including license fees, milestones and royalties, is highly profitable for us. Even if one excludes the Pfizer related revenue, our 2007 revenue still nearly doubled growing approximately 86% to $54 million compared with $29 million in 2006. Today, XOMA is in an attractive position for a biotechnology company since we are able to self-fund a significant portion of our research activities and development programs. We believe we have sufficient cash resources to meet our anticipated net cash needs through at least the next 12 months. In November we put forth our revised product focused corporate strategy. The strategy is straightforward. Our goal is to maximize return on the antibody resources that we have in place, including our intellectual property, core technologies and capabilities in the discovery, optimization, development and production of antibody products, collaborations, know-how, technology licensing in an area of enormous excitement for us, our proprietary products. Our flagship internal product candidate is…

Thank you, Steve, and good afternoon, everyone. Interest in the IL-1 pathway clearly is growing. This interest was highlighted by the recent article that Steve mentioned in the magazines - Nature and New England Journal cited earlier. The recent approval of Regeneron's rilonacept marks the second drug approved by the FDA, but address the pathway and further validate its clinical importance. In addition, clearly, we are not the only company working in the area. There are number of world class companies who have decided IL-1 is an important approach to a general anti-inflammatory. We believe the approach we've chosen is superior. Reasons include XOMA 052s targeting of the ligand and very high binding affinity. Based on what we know of the other IL-1 blockers, we believe the XOMA 052 has the potential to be a best-in-class drug. In context to this attention and interest, I am very pleased to report that we are making excellent progress on the clinical development in XOMA 052. As Steve mentioned, we expect to have initial data from our Phase 1 programs in the third quarter of 2008. We are currently in the third cohort of our two studies. I'd like to review some of the key attributes and differentiators of XOMA 052. The design of the study is currently underway and our plans for moving XOMA 052 into additional trials later this year. XOMA 052 is a highly potent human engineered antibody targeting IL-1 beta. XOMA discovered, optimized and developed the antibody. We believe that IL-1 pathway is the right approach in inflammatory disease and XOMA 052 has the right profile for targeting this pathway. The pathway is itself already well validated. Decades of research point to IL-1 as the upstream mediator of many inflammatory processes and years of clinical experience with Kineret, Amgen's…

Thanks, Alan. As many of you are aware, Alan has more experience than anyone in the clinical development of IL-1 drugs, and we're very pleased that he is a part of our team at XOMA. I will now turn the call over to Dave Boyle, CFO, for a detailed financial discussion.

Thanks, Steve. We released XOMA's 2007 financial results and filed the 10-K earlier today, and those are available to you on our website and on SEC's website. If you've had a chance to review our earnings press release today, I'm sure it is clear to you that XOMA had an outstanding year in 2007, with the record revenues of $84.3 million, a reduction in our net loss from $51.8 million in 2006 to only $12.3 million in 2007, and cash at $4.5 million provided from its operating activities in 2007. On the call today, I'll discuss what I think is most helpful in understanding our current status and future prospects, including guidance for 2008. XOMA's net loss for the 2007 year was $12.3 million or $0.10 per share compared with $51.8 million or $0.54 per share in 2006 and our loss from operations in 2007 was just $2.5 million. In addition to the very positive trend in financial results for 2007, another important financial event for the year was the complete conversion to equity of the convertible debt in the first quarter of 2007. Looking at revenues, total revenues for 2007 were $84.3 million compared with $29.5 million in 2006, a 186% increase. The increase in license and collaborative fees of $33.7 million resulting from one-time payments from Pfizer and an existing technology partner in 2007 totaling $31.3 million contributed significantly to the overall revenue growth. Contract and other revenue grew from $16.3 million in 2006 to $31.1 million in 2007, resulting from increased activities in our contracts with AVEO, Schering-Plough, Takeda and NIAID. Royalties in 2007 increased by $6.4 million to $16.7 million, reflecting the growth in RAPTIVA and LUCENTIS sales. Turning to expenses, in 2007 research and development expenses were $66.2 million compared with $52.1 million in 2006.…

In closing, I want to congratulate the XOMA team on a strong and very successful 2007, and for making progress in every area of our business, including important advances in the clinical development of our pipeline. We are already making progress and fulfilling our goal of maximizing value for our shareholders as we have outlined in our strategic plan. We believe 2008 will be an important year for the company and its shareholders, and I hope you will stay tuned. Operator, would you please review the instructions for the question-and-answer segment?

