content: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
  
  
                                      FORM 10-Q
  
  (mark one)
  
            [X]  Quarterly Report Pursuant to Section 13 or 15(d) of the
                 Securities Exchange Act of 1934 For Quarterly Period Ended June
                 30, 2000
  
                                         or
  
            [ ]  Transition Report Pursuant to Section 13 or 15(d) of the
                 Securities Exchange Act of 1934 For Transition Period from
                 __________ to __________
  
                             Commission File No. 0-14710
  
                                      XOMA Ltd.
  
               (Exact Name of Registrant as specified in its charter)
  
              Bermuda                                 52-2154066
  (State or other jurisdiction of            (I.R.S. Employer Identification No.)
  incorporation or organization)
  
                       2910 Seventh Street, Berkeley, CA 94710
                 (Address of principal executive offices) (Zip Code)
  
                                   (510) 644-1170
                (Registrant's telephone number, including area code)
  
                                   Not Applicable
                (Former name, former address and former fiscal year,
                           if changed since last report)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months (or for such shorter period that the registrant was
  required to file such reports), and (2) has been subject to such filing
  requirements for the past 90 days.
  
                                      Yes X   No
  
  Indicate the number of shares outstanding of each of the issuer's classes of
  common stock, as of the latest practicable date.
  
  Common shares US$.0005 par value               65,450,471
  --------------------------------------         --------------------------------
  Class                                          Outstanding at June 30, 2000
  
  
  <PAGE>
  
  
                                      XOMA Ltd.
  
                                  TABLE OF CONTENTS
  
  
                                                                              Page
  
  PART I    FINANCIAL INFORMATION
  
            Item 1     Consolidated Financial Statements
  
                       Condensed Consolidated Balance Sheets as of
                       June 30, 2000 and December 31, 1999......................1
  
                       Condensed Consolidated Statements of Operations
                       for the Three and Six Months Ended June 30, 2000
                       and 1999.................................................2
  
                       Condensed Consolidated Statements of Cash Flows for
                       the Six Months Ended June 30, 2000 and 1999 .............3
  
                       Notes to Condensed Consolidated Financial Statements ....4
  
            Item 2     Management's Discussion and Analysis of Financial
                       Condition and Results of Operations .....................7
  
  PART II   OTHER INFORMATION
  
            Items      1 through 3 and 5 are either inapplicable or
                       nonexistent and therefore are omitted from this
                       report
  
            Item 4     Submission of Matters to a Vote of Security Holders......10
  
            Item 6     Exhibits and Reports on Form 8-K.........................10
  
  Signatures....................................................................11
  
  
  
  
  <PAGE>
  
  
  
  <TABLE>
  <CAPTION>
                                      XOMA Ltd.
  
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (In thousands)
  
  
                                                                             June 30, 2000    December 31, 1999
                                                                           -----------------  -----------------
                                                                              (Unaudited)         (Note 1)
  Assets:
  <S>                                                                         <C>                <C>
         Cash and cash equivalents                                            $      42,333      $     18,539
         Short-term investments                                                         713                --
         Related party receivable                                                       189               219
         Other receivables                                                            3,724               658
         Prepaid expenses and other                                                      46               679
                                                                              -------------      ------------
              Total current assets                                                   47,005            20,095
         Property and equipment, net                                                  3,400             3,651
         Assets held for sale                                                         4,442             4,442
         Deposits and other                                                             169               124
                                                                              -------------      ------------
                                                                              $      55,016      $     28,312
                                                                              =============      ============
  Liabilities and Shareholders' Equity:
         Accounts payable                                                     $       2,789      $      3,915
         Accrued liabilities                                                          5,298             6,519
         Deferred revenue - current                                                   3,333                --
                                                                              -------------      ------------
              Total current liabilities                                              11,420            10,434
           Deferred revenue-long term                                                 5,277                --
         Convertible subordinated notes                                              33,647            34,724
                                                                              -------------      ------------
       Total liabilities                                                             50,344            45,158
  
  Shareholders' equity (net capital deficiency)                                       4,672           (16,846)
                                                                              -------------      ------------
                                                                              $      55,016      $     28,312
                                                                              =============      ============
  
  </TABLE>
  
  Note 1 - Amounts derived from the Company's amended annual report on Form 10-K
  as filed with the SEC.
  
  See accompanying notes to condensed consolidated financial statements.
  
  
                                        -1-
  <PAGE>
  
  
  <TABLE>
  <CAPTION>
                                      XOMA Ltd.
  
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   (Unaudited, in thousands except per share data)
  
  
  
  
                                                          Three Months Ended                 Six Months Ended
                                                               June 30,                          June 30,
                                                       ----------------------------     ---------------------------
                                                         2000              1999            2000            1999
                                                       ------------    ------------     -----------     -----------
    Revenues:
  <S>                                                     <C>               <C>              <C>             <C>
       Contract Revenue                                   $   2,272         $   525          $4,834          $  528
       Other Revenue                                            111              22              21              39
                                                       ------------    ------------     -----------     -----------
                                                              2,283             547           4,855             567
                                                       ------------    ------------     -----------     -----------
    Operating Costs and Expenses:
       Research and development                               7,390          11,136          14,584          23,409
       General and administrative                             1,589           1,631           3,115           3,011
                                                       ------------    ------------     -----------     -----------
                                                              8,979          12,767          17,699          26,420
                                                       ------------    ------------     -----------     -----------
    Loss from operations                                     (6,696)        (12,220)        (12,844)        (25,853)
  
