Good day, ladies and gentlemen, and welcome to the XOMA Corporation's fourth quarter and full year 2014 financial results conference call. [Operator instructions.] I would now like to introduce your host for today's call, Ashleigh Barreto, Investor Relations at XOMA. You may begin.

Thank you, operator, and good afternoon, everyone. Joining us on the call today are John Varian, Chief Executive Officer; Paul Rubin, Senior Vice President, Research and Development and Chief Medical Officer; Fred Kurland, Vice President, Finance and Chief Financial Officer; as well as Tom Burns, Vice President of Finance, who will be taking over as CFO upon Fred’s retirement on April 3. Before we begin, I would like to remind everyone that this conference call will contain forward-looking statements about the company. These statements are subject to risks and uncertainties that could cause results to differ. Please note that these forward-looking statements reflect our opinions only as of the date of this call. We will undertake no obligation to revise or publicly release results of any revisions to these forward-looking statements in light of new information or future events. Factors that could cause our actual results or outcomes to differ materially from those expressed in or implied by such forward-looking statements are discussed in greater detail in our most recent filings on Form 10-K or other SEC filings. I'd now like to turn the call over to Fred.

Thank you, Ashleigh, and good afternoon everyone. We appreciate you joining us today. I want to say how much I’ve enjoyed my time at XOMA getting to know and working closely with all the people here and learning about all of the exciting science that goes on behind the scenes. The company is on the cusp of achieving its goal of becoming a commercial organization and I’ve decided that this is the right moment for my retirement from full time employment, turning the CFO responsibilities to Tom Burns, who has my full confidence that he is ready to lead the finance team, be a major component of our communications with the investment community, and be a valuable member of the executive committee. Tom has been involved in every financial transaction we have conducted in the eight years he has been at XOMA. Tom also has been responsible for developing XOMA’s budgets, including the financial management of the gevokizumab trials for several years, as well as playing a leadership role in executing our SEC filings. I have made a great many friends here at XOMA and amongst those of you who are listening to our call. My next phase will be part time consulting with biotech companies that can benefit from my experiences. I’m also looking forward to spending time with family, and particularly my grandchildren and eliminating a rather long commute to Berkeley. I wish you all the best. I’m going to hand the call over to Tom to discuss the fourth quarter and 2014 financial results. Tom?

Thank you for those kind words, Fred. You’ve been a great mentor to me and all the members of the finance committee. We focus the vast majority of our efforts and resources on advancing our gevokizumab clinical development programs, particularly the EYEGUARD clinical program, which now has four trials enrolling patients, and the newly launched gevokizumab Phase III program for pyoderma gangrenosum. All of our actions are designed to ensure we achieve our goal of seeing XOMA become a commercial operation. In reviewing the financials, I’d to call out the fact that reimbursements we received from Servier for expenses incurred in the gevokizumab NIU and Behcet’s disease uveitis development program are booked as revenue. In the third quarter of 2013, the gevokizumab NIU program and CMC costs reached the $50 million cap of fully reimbursable expenses. Since that point, we have paid 50% of the NIU development costs, so our comparison between 2014 and 2013 reflect this development. We recorded total revenues of $18.9 million for the 12 months ended December 31, 2014. In the 12 months ended December 31, 2013, we recorded total revenues of $35.5 million. For the three months ended December 31, 2014, we recorded revenues of $4.3 million compared with $12.5 million in the corresponding 2013 period. The decrease in the full year and fourth quarter 2014 revenues was due primarily to reduced revenue from our cost-sharing collaboration with Servier and reduced license fee revenue, including the $7 million milestone payment received from Novartis in 2013. Our R&D expenses for 2014 were $80.7 million compared to $74.9 million incurred in 2013. The increase in 2014 reflects increased activity on our gevokizumab clinical program, noncash stock based compensation costs of $3.2 million, and additional salary and benefit costs of $1.6 million. For the three-month period ended December…