(Operator Instructions) Our first question is from Michael King with Rodman & Renshaw. Please proceed with your question. Michael King - Rodman & Renshaw: Thanks. Good afternoon, guys. Can you hear me?

Yes. Thanks, Michael. Michael King - Rodman & Renshaw: Let's see, maybe working in reverse order. Can I just get a little bit more color on the guidance? Dave, you guided to topline of -- I'm sorry, give me your G&A guidance again because I just missed it?

Growth of 15% to 25% over 2007 levels. Michael King - Rodman & Renshaw: Okay. You guys have been pretty tight on expenses on the G&A side, so can you give us a sense of what's going to make that increase by that amount with that proportion?

Yes, a couple of things. I mean, stock compensation expense, there has been some alignment of management interest with investor interest, will increase and I might remind everybody that there is actually a non-cash type of expense that's recorded in P&L these days and that's certainly a part of the increase in the guidance. Normal personnel costs, we're adding significant resources in areas to really focus on expanding and building our business by adding business development resources and investing and looking at other biodefense opportunities as well. So, we think that the spend there is really towards a value build for the company. Michael King - Rodman & Renshaw: Okay. And then just on the top-line, just wondering if you expect sort of biodefense to come in. It's been historically pretty stable and I would imagine that you'd expect royalty revenue to grow from RAPTIVA and LUCENTIS. It seems like that's a pretty low bogie for you guys to hit, so I am just wondering if you can maybe give us your thoughts on how you get to the components of the revenue?

Well, of course we are not giving specific guidance as to the components. But I think you pretty well understood a lot of the moving parts. We do expect that biodefense and our CMO revenues will continue to be relatively stable, possibly growing. Certainly, we'll look at the royalties you know as expected growth opportunity. And of course, as you've seen in the past years, we have some pieces of our revenue which we think are some of the big opportunities, which run collaborations and technology licensing and we feel very good about where we are headed on those. We've asked people to watch for those events throughout the year, but certainly it would be important to achieving our revenue guidance. Michael King - Rodman & Renshaw: Okay. And I noticed that you said you mentioned CIMZIA in the press release but not in your formal remarks. I presume that some proportion of the CIMZIA royalties are in your top-line guidance?

Not really. I mean it's difficult to tell the timing of the regulatory bodies and we've not really assumed any great contribution from CIMZIA in 2008, and now going forward we would hope that would be a very different story for future years. It's based on the timing. I think that we haven't assumed a lot would be in there this year. Michael King - Rodman & Renshaw: Okay. And then, a couple of hopefully quick questions for Alan with regard to 052. Just curious if this is a single-dose study how meaningful is HbA1c going to be? Or is that only going to be a metric that you report out in the multi-dose trials?

Thanks for the question, Mike. You're very right. We don't expect necessarily to see much with the single dose part of the study although we will evaluate that as a potential marker. Certainly the more robust information will come from the multi-dose part of the US trial. Michael King - Rodman & Renshaw: Multi-dose part of the US trial.

Yes. Michael King - Rodman & Renshaw: Okay. And also you know that we have recent white paper from the FDA on guidelines for the development of drugs for the treatment of diabetes, and I was wondering how it is affecting the company's strategy about taking 052 forward given your limited resources? And whether, maybe Steve, you can speak on, to which direction you will hope to push 052? Whether you would prefer to go to the orphan disorders, where your resources might be better leveraged? Or do you want to go really for the grand slam homerun with the larger market that Type 2 diabetes present?