    Other Income (Expense):
       Investment  and other income                             985             260           1,475             629
       Interest and other expense                              (615)           (403)         (1,241)           (797)
                                                       ------------    ------------     -----------     -----------
    Net loss                                                 (6,326)        (12,363)        (12,610)        (26,021)
  
    Preference share dividends                                   --              --              --             (55)
                                                       ------------    ------------     -----------     -----------
    Net loss available to common
        shareholders                                        $(6,326)       $(12,363)       $(12,610)       $(26,076)
                                                       ============    ============     ===========     ===========
  
    Net loss per common share                                $(0.10)         $(0.24)         $(0.20)         $(0.52)
  
    Shares used in computing net loss
       per common share                                      65,391          50,835          63,531          50,009
  
  </TABLE>
  
  
  See accompanying notes to condensed consolidated financial statements.
  
  
                                        -2-
  <PAGE>
  
  
  <TABLE>
  <CAPTION>
                                      XOMA Ltd.
  
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Unaudited, in thousands)
  
  
                                                                                    Six Months Ended June 30,
                                                                                   -----------------------------
                                                                                       2000             1999
                                                                                   ------------      -----------
  Cash Flows From Operating Activities:
  <S>                                                                              <C>               <C>
         Net cash provided by (used in) operating activities                       $    (7,265)      $  (22,358)
                                                                                   ------------      -----------
  Cash Flows From Investing Activities:
         Proceeds from sale of short-term investments                                      506           20,660
         Payments for purchase of short-term investments                                    --          (23,601)
         Capital expenditures                                                             (395)            (578)
                                                                                   ------------      -----------
             Net cash provided by (used in) investing activities                           111           (3,519)
                                                                                   ------------      -----------
  Cash Flows From Financing Activities:
         Proceeds from issuance of common shares, net                                   33,266           11,620
         Proceeds (payments) on convertible notes                                       (2,318)           4,000
         Capital lease principal payments                                                   --             (212)
                                                                                   ------------      -----------
              Net cash provided by (used in) financing activities                       30,948           15,408
                                                                                   ------------      -----------
  Net increase (decrease) in cash and cash equivalents                                  23,794          (10,469)
  
  Cash and cash equivalents at beginning of period                                      18,539           11,857
                                                                                   ------------      -----------
  Cash and cash equivalents at end of period                                       $    42,333       $    1,388
                                                                                   ============      ===========
  See accompanying notes to condensed consolidated financial statements.
  </TABLE>
  
  
                                        -3-
  <PAGE>
  
  
                                      XOMA Ltd.
  
                NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                     (Unaudited)
  
  
       1. Basis of Presentation
  
       The interim information contained in this report is unaudited but, in
  management's opinion, includes all normal recurring adjustments necessary for a
  fair presentation of results for the periods presented. Interim results may not
  be indicative of results to be expected for the full year. The consolidated
  financial statements should be read in conjunction with the Company's audited
  consolidated financial statements for the year ended December 31, 1999 included
  in its Annual Report on Form 10-K, as amended. The preparation of financial
  statements in conformity with generally accepted accounting principles requires
  management to make estimates and assumptions that affect the reported amounts of
  assets and liabilities and disclosure of contingent assets and liabilities, if
  any, at the date of the financial statements and the reported amounts of
  revenues and expenses during the reporting period. Actual results could differ
  materially from those estimates.
  
       2. Recent Accounting Pronouncements
  
       In December 1999, the Securities and Exchange Commission (SEC) issued Staff
  Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
  Statements." SAB 101 summarizes certain areas in applying generally accepted
  accounting principles to revenue recognition in financial statements. In March
  2000, the SEC issued SAB101A to defer for one quarter the effective date of
  implementation of SAB101 and in June 2000, the SEC issued SAB101B which further
  deferred implementation for two more quarters, with earlier application
  encouraged. The Company is currently evaluating the impact of SAB 101 as it
  relates to the Company's revenue recognition policy. In June 1998, the Financial
  Accounting Standards Board (FASB) issued Statement of Financial Accounting
  Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
  Activities." XOMA is required to adopt SFAS 133 for the year ending December 31,
  2002. Because the Company currently holds no derivative financial instruments
  and does not currently engage in hedging activities, adoption of SFAS 133 is
  expected to have no material impact on the Company's financial position or
  results of operations.
  
       In March 2000, the FASB issued Interpretation No. 44, "Accounting for
  Certain Transactions Involving Stock Compensation," which provides guidance on
  several implementation issues related to Accounting Principles Board Opinion No.
  25 (APB 25). The most significant are clarification of the definition of
  employee for purposes of applying APB 25 and the accounting for options that
  have been repriced. Under the interpretation, the employer-employee relationship
  would be based on case law and Internal Revenue Service
  
  
                                        -4-
  <PAGE>
  
  regulations. The FASB granted an exception to this definition for outside
  directors. Under the interpretation, repriced options effectively change the
  terms of the plan, which would make it a variable plan subject to compensation
  expense. The impact of the interpretation on the Company's position and results
  of operations is not expected to be material.
  
