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 March 31, 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                                   94-2756657
  (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             65,375,846
  -------------------------------------        -----------------------------------
  Class                                        Outstanding at March 31, 2000
  
  
  <PAGE>
  
  
                                      XOMA Ltd.
  
                                  TABLE OF CONTENTS
  
  
                                                                              Page
                                                                              ----
  
  PART I FINANCIAL INFORMATION
  
       Item 1 Consolidated Financial Statements
  
            Condensed Consolidated Balance Sheets as of March 31, 2000 and
            December 31, 1999 ..................................................1
  
            Condensed Consolidated Statements of Operations for the
            Three Months Ended March 31, 2000 and 1999 .........................2
  
            Condensed Consolidated Statements of Cash Flows for the
            Three Months Ended March 31, 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)
  
  
                                                                            March 31, 2000    December 31, 1999
                                                                              (Unaudited)         (Note 1)
                                                                            --------------    -----------------
  Assets:
  <S>                                                                         <C>                <C>
         Cash and cash equivalents                                            $    50,355        $    18,539
         Short-term investments                                                     1,387                 --
         Related party receivable                                                     219                219
         Other receivables                                                          2,460                658
         Prepaid expenses and other                                                   113                679
              Total current assets                                                 54,534             20,095
                                                                              -----------        -----------
         Property and equipment, net                                                3,506              3,651
         Assets held for sale                                                       4,442              4,442
         Deposits and other                                                           164                124
                                                                              -----------        -----------
                                                                              $    62,646        $    28,312
                                                                              ===========        ===========
  Liabilities and Shareholders' Equity:
         Accounts payable                                                     $     2,589        $     3,915
         Accrued liabilities                                                        5,405              6,519
         Deferred revenue - current                                                 3,333                 --
                                                                              -----------        -----------
              Total current liabilities                                            11,327             10,434
                  Deferred revenue-long term                                        6,111                 --
         Convertible subordinated notes                                            34,050             34,724
                                                                              -----------        -----------
         Total liabilities                                                         51,488             45,158
  Shareholders' equity (net capital deficiency)                                    11,158            (16,846)
                                                                              -----------        -----------
                                                                              $    62,646        $    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
                                                                                       March 31,
                                                                                ----------------------
                                                                                2000              1999
                                                                                ----------------------
  Revenues:
  <S>                                                                         <C>              <C>
         License fees                                                         $      562       $       17
         Product sales and royalties                                                  10                3
         Contract revenue                                                          2,000               --
                                                                              ----------       ----------
                                                                                   2,572               20
                                                                              ----------       ----------
  Operating costs and expenses:
         Research and development                                                  7,194           12,273
         General and administrative                                                1,526            1,380
                                                                              ----------       ----------
                                                                                   8,720           13,653
                                                                              ----------       ----------
  Loss from operations                                                            (6,148)         (13,633)
  Other income (expense):
         Investment and other income                                                 490              369
         Interest and other expense                                                 (626)            (394)
                                                                              ----------       ----------
  Net loss                                                                        (6,284)         (13,658)
  Preference share dividends                                                          --              (55)
                                                                              ----------       ----------
  Net loss available to common shareholders                                   $   (6,284)      $  (13,713)
                                                                              ==========       ==========
  Net loss per common share                                                       $(0.10)          $(0.28)
                                                                              ==========       ==========
  Shares used in computing net loss per common share                              61,629           49,163
                                                                              ----------       ----------
  </TABLE>
  
  See accompanying notes to condensed consolidated financial statements.
  
  
                                        -2-
  <PAGE>
  
  
  <TABLE>
  <CAPTION>
                                      XOMA Ltd.
  
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Unaudited, in thousands)
  
  
                                                                                      Three Months Ended
                                                                                           March 31,
                                                                                      -------------------
                                                                                      2000           1999
                                                                                      -------------------
  CASH FLOWS FROM OPERATING ACTIVITIES:
  <S>                                                                              <C>             <C>
         Net cash provided by (used in) operating activities                       $      310      $  (11,096)
                                                                                   ----------      ----------
  CASH FLOWS FROM INVESTING ACTIVITIES:
         Proceeds from sale of short-term investments                                      --          18,854
         Payments for purchase of short-term investments                                   --         (14,376)
         Capital expenditures                                                            (174)           (210)
                                                                                   ----------      ----------
             Net cash provided by (used in) investing activities                         (174)          4,268
                                                                                   ----------      ----------
  CASH FLOWS FROM FINANCING ACTIVITIES:
         Proceeds from issuance of common shares, net                                  32,980          11,391
         Payments on convertible notes                                                 (1,300)             --
         Capital lease principal payments                                                  --            (105)
                                                                                   ----------      ----------
              Net cash provided by (used in) financing activities                      31,680          11,286
                                                                                   ----------      ----------
  Net increase (decrease) in cash and cash equivalents                                 31,816           4,458
  Cash and cash equivalents at beginning of period                                     18,539          11,857
                                                                                   ----------      ----------
  Cash and cash equivalents at end of period                                       $   50,355      $   16,315
                                                                                   ==========      ==========
  </TABLE>
  
  See accompanying notes to condensed consolidated financial statements.
  