Sure, Mike. Good question and we recognize the FDA is shifting the goal post right now. Unfortunately, we do not have to go in there and talk to them on our Phase 3 results at this moment. Our thought is that we will continue to gather results from both this trial and then next year hopefully in the three other indications that we will have those results out before the end of the year. And so we will have those different kinds of results. And then I think at that point there is question of how far do you carry it forward and then in which indications and of course we see things like diabetes and rheumatoid arthritis as being longer-term development programs, vis-à-vis what we think might be achieved in either the SJIA orphan drug type situations where you might have faster and better attention from the agency due to the needs of the patients as well as in the gout situation where there is an acute disease and a situation where a single dose may show the clear activity that we're looking for. So, we think as a result of that there are a couple of other ways that will be shorter term in nature. Nonetheless we expect for things like diabetes and so forth we'll be looking to get a partner at some point, but we would like to do it after we've gotten the results from all of these -- the study we have plus the three we are proposing and assuming we do that I think we'll position ourselves in a very good position with the companies out there as you know both RA and diabetes are extremely important areas for the large pharmas. And we have been approached already on 052. It's just our feeling that relative to the amounts of money that we're talking about spending in this Phase 1 type study that we think it's prudent for us to move this forward and to get results up particularly since Kineret already suggests results are going to be positive. Michael King - Rodman & Renshaw: Okay. I'll get back in the queue. Thank you

Thank you, Mike

Next question is from Joe Pantginis with Canaccord Adams. Please state your question.

Hi guys. Thanks for taking the call. I apologize for my voice ahead of time, just having some chest cold. So maybe this will be a question for Alan, maybe, you did a pretty extensive compare and contrast of rilonacept in 052. Do you think you can add a little more color regarding the signaling dynamics that you mentioned specifically the targets and why it might not be necessarily clinically beneficial to target say the alpha and RA part? Thank you.

Sure thanks. A very interesting question and it's not necessarily really an easy one to follow, but I think the major issues are that if you've got a certain amount of your drugs in the system to neutralize the players in the IL-1 cascade, you want to make the most efficient use of your product and if it's binding and taking out of circulation not only, shall we call it the bad guy, IL-1 beta, but also taking out the body's own anti-inflammatory protein IL-1 RA then you are basically getting into a balancing act where it's very dependent on the local [MIL-U]. If you can you have a product that specifically only takes out the bad player in this equation, then I think you have a much better chance to optimize your clinical results and specifically to IL-1 alpha; it is not a mediator that has much of an inflammatory component. It's more of a self surface marker and an internal cellular player as far as the structure and function of cell. So, the major players are IL-1 beta and IL-1 RA and you really want to try to target as much as possible to IL-1 beta.

Okay. Thanks for the info.

You are welcome.

Our next question is from Aaron Lindberg with WM Smith & Company. Please state your question. Aaron Lindberg - WM Smith & Company: Thank you. Just one quick follow-up on revenue line. Is it fair to assume that as far as the breakdown between licensing contracts revenues and royalties, you could assume that the licensing revenues are in the same kind of ballpark as you saw in 2007?

Same kind of ballpark, generally, yes. I mean, now we would expect to see some variance there; we do anticipate again that royalties to be growing. Probably some of our other more service-oriented revenues would be relatively stable to growing, which means for guiding 90% to 105%, the licensing revenues were in the same ballpark. I am not sure numerically how you describe that but it is relatively similar to what we saw in 2007. Aaron Lindberg - WM Smith & Company: Fair enough. And then specifically on the contract revenues, you said you expect to add one more contract in 2008. Is that the SRI/NSAID contract or is that an addition to that contract?

There would be an addition to that contract. Aaron Lindberg - WM Smith & Company: And no work has started on that contract yet, is that correct?

That's correct. Aaron Lindberg - WM Smith & Company: Okay. And then can you just help me understand the time line as it relates to the current 052 trial; my recollection was that the dosing period was six to eight weeks from your last call and being a third of the way into at this point. I guess my thought was that you got probably four to six weeks left on that. Is that just the single dose period or does that cover the multi-dose as well or is it just a big period of data analysis at the end that gets you to release the data. At the end of Q3, it just seems like the data might be available?