       3. Accrued Liabilities
  
       Accrued liabilities consist of the following (in thousands):
  
                                                 June 30,           December 31,
                                                   2000                 1999
                                              ------------          ------------
       Accrued payroll costs                  $      3,023          $     2,928
       Accrued clinical trial costs                  1,321                2,957
       Other                                           954                  634
                                              ------------          -----------
                                              $      5,298          $     6,519
                                              ============          ===========
  
       4. Private Placement
  
       In February 2000, the company issued 6,145,000 common shares for net
  proceeds of $29.0 million. The Company also issued five-year warrants to
  purchase a total of up to 250,000 common shares for $5.00 per share to its
  placement agents in this transaction. These warrants were exercisable upon
  issuance and expire in February 2005.
  
       In June 2000, the Company issued 50,000 common shares to third parties. The
  net proceeds of $0.2 million were applied against the Company's convertible
  subordinated notes to Genentech, Inc.
  
       5. Comprehensive Loss
  
       Comprehensive loss includes certain changes in equity that are excluded
  from net loss. Specifically, unrealized holding gains and losses in available
  for sale investments, which were reported separately in shareholders' equity,
  are included in accumulated other
  
  
                                        -5-
  <PAGE>
  
  
  comprehensive income (loss). Comprehensive loss and its components for the
  quarters ended June 30, 2000 and 1999 are as follows (in thousands):
  
  <TABLE>
  <CAPTION>
                                                          Three Months Ended                 Six Months Ended
                                                               June 30,                          June 30,
                                                        ----------------------------     --------------------------
                                                           2000              1999            2000            1999
                                                        -----------      -----------     ------------    ----------
  <S>                                                     <C>             <C>             <C>             <C>
  Net loss                                                $(6,326)        $(12,363)       $(12,610)       $(26,076)
  Unrealized gain (loss) on securities
     available-for-sale                                       (41)              --             441              --
                                                        -----------      -----------     ------------    ----------
  Comprehensive loss                                      $(6,367)        $(12,363)       $(12,169)       $(26,076)
                                                        ===========      ===========     ============    ==========
  </TABLE>
  
       5. Net Loss Per Common Share
  
       Basic and diluted net loss per common share is based on the weighted
  average number of common shares outstanding during the period in accordance with
  Financial Accounting Standard No. 128. Common share equivalents were not
  included because they are antidilutive.
  
       7. FDA Meeting
  
       In an April meeting with members of the U.S Food and Drug Administration
  (FDA), representatives from XOMA and its licensee, the Hyland Immuno Division of
  Baxter Healthcare Corporation, discussed results from Phase III trail that
  tested NEUPREX(R) (rBPI21) in pediatric patients with severe meningococcemia.
  Senior representatives of the FDA indicated that the data presented were not
  sufficient to support the filing of biologics license application (BLA) at this
  time. XOMA and Baxter are therefore examining ways to supply the additional data
  necessary to proceed with the filing. Because of this event, the filing of a BLA
  will be delayed, but by how long is not known at this time.
  
       8. Subsequent Event
  
       In July 2000, the Company issued 200,000 common shares to third parties.
  The net proceeds of $1.3 million were applied against the Company's convertible
  subordinated notes to Genentech.
  
  
                                        -6-
  <PAGE>
  
  
                       MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
  
  Results of Operations:
  
  Revenues in the second quarter of 2000 were $2.3 million as compared to $0.5
  million in the second quarter of 1999. For the six months ended June 30, 2000,
  revenues were $4.9 million compared with $0.6 million in the 1999 period.
  Following recent SEC guidance on revenue recognition, revenues in 2000 include
  only a portion of a $10 million upfront payment received in January related to
  the licensing of NEUPREX(R). A remaining unrecognized balance of $8.6 million
  will be recognized ratably over future periods.
  
  Research and development expenses decreased to $7.4 million in the second
  quarter of 2000, compared with $11.1 million in the 1999 period. For the six
  months ended June 30, 2000, research and development costs were $14.6 million,
  compared with $23.4 million in the same period in 1999. The decrease was due
  primarily to lower spending on clinical trials for the NEUPREX(R) and anti-CD11a
  products. General and administrative spending was $1.6 million and $3.1 million
  for three and six months, respectively, ended June 30, 2000, compared with $1.6
  million and $3.0 million, respectively, in the comparable 1999 period.
  
  Investment income was higher for the first two quarters of 2000 compared to the
  same period in 1999 due to a higher average investment balance.
  
  Liquidity and Capital Resources:
  
  The Company's cash, cash equivalents and short-term investments totaled $43.0
  million as of June 30, 2000, up from $18.5 million at December 31, 1999. Net
  cash used in operating activities plus capital expenditures were offset by the
  net proceeds from common shares issued in February 2000. Net cash used in
  operating activities for the six months ended June 30, 2000 was $7.3 million,
  compared with a net usage of $22.4 million in the comparable 1999 period. The
  decrease in usage was primarily due to lower amounts paid for clinical trials
  and preparation of regulatory filings, and receipt of a $10 million initial
  payment from Baxter. The Company has also received $33.3 million of net proceeds
  from the issuance of common shares in 2000. The Company's cash, cash equivalents
  and short-term investments are expected to continue to decrease while the
  Company pursues U.S. Food and Drug Administration licensure except to the extent
  the Company secures additional funding.
  