Thanks, Tom. Before I get into today’s topics, I want to stop and thank Fred for his service to XOMA. He’s been important to our launch of XOMA in a new direction several years ago and he has helped put XOMA on firm financial footing. We want you to know that Fred is going to benefit from XOMA’s success. Under our retirement plan, based on Fred’s recent 65th birthday and his years of service, his options do not expire upon retirement but are exercisable during the remaining life, so Fred can continue to participate in the upside we all hope will occur with positive results from our gevokizumab and XOMA 358 studies. I’m going to keep today’s call short, as the final exacerbation of the EYEGUARD-B study has not yet occurred. When it happens, we’ll let you know via a press release and approximately six weeks later, we will have the top line data to report. As I’ve said, we are not waiting for EYEGUARD-B results. We are taking the steps necessary to allow Behcet disease uveitis to be our first indication for gevokizumab. If EYEGUARD-B is positive, we will request a pre-BLA meeting with the FDA to review the study. Our pre-BLA package will also include the two Phase II studies Servier and we previously conducted in patients with Behcet disease uveitis, as well as the entire safety database we have compiled for gevokizumab. We are prepared to submit our BLA quickly and bring gevokizumab to patients who suffer from Behcet disease uveitis. The pace of enrollment in EYEGUARD-A and EYEGUARD-C has steadily improved. At our current enrollment rates, Servier and we have calculated we will achieve full EYEGUARD-C enrollment during 2015. The primary endpoint in this study will occur six months after the study is fully enrolled. For…

Thanks, John, and good afternoon everyone. John’s right in saying that XOMA 358 has the potential to offer important therapeutic options to patients suffering from the sequelae of hypoglycemia, and I’ll try to provide an overview in the next few minutes. XOMA has spent considerable time and effort in studying the insulin receptor. This work has borne three distinct classes of antibodies, each targeting a different allosteric site on the insulin receptor. XMetA activates the receptor. In animal models, including spontaneously diabetic monkeys, this class of antibodies has been shown to potently regulate blood glucose without relying upon insulin for its beneficial activity. XMetS, a second class of antibody, has been shown to enhance the effect of the body’s own insulin on its receptor in an insulin resistant state. As many of you know, insulin resistance is the cause of type II diabetes mellitus, and this mechanism may be an important alternative to this form of the disease. We are seeking development and commercialization partners for each of these programs. The data we’ve generated for XMetA is currently being shared with potential collaborative partners. XMetS trails XMetA in development by approximately one year. Now let’s move to the XMetD program, which represents an opportunity for XOMA to develop and commercialize its own discoveries. Endogenous hyperinsulinemic hypoglycemia is a condition caused by the body’s production of too much insulin. These high insulin levels can result in seizures, fainting, brain damage, and even death. Multiple diseases can result from this condition. First, congenital hyperinsulinism, which presents during infancy. Second, a small percentage of patients who undergo post-gastric bypass surgery for obesity develop post-prandial excess insulin production. And third, individuals who have either benign or malignant tumors of the beta cells in their pancreas and experience excess insulin production. I’m going to expand…

Thank you, Paul. We are all looking forward to the recurrence of the final ocular exacerbation in the EYEGUARD-B study. It will happen when it happens and we’ll let you know when the countdown to data analysis has started, but we are not waiting. We are urgently taking steps to execute on our Behcet’s first strategy. We and Servier can see the light at the end of the tunnel for EYEGUARDs A and C. We believe we need only one of these two studies, EYEGUARD-A or EYEGUARD-C, to be positive in order to submit a supplemental BLA with the FDA for the broader NIU indication providing we have approval from the FDA in Behcet disease uveitis. And while gevokizumab is our first, second, and third priority, XOMA 358 expand our pipeline and shows the power of XOMA’s science and development capabilities. Operator, we’ll now open up the call for questions.

[Operator instructions.] Our first question comes from the line of Adnan Butt of RBC Capital Markets.

I have to ask, on A and C, John, so, first question is what’s the expectation of a bolus reasonable? What would change to kind of precipitate that at this time? Then my second question is on 358. The data certainly looked interesting. What’s the safety profile and what more do you need to do to figure out what the Phase II should be and what size Phase II it should be?

So, let me start with A and C. What we’re trying to do today is actually give you more information about what we know. And so there is, we believe, a decent chance that with the countries that have opened recently with the activities that have stepped up, that we do in fact have a good chance of having that bolus. So we are seeing those sort of things happening. So for instance, in EYEGUARD-C, the month of February was the best month of enrollment we’ve had ever, and there’s only one other month that was equal to or right at the same level. So we are seeing that increase, but we’re still going to need a pumping up of patients from some of these countries that have been recently opened to move up from the dates that we said. So the prediction that we gave you, we’re trying to be very specific, if you just calculate out the run rate that we’ve been at, we’re still in pretty good shape and we think with the potential for a bolus from some of these newer countries where there’s quite a few patients that we’re starting to see, we have a chance to be ahead of those predictions based upon historical average. Paul, do you want to talk about XMetD?