There are six drug dose levels. And if you assume six to eight weeks per and you had started back in August last year, you will find yourself sitting out in the middle of the summer. And particularly, we are in the third dose level right now, and you got to assume a few more weeks to complete that and then you start the next one at another six weeks and another one after that at another six weeks. So, you got three months, maybe three and half months, so pretty quickly you can get out into June, July to get the results. And then the question is closing up the database and then giving the analysis and obviously we are going to try to move forward as quickly as we can. And all of it assumes you are going to need all six doses to come to some conclusion in terms of moving the studies forward, which could be true, but also it could turn out that we will know by the third, fourth whatever dose what the answer is. So, there are some scenarios here that we go faster. The key thing is just getting through this six to eight week period there. Aaron Lindberg - WM Smith & Company: Got it. And now, is the multi-dose running in parallel with the single dose?

No. Aaron Lindberg - WM Smith & Company: That will be initiated after the ...

That's right. And what we will do then; we will be unlikely to carry of course all dose levels forward. We will be looking at maybe one or two of those dose levels to carry forward, maybe three and then take those forward over the next few months. Aaron Lindberg - WM Smith & Company: Okay. And then can you just help us understand the increase in R&D costs for 2008, I don't know the easiest way to break it down is, if say kind of rank them in order of what the biggest costs are, if you can help pick out a couple of the big ones. Obviously, we've got the collaborations we are sharing in Takeda and then the individual 052 trials and 629, but can you help us just put some parameters on where those costs lay?

Aaron, I am very pleased to say that we expect to be doing four clinical trials in 052 and a couple in 629 this year, and that certainly is a big driver of the increase. Aaron Lindberg - WM Smith & Company: Are those the primary drivers, is the 052 big trials.

It's the primary driver of the increase, we continue to build and do more work around our collaboration projects. As we both increase the number of projects and take those projects deeper into the development cycle, where the spending does tend to ramp as well. Aaron Lindberg - WM Smith & Company: Okay. And then can you just bring us up to date a little bit as it relates to Novartis. I know there wasn't much conversation there or a heck of a lot in the release, but can you just help us understand what's going on with the relationship there as it relates to the HCD122. I know that Novartis is kind of driving the car there, but what do you look at in terms of all the potential indications and the ability to get trials underway here in 2008?

Well, we continue to be disappointed with the pace, the development of that particular product, the product we're very enthusiastic about, something we're trying to get accelerated. We do expect to start in another indication this year. We talked about lymphomas and that continues to be on track. And we continue to have other discussions ongoing with Novartis because of our mutual interest in considering developing HCD for other than oncology indications as well and we will update you as we have more to say about that. Aaron Lindberg - WM Smith & Company: Would you anticipate that that be a kind of broader announcement that these are kind of broad sweeping changes to the relationship rather than just we're going to start a trial on this specific indication?

I think that remains to be seen and we'll just let you know when we know more. Aaron Lindberg - WM Smith & Company: One final question on 629, its seems like the case may be that that trial maybe a little bit more robust and a little bit more costly than originally anticipated, is that a fair assumption?

No, I don't think so.

Actually, we think it will be fairly efficient and is designed to give us quick proof-of-concept. Aaron Lindberg - WM Smith & Company: Okay. So, on that same scale as the prior thoughts around acne trials?

Similar. Aaron Lindberg - WM Smith & Company: Okay. Wonderful.

That means if we are talking about different indications and in particularly impetigo, that was a different type of situation that we're looking with acne. Aaron Lindberg - WM Smith & Company: Similar enrollment size?

I don't think we've actually commented on the enrollment size.

Similar to what I guess may be the question. Aaron Lindberg - WM Smith & Company: Your original thoughts, their original plans around acne.

I would yes. Aaron Lindberg - WM Smith & Company: Okay.

It's within the ballpark range. Aaron Lindberg - WM Smith & Company: Okay. Thank you.

Thank you.