  Operating expenses may increase in future periods as the Company proceeds with
  various internal development programs. Cash balances and operating cash flow are
  influenced by the timing and level of payments by the Company's licensees and
  development partners, as well as by the Company's net income.
  
  
                                        -7-
  <PAGE>
  
  The Company has been able to control its operating cash consumption by carefully
  monitoring its costs. As a result, its cash position and resulting investment
  income are sufficient to finance the Company's currently anticipated levels of
  spending through at least the second quarter of 2002. Strategic arrangements
  with Allergan, Inc., Baxter and Genentech, Inc. have reduced Company spending
  levels by paying certain product development costs. The Company continues to
  evaluate a variety of arrangements that would further strengthen its competitive
  position and provide additional funding, but cannot predict when or whether any
  such arrangement or additional funding will be secured. Without additional
  funding, the Company would have to decrease or eliminate the development of some
  of its products.
  
  Quantitative and Qualitative Disclosures About Market Risk:
  
  Interest Rate Risk. The Company's exposure to market rate risk due to changes in
  interest rates relates primarily to the Company's investment portfolio. The
  Company does not use derivative financial instruments in its investment
  portfolio. By policy, the Company places its investments with high quality debt
  security issuers, limits the amount of credit exposure to any one issuer, limits
  duration by restricting the term and holds investments to maturity except under
  rare circumstances. The Company classifies its cash equivalents as fixed rate if
  the rate of return on an instrument remains fixed over its term. As of June 30,
  2000, all the Company's cash equivalents are classified as fixed rate.
  
  The Company also has a long-term convertible note due to Genentech in 2005.
  Interest on this note of LIBOR plus 1% is reset at the end of June and December
  each year and is therefore variable.
  
  The table below presents the amounts and related weighted interest rates of the
  Company's cash equivalents and long-term convertible note at June 30, 2000:
  
  <TABLE>
  <CAPTION>
                                                                                 Fair Value            Average
                                                              Maturity        ($ in millions)       Interest Rate
                                                             ----------       ---------------       -------------
  <S>                                                         <C>                  <C>                   <C>
  Cash equivalents, fixed rate                                 Daily                $ 41.4               6.3%
  Long-term convertible note, variable rate                    2005                   33.7               7.1%
  </TABLE>
  
  Other Market Risk. At June 30, 2000 the Company had a long-term convertible note
  outstanding which is convertible into common shares based on the market price of
  the Company's common shares at the time of conversion. A 10% decrease in the
  market price of the Company's common shares would increase the number of shares
  issuable upon conversion of either security by approximately 11%. An increase in
  the market price of Company common shares of 10% would decrease the shares
  issuable by approximately 9%.
  
  
                                        -8-
  <PAGE>
  
  Forward Looking Statements:
  
  Certain statements contained herein that are not related to historical facts may
  constitute "forward looking" information, as that term is defined in the Private
  Securities Litigation Reform Act of 1995. Such statements are based on the
  Company's current beliefs as to the outcome and timing of future events, and
  actual results may differ materially from those projected or implied in the
  forward looking statements. Further, certain forward looking statements are
  based upon assumptions of future events which may not prove to be accurate. The
  forward looking statements involve risks and uncertainties including, but not
  limited to, those related to regulatory approvals, product efficacy and
  development, the Company's financing needs and opportunities, scale-up and
  marketing capabilities, intellectual property protection, competition, stock
  price volatility and other risk factors referred to herein and in other of the
  Company's Securities and Exchange Commission filings.
  
  
                                        -9-
  <PAGE>
  
  
                             PART II - OTHER INFORMATION
  
  
  Item 1      Legal Proceedings.  None.
  
  Item 2      Changes in Securities.  None.
  
  Item 3      Defaults Upon Senior Securities.  None.
  
  Item 4      Submission of Matters to a Vote of Security Holders.
  
              On May 31, 2000, the Company held the first portion of
              its annual general meeting of shareholders. The
              following persons (the only nominees) were elected as
              the Company's directors, having received the indicated
              votes:
  
              Name                                         Votes            Votes
              ----                                         For            Withheld
                                                           -----          --------
  
              James G. Andress                           53,530,015        636,036
              William K. Bowes, Jr.                      53.539,767        626,284
              John L. Castello                           53,540,208        625,843
              Arthur Kornberg, M.D.                      53,564,792        601,259
              Steven C. Mendell                          53,523,962        642,089
              Patrick J. Scannon, M.D., Ph.D.            53,561,534        604,517
              W. Denman Van Ness                         53,552,015        614,036
  
              The appointment of Ernst & Young LLP to act as the Company's
              independent auditors for the 2000 fiscal year was ratified and
              the authorization of the Board to agree to such auditors' fee was
              approved, having received 53,284,984 votes for, 258,166 votes
              against, 622,901 abstentions and no broker non-votes.
  
  Item 5      Other Information.  None.
  
  Item 6      Exhibits and Reports on Form 8-K.
  
              Current Report on Form 8-K dated and filed on April 25, 2000
                 (File No. 0-14710), Items 5 (Other Events) and 7 (Exhibits).
  
  
                                        -10-
  <PAGE>
  
                                      XOMA Ltd.
  