Yeah, but also to just add to what John said, I think we’ve said from the very beginning, that to find patients with active disease, that at least two out of a four on the vitreous haze, it’s more difficult to find them in the United States because treatment or intervention occurs before that. It’s a little easier to find patients with more severe disease in these new countries that have opened up, so there’s a strong rationale as to why that bolus should occur on the basis of the various geographic areas that we’re now opening up centers. And that has historical precedent. If you look at all the other companies that have done studies for acute uveitis, they see a disproportionate number of patients enrolled from these new countries that we now are getting up and running. So it really makes sense, and that’s why we’re relatively optimistic that there’s this chance to get this bolus of patients. On the XMetD front, the only safety issues related to the drug really were in the efficacy results, and that really is a function of raising glucose, which is exactly what we would have expected. The other adverse events were more related to typical Phase I trials in that we saw things like headaches and we saw things like intravenous catheter, because the catheter was in place for a five day period. And in fact, the weight of adverse events, although none were severe, was virtually identical in the placebo versus the active group. So the safety aspect of this seems very predictable, and there’s nothing in the safety results that would preclude very aggressive development at this point in time. Where we haven’t finished designing the Phase II trial, we believe that it wouldn’t be dissimilar in terms of the types of things we would measure, because really, you’re looking at glucose and insulin. The difference is in patients rather than having to inject insulin, we could provoke hypoglycemic episodes by, in the case of congenital hyperinsulinism, you would do the measurements after a prolonged fast, and that’s typically what they do to characterize patients. And in the patients that have post-gastric bypass hyperinsulinemia, you would just feed them, because that’s typically what provokes their hypoglycemia, and then you’d measure glucose. So again, the endpoints are validated and relatively simple and very relevant. So I think that the actual I’s dotted and T’s crossed for the protocols haven’t yet been completed and we’re still talking to experts, and we need to have some chats with regulatory agencies, we have a pretty good understanding of what we need to do to prove that the drug works in these patients.

Our next question comes from the line of Jason Kantor with Credit Suisse.

I was wondering if you could comment on where you are in your discussions for potentially partnering the XMet programs that you’re not going to take forward on your own. What do you think the timing for getting to a partnership is, and what additional investments do you expect to make in those programs between now and then?

XMetS, as Paul said, is about a year behind XMetA in development. So let me talk about where XMetA is, and then you can infer from that to where XMetS might go. So the reason that we would partner both XMetA and XMetS is we think the primary opportunity for those two antibodies is in the area of Type II diabetes. Our plan is to commercialize our own products in the U.S. to specialized prescribers who treat the physicians we’re after, so these two do not fit. The type II diabetes population does not fit with that plan. So we do intend to actually license those two antibodies out. With XMetA, we’ve actually generated the data that we intend to use to try to license the product out to a company which would in fact develop it for type II diabetes. The data that we targeted to have available is data in nonhuman primates that we think would be very predictive of what would happen in humans. So this is an antibody and a program that we think we’ve gone to the point where we’ve generated the data that should make it partnerable and we’re going to be finding that out as we go, because we are in the middle of discussions with kind of the usual suspects that you would think to take on a large type II diabetes program. We’re getting good interest in it. At the same time, when it comes to timing or the kind of deal we would do, these things are very unpredictable and so it’s never done until it’s done. But what we’ve done is we’ve generated the targeted data that we had hoped for, that we think should be compelling to get a deal done, and we will find out whether we are correct in that or not as we go forward with these next several quarters. So we are in the discussions and we’ll find out in the near future. Anything that you want to say on the data that we’ve generated, Paul? On the nonhuman primate data?

Well, we’ve published some of it, not all of it. We’ve published single dose data in spontaneously diabetic monkeys that showed it had a really nice effect on both fasting and post-prandial. And we do intend to publish and present the data from multiple dose trials in the relatively near future.

Our next question comes from the line of Ted Tenthoff of Piper Jaffray.

Did you give any update on when you expect to get data from EYEGUARD A and C? And on 358, how do you think you would sequence the Phase II study?