The next question is from Jason Kolbert with Susquehanna International Group. Please state your question.

Thank you, guys and congratulations on a good year. Just a couple of questions, the financial guidance on revenue and I know this has been asked a few times already, but David, you seem to be assuming another big collaboration similar to what happen with Pfizer. Are there active discussions going on with other new potential partners?

Well, a couple of things. First of all, and I think it's important just to make sure that we're using the same wording around our Pfizer deal which was actually a technology license. And the reason that's important because we view a collaboration, particularly as having on going commitments, spending and utilizing our resources, whereas that Pfizer's deal was a non-exclusive license of our bacterial cell expression technology and its commitments under that deal were done almost immediately bond signing. So really that's a very different situation as you might image. A lot more of that deal drops to the bottomline than the revenues generated by our collaborations. I will say that we do believe there is good opportunity using our platform technologies due to both additional significant collaboration and technology licensing deals around our technology, and that's why we may or may not see a deal the size of Pfizer. We believe that the chances of getting that level of revenue through multiple deals on either technologies and their collaborations is very good this year.

Okay. And one last question. We haven't talked about NEUPREX at all, well, how are plans proceeding to try to monetize and partner out those assets?

We are proceeding in discussions with potential licensees.

And I think also, Jason, our feeling is that unless the EMEA comes back positively through the discussions that are going on regarding exceptional circumstances that there are chances that we will partner it is not high.

And is, Steve, any indication on when they might come to some conclusion there?

I wish I knew. Its one of these ping pong processes with regulatory agencies where they give you something and then you've got more questions about it, then they give you something more, and then you give them smart answers and so we just don't have closure on the issue yet.

But there are low level dialogues still keeping that process alive?

Absolutely.

Terrific. Thank you.

We continue. Thank you.

The next question is from Jason Kantor with RBC Capital Markets. Please state your question.

Most of my questions have been answered, I guess with regard to the dose-escalation that's ongoing you say you're in the third dose, those early doses are ones where you might not expect to see any efficacy and not again up into doses that might have some therapeutic interest. Will there be any situation where you would relieve data on some kind of piecemeal fashion prior to completing all dosing.

A couple of things, this is double-blinded placebo controlled and randomized, so just to make sure everybody has got the same information on the design. I guess the question is would we see something that would drive us to say that we were prepared to start one of the other studies. It's not something that one can say no to, but again, it is double-blinded placebo controlled. And so it's hard to say, with any certainty that you might be able to do something sooner than that.

You guys are not looking at the data one dose at a time that you're going up in dose.

The data is blinded and so we're going through the information just like you might expect us to. We can, of course, watch what's going on. The question is whether we can interpret the data without knowing the blind and what the allocations are? You know the data safety review committee on an ongoing basis looks at all of the safety related data and obviously, some of that data is also related to the endpoint that we would be interested in from an activity point of view such as fed rates and so forth. So there is information pulling around like that. Again, it is double-blind and placebo controlled. So at this point, it's hard for us to make any statement except to say that we're going to run the trial, get the information and go from there.

And do you have all the animal talk necessary to do the multi-dose portion of the study and towards all of the three programs that you've outlined starting this year, or are there other animal talk studies to be completed?

We do not believe there are additional talk studies required to move forward.

Okay. That's good news.

Absolutely

Okay. And if there is a milestone associated with the CIMZIA approval or would that just be the initiation of royalties?

That would just be the initiation of royalties.

Okay. Terrific. Thank you.

Absolutely. Thank you

Next question is from Leah Hartman with CRT Capital. Please state your question.

Thank you for taking the call gentlemen, and thank you very much for the detailed disclosure in the press release and then the presentation was very helpful. I have questions surrounding '05 Qs partnering, which I think mostly has been addressed but you said, you had already been approached and was that someone approaching just from the diabetes perspective or for the broader indications for the whole compound?

Yes, sorry.

I take it as for later.

Yes, there is more than one company that's coming to door.