                                     SIGNATURES
  
  
       Pursuant to the requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report to be signed on its behalf by the
  undersigned, thereunto duly authorized.
  
                                   XOMA LTD.
  
  
  Date:  August 14, 2000           By:    /s/ JOHN L. CASTELLO
                                          --------------------
                                          John L. Castello
                                          Chairman of the Board, President and
                                          Chief Executive Officer
  
  
  
  
  Date:  August 14, 2000           By:    /s/ PETER B. DAVIS
                                          ------------------
                                          Peter B. Davis
                                          Vice President, Finance and
                                          Chief Financial Officer
  
  
                                        -11-
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text: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
  
                                      FORM 10-Q
  
  (mark one)
  
            [X]  Quarterly Report Pursuant to Section 13 or 15(d) of the
                 Securities Exchange Act of 1934 For Quarterly Period Ended June
                 30, 2000
  
                                         or
  
            [ ]  Transition Report Pursuant to Section 13 or 15(d) of the
                 Securities Exchange Act of 1934 For Transition Period from
                 __________ to __________
  
                             Commission File No. 0-14710
  
                                      XOMA Ltd.
  
               (Exact Name of Registrant as specified in its charter)
  
              Bermuda                                 52-2154066
  (State or other jurisdiction of            (I.R.S. Employer Identification No.)
  incorporation or organization)
  
                       2910 Seventh Street, Berkeley, CA 94710
                 (Address of principal executive offices) (Zip Code)
  
                                   (510) 644-1170
                (Registrant's telephone number, including area code)
  
                                   Not Applicable
                (Former name, former address and former fiscal year,
                           if changed since last report)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months (or for such shorter period that the registrant was
  required to file such reports), and (2) has been subject to such filing
  requirements for the past 90 days.
  
                                      Yes X   No
  
  Indicate the number of shares outstanding of each of the issuer's classes of
  common stock, as of the latest practicable date.
  
  Common shares US$.0005 par value               65,450,471
  --------------------------------------         --------------------------------
  Class                                          Outstanding at June 30, 2000
  XOMA Ltd.
  
                                  TABLE OF CONTENTS
  
                                                                              Page
  
  PART I    FINANCIAL INFORMATION
  
            Item 1     Consolidated Financial Statements
  
                       Condensed Consolidated Balance Sheets as of
                       June 30, 2000 and December 31, 1999......................1
  
                       Condensed Consolidated Statements of Operations
                       for the Three and Six Months Ended June 30, 2000
                       and 1999.................................................2
  
                       Condensed Consolidated Statements of Cash Flows for
                       the Six Months Ended June 30, 2000 and 1999 .............3
  
                       Notes to Condensed Consolidated Financial Statements ....4
  
            Item 2     Management's Discussion and Analysis of Financial
                       Condition and Results of Operations .....................7
  
  PART II   OTHER INFORMATION
  
            Items      1 through 3 and 5 are either inapplicable or
                       nonexistent and therefore are omitted from this
                       report
  
            Item 4     Submission of Matters to a Vote of Security Holders......10
  
            Item 6     Exhibits and Reports on Form 8-K.........................10
  
  Signatures....................................................................11
  XOMA Ltd.
  
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (In thousands)
  
                                                                             June 30, 2000    December 31, 1999
                                                                           -----------------  -----------------
                                                                              (Unaudited)         (Note 1)
  Assets:
  Cash and cash equivalents                                            $      42,333      $     18,539
         Short-term investments                                                         713                --
         Related party receivable                                                       189               219
         Other receivables                                                            3,724               658
         Prepaid expenses and other                                                      46               679
                                                                              -------------      ------------
              Total current assets                                                   47,005            20,095
         Property and equipment, net                                                  3,400             3,651
         Assets held for sale                                                         4,442             4,442
         Deposits and other                                                             169               124
                                                                              -------------      ------------
                                                                              $      55,016      $     28,312
                                                                              =============      ============
  Liabilities and Shareholders' Equity:
         Accounts payable                                                     $       2,789      $      3,915
         Accrued liabilities                                                          5,298             6,519
         Deferred revenue - current                                                   3,333                --
                                                                              -------------      ------------
              Total current liabilities                                              11,420            10,434
           Deferred revenue-long term                                                 5,277                --
         Convertible subordinated notes                                              33,647            34,724
                                                                              -------------      ------------
       Total liabilities                                                             50,344            45,158
  
  Shareholders' equity (net capital deficiency)                                       4,672           (16,846)
                                                                              -------------      ------------
                                                                              $      55,016      $     28,312
                                                                              =============      ============
  Note 1 - Amounts derived from the Company's amended annual report on Form 10-K
  as filed with the SEC.
  
  See accompanying notes to condensed consolidated financial statements.
  
                                        -1-
  XOMA Ltd.
  