What we’ve said is that we expect to have the data from A and C six months after enrollment’s completed in C and two months after enrollment’s completed in A. That’s when the primary endpoint is. And so if we have this bolus of patients, we can still have data by year-end in one or both of those studies. If we don’t have the bolus and we just continue to run at the rate that we’re at, we tried to give you a better prediction of when that would happen. And so if you take just the historical run rate for EYEGUARD-C, for instance, during this next fall, we would hit full enrollment and we would have hit the primary endpoint six months thereafter. So all we were trying to do today is not change anything we’ve said, but give you more specific guidance on what happens if it just keeps running at the rate it’s been at, or if we do in fact hit a faster rate because we are in fact, Servier and we are putting in place things that could provide the bolus that we’ve been working toward.

And then on 358, how do you intend to sequence the study?

We’re exploring the possibility of advancing from this normal volunteer study into the two indications which we think would kind of represent what’s going on in children, what would represent in adults. So what we’re trying to determine is if it’s possible to do some single dose proof of concept trials in patients with both congenital hyperinsulinism and patients post bariatric surgery. Now, the good news about both these indications is that although it occurs in multiple countries and multiple areas, the patients are treated in a very confined group of centers, so we have access to get them, and we could probably do these relatively quickly. But the first step is to really explore the possibility of doing kind of two parallel trials and we’ll have to determine how long this takes, and how much this costs, but that’s sort of the stage that we are right now, trying to prove the concept and duplicate what we saw in terms of dose and activity in both the CHI as well as in the post bariatric patients.

Our next question comes from the line of Liana Moussatos with Wedbush Securities.

First, on anterior scleritis results, you mentioned positive response in six out of eight patients. Was this the primary endpoint that you’re referring to, your secondary endpoints, like primary endpoint, two step reduction, reduction to zero or other? Can you clarify that?

I’m going to let Paul answer that question, and he can answer it somewhat, but let me just first of all say when a study’s done by NIH, which as many of you know who follow companies like Targacept, what we can say is what they say we can say. And so what we said in today’s both press release and call is what we can say. So we do look forward to being able to be able to share more detailed data in the future, but we were very happy to finally be able to say what we were able to say today. So with that said, I think Paul can answer at least the prior endpoint question about the two step reduction. I think he can answer that, but if you keep asking questions, we’ll say we can’t answer them. But let’s try to answer that one at least.

I hope to answer them like Marshawn Lynch. [laughter] And I think this was talked about. The study used [Nita Shen’s] scleritis scale, which was the 0 to 4 point scale, kind of totaling up from the four quadrants of the eye. So we used that scale and response was defined within her parameters. And that’s about all we’ve got. We’ll have to stop at that.

Again, we do look forward to sharing the data, and we will be able to at some point in the not too distant future, but we were happy to be able to at least say this today.

And a follow up question, a little bit more clarity on XOMA 358, the indications. You mentioned in the U.S. congenital hyperinsulinism of 1,250 patients. What about outside the U.S.? Bypass 100,000, about gastric for the U.S. Pancreatic tumors, insulinomas. You mentioned a thousand new patients in the U.S. Can you go through a little bit more and then talk about ex-U.S. estimates as well for those of us who have to model everything?

Sure, ex-U.S. interest, and I’ll start there. The frequency of the disease in Europe is greater than it is in the United States, and there’s certain countries where it’s dramatically greater than the United States. So in fact, this was a XOMA discovered product, so we own global rights to it. So we have the opportunity to both from a development and hopefully from a commercial perspective, gain value on a worldwide basis. So that’s the intent. In fact, it’s more common in Europe and even more so in places like the Middle East. The insulinoma population is kind of exactly what we said. There’s about a thousand new cases a year. But interestingly, the tumor itself is relatively indolent, and the majority of the morbidity is associated with the hyperinsulinism. So patients live for quite a few years with the disease, but their quality of life suffers because of the hyperinsulinemia. So we’re working on trying to get the actual prevalence numbers, so it’s really hard to know that. But there is a prevalence that’s greater than just the incidence per year because of the fact that it’s an indolent tumor. It’s the same thing with the United States. It’s really hard to know the exact numbers. It’s one in 150,000 live births, and I’ve seen as low as one in 30,000 live births. But remember, there’s about 4 million live births per year, so you can kind of do the math. But they have the disease for kind of a lifetime, except in some cases, patients that have had pancreatectomy no longer need therapy. But as we go forward, the hope for this is that this becomes a replacement for pancreatectomy. That’s one thing. And secondarily, their quality of life, as it relates to both the side effects of the drugs they’re treated with as well as their ability to eat normally, we hope that this drug can really create, if it works in its best state, that it can really provide a life changing. That’s our objective with this.