Okay

And they look at it from different ways. You can imagine the people, I mean, there is an interesting situation, right, because we've seen this happen before over the years of biotech where a particular mechanism of action starts becoming visible and it doesn't only improve companies like ourselves, but also, because in this case you've got Amgen and Novartis, both working on drugs scenario. And we still think our drug is better but we like the idea that there are several large pharmaceutical and biotechnology companies, who are focusing on this particular mechanism. It provides lot of validation. It gives the market and the investors a lot more information about the right way to success, just because more trials are being run. And so, we think that's all positive for us. However, you would also guess that being that you're targeting potentially because Canada was proof RA and we talked about the use of Kineret and diabetes and things like this, that there are companies who have franchises in those areas that are not either Novartis or Amgen who might be players who would say, gee, we would like to be in those areas. So with that there are a number of people out there. Our ideas have been to simply tell them very politely that we appreciate the interest and what we need to do is based on relatively lower cost of developing this through the Phase 1 stages that we feel like we need to go ahead and go through that. And in the meantime, let's stay in touch and so forth.

And if I heard you correctly with respect to 052 that you look at the data you see at the end of 2008 and you make the determination about which one or two of the three other programs you might pursue, and that you would wait post the conclusion of those Phase 1 trials to make a determination whether or not to partner?

Overall, what you said, we would like to wait till we get the results out. Timing wise we expect to see the results from the diabetes study come out in the third quarter of this year.

Okay.

And based on that, we do plan to move forward with the three indications which we've identified now. Something could come out of the study that will lean us to pick another indication added in there, but as long as it's in the same ballpark, our idea is that there are three studies running by the end of the year, all in indications other than the one we're studying right now. And then the results from that we would have -- what we're thinking and I have to say Dr. Solinger hasn't given me the specifics on trial design for the other trials so I can't quite say it. But we in ballpark thought that sometime in the third quarter or fourth quarter of next year those studies would be complete and we'd have a much bigger data set both from an efficacy and the safety point of view.

And this maybe a naive question, but since Phase 1 is principally safety, that you see a nice safety profile and you look at that orphan designation, can that be a Phase 1 plus 2 trial design?

You've asked the right question, I mean clearly because the drugs have never been in humans, we think of this trial as a Phase 1, now you step into the other studies and you began to think that maybe people would realize that, you are looking at downstream endpoints and so what do you call that, is it a 1B 2A or 2A? Those are the kinds of questions that we have debates around here as well. I think if we go back to the facts of it, the current trial, lets just go back to that, its called the Phase 1 because it focuses on safety and pharmacokinetics, but the reality is, that we're going to collect data on relevant endpoints to diabetes such as Hemoglobin A1c and also to inflammatory markers such as both C-reactive protein and Fed rates. So, all of that data, we expect to be able to see as we finish out this current study. And so with that then we'll able to determine the kind of inflammatory affect we're having, and therefore, decide exactly what doses we want to have go forward into the other three studies. Once we're on those studies though, Dr, Solinger is clearly focused on the idea of getting clinical activity out of those studies. So, the gout study will surely measure pain or something along that endpoint. And then, I wish it's not very hard to measure, as you know, from the studies that are done and it is an acute situation in gout. And then secondly, with the So-JIA and with RA, of course, there are measures already predetermined and I think we know enough about those areas that we already know something of what those studies will look like. So, we will be gathering data that is, at least, in principle, using the same kind of endpoints you would use for a clinical efficacy study, and then using that data to think about what are the real studies going beyond that to actually go for registration.

Nice predicament to be in. Well, good luck this year and thank you for taking my question.

Absolutely. Thank you.

Our next question is from Jason Napodano with Zacks Investment Research. Please go ahead with your question.

Hi, guys. Thanks for taking the question.

Sure.

A question maybe for Alan, I'm just trying to better understand the efficiency that you spoke about in terms of 052 relative to some of the other drugs, mainly Kineret. In your opinion, what specifically makes 052, and I know you spoke about this in your prepared remarks, but in regard to comparing it to Kineret, is it specifically you think going after the IL-1 beta or is it the half-life that you spoke about that would allow for the monthly or potentially even bimonthly dosing? In that regard, would Kineret be a more effective molecule if it had the same kind of dosing or half-life advantages that 052 would or would Kineret be a more effective molecule if it had, let's say, the same kind of dosing, but then went after the beta ligand?