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   (Unaudited, in thousands except per share data)
  
                                                          Three Months Ended                 Six Months Ended
                                                               June 30,                          June 30,
                                                       ----------------------------     ---------------------------
                                                         2000              1999            2000            1999
                                                       ------------    ------------     -----------     -----------
    Revenues:
  Contract Revenue                                   $   2,272         $   525          $4,834          $  528
       Other Revenue                                            111              22              21              39
                                                       ------------    ------------     -----------     -----------
                                                              2,283             547           4,855             567
                                                       ------------    ------------     -----------     -----------
    Operating Costs and Expenses:
       Research and development                               7,390          11,136          14,584          23,409
       General and administrative                             1,589           1,631           3,115           3,011
                                                       ------------    ------------     -----------     -----------
                                                              8,979          12,767          17,699          26,420
                                                       ------------    ------------     -----------     -----------
    Loss from operations                                     (6,696)        (12,220)        (12,844)        (25,853)
  
    Other Income (Expense):
       Investment  and other income                             985             260           1,475             629
       Interest and other expense                              (615)           (403)         (1,241)           (797)
                                                       ------------    ------------     -----------     -----------
    Net loss                                                 (6,326)        (12,363)        (12,610)        (26,021)
  
    Preference share dividends                                   --              --              --             (55)
                                                       ------------    ------------     -----------     -----------
    Net loss available to common
        shareholders                                        $(6,326)       $(12,363)       $(12,610)       $(26,076)
                                                       ============    ============     ===========     ===========
  
    Net loss per common share                                $(0.10)         $(0.24)         $(0.20)         $(0.52)
  
    Shares used in computing net loss
       per common share                                      65,391          50,835          63,531          50,009
  See accompanying notes to condensed consolidated financial statements.
  
                                        -2-
  XOMA Ltd.
  
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Unaudited, in thousands)
  
                                                                                    Six Months Ended June 30,
                                                                                   -----------------------------
                                                                                       2000             1999
                                                                                   ------------      -----------
  Cash Flows From Operating Activities:
  Net cash provided by (used in) operating activities                       $    (7,265)      $  (22,358)
                                                                                   ------------      -----------
  Cash Flows From Investing Activities:
         Proceeds from sale of short-term investments                                      506           20,660
         Payments for purchase of short-term investments                                    --          (23,601)
         Capital expenditures                                                             (395)            (578)
                                                                                   ------------      -----------
             Net cash provided by (used in) investing activities                           111           (3,519)
                                                                                   ------------      -----------
  Cash Flows From Financing Activities:
         Proceeds from issuance of common shares, net                                   33,266           11,620
         Proceeds (payments) on convertible notes                                       (2,318)           4,000
         Capital lease principal payments                                                   --             (212)
                                                                                   ------------      -----------
              Net cash provided by (used in) financing activities                       30,948           15,408
                                                                                   ------------      -----------
  Net increase (decrease) in cash and cash equivalents                                  23,794          (10,469)
  
  Cash and cash equivalents at beginning of period                                      18,539           11,857
                                                                                   ------------      -----------
  Cash and cash equivalents at end of period                                       $    42,333       $    1,388
                                                                                   ============      ===========
  See accompanying notes to condensed consolidated financial statements.
  -3-
  XOMA Ltd.
  
                NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                     (Unaudited)
  
       1. Basis of Presentation
  
       The interim information contained in this report is unaudited but, in
  management's opinion, includes all normal recurring adjustments necessary for a
  fair presentation of results for the periods presented. Interim results may not
  be indicative of results to be expected for the full year. The consolidated
  financial statements should be read in conjunction with the Company's audited
  consolidated financial statements for the year ended December 31, 1999 included
  in its Annual Report on Form 10-K, as amended. The preparation of financial
  statements in conformity with generally accepted accounting principles requires
  management to make estimates and assumptions that affect the reported amounts of
  assets and liabilities and disclosure of contingent assets and liabilities, if
  any, at the date of the financial statements and the reported amounts of
  revenues and expenses during the reporting period. Actual results could differ
  materially from those estimates.
  
       2. Recent Accounting Pronouncements
  
       In December 1999, the Securities and Exchange Commission (SEC) issued Staff
  Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
  Statements." SAB 101 summarizes certain areas in applying generally accepted
  accounting principles to revenue recognition in financial statements. In March
  2000, the SEC issued SAB101A to defer for one quarter the effective date of
  implementation of SAB101 and in June 2000, the SEC issued SAB101B which further
  deferred implementation for two more quarters, with earlier application
  encouraged. The Company is currently evaluating the impact of SAB 101 as it
  relates to the Company's revenue recognition policy. In June 1998, the Financial
  Accounting Standards Board (FASB) issued Statement of Financial Accounting
  Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
  Activities." XOMA is required to adopt SFAS 133 for the year ending December 31,
  2002. Because the Company currently holds no derivative financial instruments
  and does not currently engage in hedging activities, adoption of SFAS 133 is
  expected to have no material impact on the Company's financial position or
  results of operations.
  
       In March 2000, the FASB issued Interpretation No. 44, "Accounting for
  Certain Transactions Involving Stock Compensation," which provides guidance on
  several implementation issues related to Accounting Principles Board Opinion No.
  25 (APB 25). The most significant are clarification of the definition of
  employee for purposes of applying APB 25 and the accounting for options that
  have been repriced. Under the interpretation, the employer-employee relationship
  would be based on case law and Internal Revenue Service
  
                                        -4-
  regulations. The FASB granted an exception to this definition for outside
  directors. Under the interpretation, repriced options effectively change the
  terms of the plan, which would make it a variable plan subject to compensation
  expense. The impact of the interpretation on the Company's position and results
  of operations is not expected to be material.
  