With the post gastric bypass surgery, that’s clearly the biggest potential market, and where we have the most work that we’re still doing.

It’s the largest [preval]. So we see, if you look in the literature, it states that there’s about 225,000, I think this was in 2008 or 2009. There were 225,000 bariatric procedures done, of which about half of them still are Roux-en-y procedures. Now, it occurs more commonly in Roux-en-y, although it even happens with gastric [squeeze], and it’s been reported. Also, it’s variable. We’ve seen anywhere from one, and I just recently read a paper where it’s up to 10% of patients that get the procedure. So we really have to do a lot of work to determine what the real true prevalence is and how this could be used, but we can do that as we prove concept. And we have literally spoken to probably every expert in the world on these two diseases, and we have a good handle on how to go forward.

And just what you saw at ENDO, when you were down there presenting, the level of interest.

Yeah, obviously, the data was received positively by the physicians that see it, but I was also struck by the physicians who said, “Boy, I have patients right now that could use this.” So it was encouraging, really.

And you were mentioning that the incidence in Europe and the Middle East was higher than the U.S. Was that the insulinomas?

No, that was the congenital hyperinsulinism. So the CHI, as I say, generally in Europe it’s somewhere around twice as prevalent. And then in places like Saudi Arabia, it’s one in 2,500 live births. So as I say, it’s variable depending upon geography, but in some places, it’s relatively common. And the other thing we haven’t talked about, if you look, again, in the literature, there are dozens of diseases where hyperinsulinemic hypoglycemia occurs, and that also will sort itself out with time as to where this could be most useful.

Our next question comes from the line of Biren Amin with Jefferies.

Maybe I’ll just start with EYEGUARD-B. I think last spring, the company had disclosed the percentage events that were achieved, and I’m trying to maybe just get an update on that if you could. Maybe just describe how many number of events have been reported in the trial?

We never gave a number, but what we said last fall, in November, was that there were a handful to go, and all I can tell you today is there’s less than a handful to go. And we can’t be more specific than that. It’s a Servier study, and they’ve been very adamant about what we can say. So we are working down towards the final event that’s going. We’re moving toward it. What Servier has done, and this is really important, and this is actually something we did talk about, which is we do know, and we clearly see, based on the blinded data, that when patients come into this study in the first 90 days, there’s a sizable percentage of those patients who come in in those first 90 days who exacerbate, and then it trails down to very, very little as time goes by. And so because of that, we’ve been very appreciative that Servier has continued to put patients into this study over these last three and four months, and they will continue to, right up until the day that the last exacerbation happens. And we know, if we continue to put patients into the study, that a percentage of those patients are going to exacerbate pretty damned quickly, because they do. And so we haven’t given exact numbers, but I can just tell you that we hit target enrollment last June. We’ve said that. At this point in time, they’re approximately 15% over that target enrollment, and it’s because they’ve continued to put patients in so we could hit this last exacerbation. So I can tell you it will happen, and it will happen because we’ve got new patients and have had them coming in, and there’s a pretty steady rate of exacerbations in that first 90 days. They get past that and they do pretty well some of them. So that’s based on blinded data.

And I guess when the company talks about target enrollment, should we think about target enrollment as 110 patients? Or is target enrollment some other number?

It was never 110. So, 110 is the up to number, and that’s what the study can enroll. The target enrollment was substantially less than that but nothing like half or anything like that. So a number less than 110 but more than half of that. I’ll give you that as guidance. And so as we’ve added more patients, the reason I say that is we’re not close to hitting that 110. That would become a problem, but we will not have to go anywhere close to that in order to get to the last exacerbation.

And then I noticed that with the new countries, one of the countries that wasn’t on the list is India. And especially given the [unintelligible] trial enrolled I think a substantial number of patients from their Indian sites as did the [unintelligible] studies, why not open the Indian geography to help enrollment?

That’s a great question. In the time that that study was done, in the time that we opened ours, the regulations changed in India that made it onerous to both initiate trials and also they changed the rules regarding liability that made it onerous as well. So in fact, not only us but most companies are not doing trials in India on a going forward basis. It’s a Servier decision, but we fully understand their decision. This is a little bit slang, but what I remember is that India changed the rules, and you have, as a company, unlimited liability for anything that happens during your clinical trials. And that’s made a lot of people rightfully run, right?