Okay. Well, it's a complex question and you picked up on a lot of the issues. I think there are several points to this. First of all, I think having a very high affinity for the target with 052 versus Kineret is one part of the equation. Certainly the half-life of, let's say, roughly 2.5 to 3 weeks versus 4 to 6 hours makes a difference also in the formula that you're putting together. I think there is also a difference in going after the ligand versus going after blocking the receptor due to the significant differential between the number of receptors versus the number of ligands. All three of these areas point towards XOMA 052 as having some superior aspects. So when you put them all together, you get a product that we all think has a great deal of potential.

Let me ask just another question. Amgen, as we all know, made a living off of taking, let's say, first generation molecules and extending the half-life for improving the dosing and launching second generation molecules. Is there an opportunity with Kineret as a potential competitor that they could engineer or pegylate or do something to Kineret that would improve its dosing that would potentially create a more effective molecule?

Well, actually, I think it's in the public domain. I'm pretty sure it is, because it's been presented at some national meetings, but they have actually made some attempts improving the half-life and the kinetics of Kineret by doing various manipulations. And although they have picked up some increased half-life, the overall profile hasn't been improved that much. They've gotten the dosing from once a day down to a couple of times a week with these types of modifications. But that didn't put it commercially in a setting that was very good going up against the TNF blockers. I'm sure that Amgen will work very hard at finding other ways to approach this. It's very clear from their announcements over the last few months. They have other anti-IL-1 programs ongoing, and we just don't know much about the progress of those programs at this time.

Okay. Thank you.

You're welcome.

Our next question is from Michael King with Rodman & Renshaw. Please go ahead with your question. Michael King - Rodman & Renshaw: Thanks. Just a quick follow-up technical question. Alan, can you speak on whether or not you have data that indicates that 052 gets tissue penetration?

We certainly haven't announced anything as far as human data and, I think that's probably the most appropriate data to talk about in animal models. Certainly, we've seen that. But at the present time we've not announced any data concerning tissue penetration and all, and in particular, in a disease like diabetes that would be a very difficult process to go after looking at penetration into the pancreas.

And Mike, is there something particularly you'd -- Michael King - Rodman & Renshaw: No. Well, I wasn't talking about that. I was more concerned about whether you get into the joints, so that it would have efficacy in RA.

Well, I mean, we certainly have animal data, but to extrapolate to that level up into human trials is very difficult. The best animal studies for something like that are humans. We really need the data from humans to tell, but there is every indication that this should get into an inflamed tissue like the synovium very adequately. And we put those into our models. Michael King - Rodman & Renshaw: Okay. Great.

Our last question is from Aaron Lindberg with WM Smith & Company. Please go ahead with your question. Aaron Lindberg - WM Smith & Company: Thanks. Just a quick follow-up. Where do you expect the capital expenditures to be directed in 2008? Is that for increased manufacturing or other R&D capabilities, where is that targeted?

It's a combination of things. It has to do with continued improvement of our manufacturing facilities as we continue to do more projects there, both for our collaboration partners for biodefense, and frankly, for own products like XOMA 052 together with manufacturing facilities. But also it has to do with equipment related to our antibody discovery and technology capabilities. So it really is focused in both of those areas. Aaron Lindberg - WM Smith & Company: Okay. Any change to the manufacturing capabilities?

I would characterize it more as enhancement rather than a significant change. Aaron Lindberg - WM Smith & Company: Okay. Thanks much.

There are no further questions in the queue. I would like to turn the call back over to management for closing comments.

Once again, we just thank everybody for being on the call with us today. We are very excited about this coming year. We think we've got a lot of very interesting things with the 052 and the other things that we're doing. So please stay tuned. I think there's going to be a number of events this year.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.