       3. Accrued Liabilities
  
       Accrued liabilities consist of the following (in thousands):
  
                                                 June 30,           December 31,
                                                   2000                 1999
                                              ------------          ------------
       Accrued payroll costs                  $      3,023          $     2,928
       Accrued clinical trial costs                  1,321                2,957
       Other                                           954                  634
                                              ------------          -----------
                                              $      5,298          $     6,519
                                              ============          ===========
  
       4. Private Placement
  
       In February 2000, the company issued 6,145,000 common shares for net
  proceeds of $29.0 million. The Company also issued five-year warrants to
  purchase a total of up to 250,000 common shares for $5.00 per share to its
  placement agents in this transaction. These warrants were exercisable upon
  issuance and expire in February 2005.
  
       In June 2000, the Company issued 50,000 common shares to third parties. The
  net proceeds of $0.2 million were applied against the Company's convertible
  subordinated notes to Genentech, Inc.
  
       5. Comprehensive Loss
  
       Comprehensive loss includes certain changes in equity that are excluded
  from net loss. Specifically, unrealized holding gains and losses in available
  for sale investments, which were reported separately in shareholders' equity,
  are included in accumulated other
  
                                        -5-
  comprehensive income (loss). Comprehensive loss and its components for the
  quarters ended June 30, 2000 and 1999 are as follows (in thousands):
  Three Months Ended                 Six Months Ended
                                                               June 30,                          June 30,
                                                        ----------------------------     --------------------------
                                                           2000              1999            2000            1999
                                                        -----------      -----------     ------------    ----------
  Net loss                                                $(6,326)        $(12,363)       $(12,610)       $(26,076)
  Unrealized gain (loss) on securities
     available-for-sale                                       (41)              --             441              --
                                                        -----------      -----------     ------------    ----------
  Comprehensive loss                                      $(6,367)        $(12,363)       $(12,169)       $(26,076)
                                                        ===========      ===========     ============    ==========
  5. Net Loss Per Common Share
  
       Basic and diluted net loss per common share is based on the weighted
  average number of common shares outstanding during the period in accordance with
  Financial Accounting Standard No. 128. Common share equivalents were not
  included because they are antidilutive.
  
       7. FDA Meeting
  
       In an April meeting with members of the U.S Food and Drug Administration
  (FDA), representatives from XOMA and its licensee, the Hyland Immuno Division of
  Baxter Healthcare Corporation, discussed results from Phase III trail that
  tested NEUPREX(R) (rBPI21) in pediatric patients with severe meningococcemia.
  Senior representatives of the FDA indicated that the data presented were not
  sufficient to support the filing of biologics license application (BLA) at this
  time. XOMA and Baxter are therefore examining ways to supply the additional data
  necessary to proceed with the filing. Because of this event, the filing of a BLA
  will be delayed, but by how long is not known at this time.
  
       8. Subsequent Event
  
       In July 2000, the Company issued 200,000 common shares to third parties.
  The net proceeds of $1.3 million were applied against the Company's convertible
  subordinated notes to Genentech.
  
                                        -6-
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
  Results of Operations:
  
  Revenues in the second quarter of 2000 were $2.3 million as compared to $0.5
  million in the second quarter of 1999. For the six months ended June 30, 2000,
  revenues were $4.9 million compared with $0.6 million in the 1999 period.
  Following recent SEC guidance on revenue recognition, revenues in 2000 include
  only a portion of a $10 million upfront payment received in January related to
  the licensing of NEUPREX(R). A remaining unrecognized balance of $8.6 million
  will be recognized ratably over future periods.
  
  Research and development expenses decreased to $7.4 million in the second
  quarter of 2000, compared with $11.1 million in the 1999 period. For the six
  months ended June 30, 2000, research and development costs were $14.6 million,
  compared with $23.4 million in the same period in 1999. The decrease was due
  primarily to lower spending on clinical trials for the NEUPREX(R) and anti-CD11a
  products. General and administrative spending was $1.6 million and $3.1 million
  for three and six months, respectively, ended June 30, 2000, compared with $1.6
  million and $3.0 million, respectively, in the comparable 1999 period.
  
  Investment income was higher for the first two quarters of 2000 compared to the
  same period in 1999 due to a higher average investment balance.
  
  Liquidity and Capital Resources:
  
  The Company's cash, cash equivalents and short-term investments totaled $43.0
  million as of June 30, 2000, up from $18.5 million at December 31, 1999. Net
  cash used in operating activities plus capital expenditures were offset by the
  net proceeds from common shares issued in February 2000. Net cash used in
  operating activities for the six months ended June 30, 2000 was $7.3 million,
  compared with a net usage of $22.4 million in the comparable 1999 period. The
  decrease in usage was primarily due to lower amounts paid for clinical trials
  and preparation of regulatory filings, and receipt of a $10 million initial
  payment from Baxter. The Company has also received $33.3 million of net proceeds
  from the issuance of common shares in 2000. The Company's cash, cash equivalents
  and short-term investments are expected to continue to decrease while the
  Company pursues U.S. Food and Drug Administration licensure except to the extent
  the Company secures additional funding.
  
  Operating expenses may increase in future periods as the Company proceeds with
  various internal development programs. Cash balances and operating cash flow are
  influenced by the timing and level of payments by the Company's licensees and
  development partners, as well as by the Company's net income.
  