I understand India’s reconsidering those because they lost… But it probably won’t change in time for us to take advantage of it.

And maybe just a last question, a financial question. If I look at your year-end cash position and then how much you expect to spend on operating activities, it seems that you’re going to get into the teens range as far as cash by year-end. How should we think about that? Does that include any partnerships that you hope to engage in during the year?

Our guidance does include licensing activities, so that is part and parcel with the guidance. So your math is correct.

Yeah, it includes it at a low level based on historically what we’ve done. So we do intend to do additional deals, but there’s a small level of partnerships that are expected to be done, because that’s what we do.

Our next question comes from the line of Matt Kaplan with Ladenburg Thalmann.

Just a follow up to Biren’s question, in terms of the EYEGUARD-B, it seems as though you’re seeing somewhat of a bifurcation in terms of when the events occur on a blinded basis in the study. Maybe can you talk about your optimism in terms of the outcome of the study with respect to that?

Well, here’s the big preamble. All data are blinded as it should be, right, so we truly know nothing. We do see that if patients get to a certain point in time, the rate of exacerbation goes to virtually nothing. So when Servier sized the study and it had a predicted rate of exacerbations, they assumed every patient would exacerbate at some point in time, including gevokizumab patients. So when that line was drawn and the exacerbations were calculated, how many patients needed to come in, there was an assumption that all patients would exacerbate but hopefully the gevokizumab patients would be later exacerbators. What we’ve seen, and we’ve said this, is that there is a group of patients that in this study who’ve gone a very long time, and on average more than nine months and even more than that, who have not exacerbated. We know that all the patients that came into the study had to have had an exacerbation in the previous four months, and they had to have at least one more, and they had on average much more than one more, or more than one more, in the previous 14 months, or within the total 18 month period. So these patients were exacerbating as they came into the study. We are seeing a group of patients who have gone a very long time and not having exacerbated. So that has thrown off our calculations somewhat, of when exacerbations would happen and when we would get to this point in time. It could be great news, or it could mean nothing. We won’t know until the data re unblended. So we do see the beginning of the period in the first 90 days, the highest rate of exacerbations, and we see that there’s a group of patients who get past a certain point and they have not exacerbated. So it’s encouraging, but it doesn’t mean anything until the study’s unblinded. Do you want to say more cautionary things on that, Paul?

No, that’s exactly right. As you know, the study is a [unintelligible] withdrawal trial, and historically, and this is kind of evidenced by our first study that we did in Turkish patients, when patients are not on an active therapy, they exacerbate relatively quickly, that they fall below a therapeutic level of drug, and that’s what we saw in our Turkish patients. So in retrospect, we could have probably predicted that the majority of the exacerbations would have occurred in the first three months. I think we kind of looked at it as linear. It’s clearly not linear. There’s a large number at the beginning, which is exactly, when you understand the disease and what we’re doing to these patients, makes complete sense. What we didn’t know is that that rate would then kind of plateau with time. And that’s exactly what we’re seeing. So although we don’t know who’s on active and who’s on placebo, if you had an active drug, this is sort of the pattern you would expect to see.

And then just talking about your EYEGUARD U.S. study that you just launched, give us a little bit of sense in terms of timeline for that, I guess if you’re going to need that to file in the U.S., if the FDA doesn’t allow you to use the Phase II data as supplementary.

We can’t give exact guidance on when it will be done, just because it’s still in the early stages, but what we know is that it’s very possible that study, as you implied, will not be needed at all when it comes to our BLA review by FDA for Behcet disease uveitis. So we believe there’s a very good chance and precedent that that should not be needed at all. We also, though, are enrolling patients and generating data such that at the time of the BLA submission, if FDA wants data from that study prior to its completion, we will be able to give them data on a certain number of patients with that BLA submission. And so it’s serving that purpose. If we have to complete the study, it may go beyond the date when we would expect that review to happen. If it does, we can still do it, but we don’t have an exact date when it would be done. But we think it is, at this point in time, serving the purpose we intended it to serve, which is beginning to generate data in U.S. Behcet’s uveitis patients that can be used as part of this BLA submission.

And then I guess shifting gears to the PG study, pyoderma gangrenosum study, have you given any guidance with respect to that and that timeline?

That one two, we just got the first of the two studies up and running. We’re seeing patients enrolling. But we do not have a run rate yet that we can make a prediction for this. No one’s ever done this study before. So we’re encouraged by the fact that we’re getting the sites open, and when we get the sites open, they actually have patients. So that’s great, but it doesn’t give us enough information for us to give you a prediction on when it will be done.

And can you use your experience in Phase II to help you kind of segment that a little bit?

Well, we were able to find six patients in four months, I think, in what, four centers? Each of these two studies, I think, are going to have around 30 centers, each of the Phase III studies. But to try to make a prediction based upon that small sample I think would probably be inaccurate.

And just shifting gears to 358, I guess Paul, you had mentioned the alternatives to these patients is pancreatectomy. Just trying to get a sense in terms of the commercial opportunity, how many of those procedures are done in the U.S. each year?

It’s probably around 30% to 40% of the diagnosed patients. So that’s to say there’s one in 40,000 live births, so you can kind of back into that.

So now that we have these data, as you can imagine, we are delving deeply into all the market research. And we actually have a strong commercial team here and a strong data analysis team. We’ve purchased some of this big data that exists where we actually have access to a database that includes about 25% to 30% of the U.S. population. So we actually have the right tools to do our market analysis, but until it’s complete, we’d be kind of guessing on this. So now that we have these data, we’re kind of full steam ahead asking some of the deeper questions around the market opportunity. But as we sit here today, we know there’s a good market opportunity, because we know there’s a huge need and we know what these patients are typically spending in order to just maintain or manage themselves today from talking to the parents and others.

Just a little more color. The congenital version, there are multiple genetic defects that result in this. There’s at least 10 or 12 different genetic mutations that have been associated with it. Some of these mutations respond to a drug called diazoxide. And you can control the disease with it. The problem with diazoxide is that it causes severe side effects. The worst from both the child’s perspective and the family’s perspective is it causes hirsutism or hair all over their body, where they’re clearly disfigured as a result of it. You can identify a child that’s on diazoxide and it’s completely unsatisfactory. So the way this drug works, the mechanism of XOMA 358, is that the benefit, if we can prove that it does continue to have this benefit, should be independent of the underlying congenital defects. So it should work in all patients because the end result, independent of what the congenital abnormality is, is too much insulin and affecting blood sugar as a result of it. So if we can prove what we’ve seen in Phase I and the safety profile is similar to what we’ve seen, there’s a good reason to believe that this would be kind of the first choice for all of these patients.

And just the question in terms of the therapy, in terms of dose titrating patients on a therapy like this, do we have to think about it similar to how insulin is used to treat type II diabetics and each patient is very unique in terms of their insulin doses that they take?

I think that ultimately depends upon the safety profile and what the therapeutic index is. The reason that insulin has to be so closely titrated is that the therapeutic index is about 1.4:1. So the dose that’s effective, 1.4, that dose causes severe hypoglycemia. If our therapeutic index is 10, then we have much more leeway. If it’s closer to 1, then we’d have less leeway. So we have to wait and see.

Our next question comes from the line of Yatin Suneja with Cowen & Company.

Maybe a question on PG. Could you tell us what is the duration of treatment for the patient? I know you are evaluating the primary endpoint at two points, day 126 and day 140, but will the patients keep receiving treatment or will you stop it? And what happens if they relapse?

Traditionally, patients are not chronically treated. They don’t prophylax. And the reason they don’t prophylax is about 50% of patients have a single episode, and once they heal, it doesn’t recur. So the way this is done is it’s treated episodically. So patients will develop a lesion, they’ll get a therapy, and they’re treated up until they heal and then probably for a couple of months after that, and then they stop therapy. So we still have to do more research on understanding this, but it’s more in the five to six to seven month range that they’ll be treated with the drug. And if they recur, they’d get it again.

Yeah, which we’ve actually seen as you may have seen in our data. We had a couple of patients in that first six that we treated and followed who did recur seven to seven and a half months after they had stopped receiving treatment, developed a new lesion, were treated and again healed within two to three months.

So what we do know, and I think we’ve talked about this, is that there are about 12,000 or so new patients each year that are treated, that receive treatment.

And then maybe just one more question on the anterior scleritis study. Given that it was a proof of concept study, do you still need to do another trial before you could go into pivotal or registration trial?