                                        -7-
  The Company has been able to control its operating cash consumption by carefully
  monitoring its costs. As a result, its cash position and resulting investment
  income are sufficient to finance the Company's currently anticipated levels of
  spending through at least the second quarter of 2002. Strategic arrangements
  with Allergan, Inc., Baxter and Genentech, Inc. have reduced Company spending
  levels by paying certain product development costs. The Company continues to
  evaluate a variety of arrangements that would further strengthen its competitive
  position and provide additional funding, but cannot predict when or whether any
  such arrangement or additional funding will be secured. Without additional
  funding, the Company would have to decrease or eliminate the development of some
  of its products.
  
  Quantitative and Qualitative Disclosures About Market Risk:
  
  Interest Rate Risk. The Company's exposure to market rate risk due to changes in
  interest rates relates primarily to the Company's investment portfolio. The
  Company does not use derivative financial instruments in its investment
  portfolio. By policy, the Company places its investments with high quality debt
  security issuers, limits the amount of credit exposure to any one issuer, limits
  duration by restricting the term and holds investments to maturity except under
  rare circumstances. The Company classifies its cash equivalents as fixed rate if
  the rate of return on an instrument remains fixed over its term. As of June 30,
  2000, all the Company's cash equivalents are classified as fixed rate.
  
  The Company also has a long-term convertible note due to Genentech in 2005.
  Interest on this note of LIBOR plus 1% is reset at the end of June and December
  each year and is therefore variable.
  
  The table below presents the amounts and related weighted interest rates of the
  Company's cash equivalents and long-term convertible note at June 30, 2000:
  Fair Value            Average
                                                              Maturity        ($ in millions)       Interest Rate
                                                             ----------       ---------------       -------------
  Cash equivalents, fixed rate                                 Daily                $ 41.4               6.3%
  Long-term convertible note, variable rate                    2005                   33.7               7.1%
  Other Market Risk. At June 30, 2000 the Company had a long-term convertible note
  outstanding which is convertible into common shares based on the market price of
  the Company's common shares at the time of conversion. A 10% decrease in the
  market price of the Company's common shares would increase the number of shares
  issuable upon conversion of either security by approximately 11%. An increase in
  the market price of Company common shares of 10% would decrease the shares
  issuable by approximately 9%.
  
                                        -8-
  Forward Looking Statements:
  
  Certain statements contained herein that are not related to historical facts may
  constitute "forward looking" information, as that term is defined in the Private
  Securities Litigation Reform Act of 1995. Such statements are based on the
  Company's current beliefs as to the outcome and timing of future events, and
  actual results may differ materially from those projected or implied in the
  forward looking statements. Further, certain forward looking statements are
  based upon assumptions of future events which may not prove to be accurate. The
  forward looking statements involve risks and uncertainties including, but not
  limited to, those related to regulatory approvals, product efficacy and
  development, the Company's financing needs and opportunities, scale-up and
  marketing capabilities, intellectual property protection, competition, stock
  price volatility and other risk factors referred to herein and in other of the
  Company's Securities and Exchange Commission filings.
  
                                        -9-
  PART II - OTHER INFORMATION
  
  Item 1      Legal Proceedings.  None.
  
  Item 2      Changes in Securities.  None.
  
  Item 3      Defaults Upon Senior Securities.  None.
  
  Item 4      Submission of Matters to a Vote of Security Holders.
  
              On May 31, 2000, the Company held the first portion of
              its annual general meeting of shareholders. The
              following persons (the only nominees) were elected as
              the Company's directors, having received the indicated
              votes:
  
              Name                                         Votes            Votes
              ----                                         For            Withheld
                                                           -----          --------
  
              James G. Andress                           53,530,015        636,036
              William K. Bowes, Jr.                      53.539,767        626,284
              John L. Castello                           53,540,208        625,843
              Arthur Kornberg, M.D.                      53,564,792        601,259
              Steven C. Mendell                          53,523,962        642,089
              Patrick J. Scannon, M.D., Ph.D.            53,561,534        604,517
              W. Denman Van Ness                         53,552,015        614,036
  
              The appointment of Ernst & Young LLP to act as the Company's
              independent auditors for the 2000 fiscal year was ratified and
              the authorization of the Board to agree to such auditors' fee was
              approved, having received 53,284,984 votes for, 258,166 votes
              against, 622,901 abstentions and no broker non-votes.
  
  Item 5      Other Information.  None.
  
  Item 6      Exhibits and Reports on Form 8-K.
  
              Current Report on Form 8-K dated and filed on April 25, 2000
                 (File No. 0-14710), Items 5 (Other Events) and 7 (Exhibits).
  
                                        -10-
  XOMA Ltd.
  
                                     SIGNATURES
  
       Pursuant to the requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report to be signed on its behalf by the
  undersigned, thereunto duly authorized.
  
                                   XOMA LTD.
  
  Date:  August 14, 2000           By:    /s/ JOHN L. CASTELLO
                                          --------------------
                                          John L. Castello
                                          Chairman of the Board, President and
                                          Chief Executive Officer
  
  Date:  August 14, 2000           By:    /s/ PETER B. DAVIS
                                          ------------------
                                          Peter B. Davis
                                          Vice President, Finance and
                                          Chief Financial Officer
  
                                        -11-