Well, really, again it’s up to us as to how much more studies we want to do going forward. Traditionally, these patients do not spontaneously remit. That is to say if they don’t receive therapy, they don’t get better. So we can extrapolate that even in this trial, if you’re seeing a high rate of patients that respond, it’s likely due to a drug effect, coupled with the fact that in larger trials, because of the low prevalence, you’re not talking about studies that would require hundreds of patients. It would be a much smaller number. So in fact a pivotal trial and another Phase II trial would essentially be the same size. So it just logically suggests that when we go to a pivotal program, the next study could be pivotal in nature.

And then final question, maybe this one is for Tom. Could you just update us on the latest shares outstanding? I think there were some option conversions in February, so if you can tell us the latest shares outstanding, that would be great.

Yeah, we had total shares outstanding of about 116 million shares outstanding. On a fully diluted basis, we’re at about 148 million.

And our next question comes from the line of George Zavoico of Jones Trading.

A question on 358. There seems to be, from a pathologic standpoint, a number of different indications, a number of different reasons why you get this hyper insulin secretion and pancreatectomy, it seems to be the only effective treatment right now. It all comes down to the sensitivity of the insulin receptor, it seems to me. And is there any reason to believe, despite all these different mechanisms of disease, that if it works in one, it won’t work in another? Because it all seems to come down to the single receptor effect. And a follow-on on that, because these all seem to be ultra orphan indications, would you then, as you see results coming out of these exploratory studies, would you develop these indications in parallel or look for the one perhaps where you had the best response and developed that one first, taking into account potential commercial opportunities with each one of these individual indications?

I’ll start with the first part of the question. This is not a disease of receptor sensitivity. It’s a disease of too much insulin. So there’s not a variability of receptor sensitivity to low levels of insulin. It occurs when there’s inappropriately high levels. So from that perspective, what’s nice about this is that this actually pauses an insulin resistance. That’s what the drug does. So independent of the underlying mechanism or disease, if the end result is low blood sugar as a result of too much insulin, this should work.

I see. And what about with regard to how you’re going to approach the different indications?

I think what we’d like to do, and we’re still in the process of evaluating this, is kind of along the lines of what you just suggested. Let’s try to put it in the main entities in small POC trials, and then allow data to drive what we do next.

And a follow-on question to that would be what about ways to diminish the insulin, other than pancreatectomy? Is anybody that you know of working on ways to diminish the insulin production? Each one of these would be different because these are different diseases.

As I mentioned, people use [octreotide] and they use diazoxide, that work two different ways. So what that essentially does is reduce insulin secretion. The problem is that these drugs have significant side effects associated with them that are off target. So they use those because they have no other choice. So as I mentioned, diazoxide for the kids, and it’s used somewhat in the post bariatric surgery patients, it does have some benefit in some of these patients, but the risk benefit ratio is still a lot of room for a better therapy.

I’m thinking in terms of upstream of that, looking at, say, for example, insulin promoters, the transcription, something that works perhaps upstream of that.

I’m not sure I understand the question. We’re not aware of anything new that’s coming out that’s directly trying to address this issue, and in fact, one of the things that’s important is we’ve kind of oversimplified as we discuss this a little bit. We’ve talked about this being overproduction of insulin. The truth is that’s part of it, but there’s also, in fact particularly in CHI, it’s not just overproduction of insulin, it’s inappropriate reaction to levels of insulin. And so by targeting the insulin receptor, we think we can go after the range of diseases, because whether it’s true overproduction, like in an insulinoma, or whether it’s just not the right regulation mechanism to the amount of insulin, by affecting the insulin receptor, we think we can deal with each of these diseases.

Yeah, I guess that gets back to the mechanism. You go after the common denominator rather than the various potential causes.

That’s exactly right. This should have broad utility because of the fact that it works with the receptor independent of the underlying disorder. The low blood sugar derived from too much insulin.

And with no further questions in the queue, I would like to turn the call over to John Varian for closing remarks.

Thank you, operator, and thank you to everyone for joining us. I’d like to wish Fred well in this new chapter of his life, and he is, I can confirm, still in the room. He has not left the building. But he has been a critical member of our team, and has trained Tom exceptionally well to take ownership and lead the finance team. Many of you are going to get to know Tom well in the coming months, and I expect you’re going to enjoy working with him. And finally, we hope to be speaking with you again in the very near future. Thanks, everyone.