  
                                        -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.
  
       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 with earlier application encouraged. The Company has
  implemented the revenue recognition guidelines as outlined in SAB101 for
  preparation of its first quarter 2000 results of operations.
  
       In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
  Instruments and Hedging Activities." XOMA is required to adopt SFAS No. 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 No. 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 regulations. The FASB
  granted an exception to this definition for outside directors. Under the
  interpretation, repriced options effectively changed 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.
  
  
                                        -4-
  <PAGE>
  
       3. Accrued Liabilities
  
  Accrued liabilities consist of the following (in thousands):
  
                                                   March 31,      December 31,
                                                     2000             1999
                                                  -----------     ------------
            Accrued payroll costs                 $     2,517     $    2,928
            Accrued clinical trial costs                1,950          2,957
            Other                                         938            634
                                                  -----------     ------------
                                                  $     5,405     $    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.
  
       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 comprehensive income (loss). Comprehensive
  loss and its components for the quarters ended March 31, 2000 and 1999 are as
  follows (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                   Three Months Ended
                                                                                        March 31,
                                                                             -------------------------------
                                                                                2000                1999
                                                                             ------------      -------------
  <S>                                                                        <C>               <C>
         Net loss                                                            $  (6,284)        $   (13,713)
         Unrealized gain on securities available-for-sale                          887                  --
                                                                             ------------      -------------
         Comprehensive loss                                                  $  (5,397)        $   (13,713)
                                                                             ============      =============
  </TABLE>
  
       6. 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.
  
  
                                        -5-
  <PAGE>
  
       7. Subsequent Event
  
       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 the Phase III trial 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 a 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.
  
  
  
                                        -6-
  <PAGE>
  
  
                       MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
  
  Results of Operations:
  
  Revenues in the first quarter of 2000 were $2.6 million, and were negligible in
  the first quarter of 1999. Following recent SEC guidance on revenue recognition,
  revenues in the 2000 quarter 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 $9.4 million will be recognized ratably over future
  periods. Research and development expenses decreased to $7.2 million in the
  first three months of 2000, compared with $12.3 million in the 1999 period. The
  decrease was due primarily to lower spending on clinical trials for the
  NEUPREX(R) and anti-CD11a products. General and administrative spending was $1.5
  million in the first three months of 2000 compared to $1.4 million in the first
  quarter of 1999.
  
  Investment income was higher in the first three months of 2000 compared to 1999
  due to a higher average investment balance.
  
  Liquidity and Capital Resources:
  
  The Company's cash, cash equivalents and short-term investments totaled $51.7
  million as of March 31, 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 and a $10 million
  initial payment from Baxter under the agreement of January 2000. Net cash
  provided from operating activities was $0.3 million in the first three months of
  2000, compared with a net usage of $11.1 million in the comparable1999 period.
  The decrease in usage was primarily due to lower amounts paid for clinical
  trials and preparation of regulatory filings and the $10 million initial payment
  from Baxter. 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.
  
  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.
  
  
                                        -7-
  <PAGE>
  
  Year 2000 Exposure:
  
  XOMA has not experienced any problems with its computer systems systems being
  unable to recognize appropriate dates related to the Year 2000. The Company is
  not aware that any clients or vendors have experienced material problems with
  this issue. Accordingly, XOMA does not anticipate incurring material expenses or
  experiencing any material operational disruptions as a result of any Year 2000
  issues.
  
  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 March 31,
  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 March 31, 2000:
  
  <TABLE>
  <CAPTION>
                                                                                 Fair Value            Average
                                                              Maturity        ($ in millions)       Interest Rate
                                                           -------------      ---------------       -------------
  <S>                                                      <C>                  <C>                      <C>
  Cash equivalents, fixed rate                             daily                    $ 50.4               6.1%
  Long-term convertible note, variable rate                2005                       34.1               7.1%
  </TABLE>
  
  Other Market Risk. At March 31, 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 January 31, 2000, the Company held a special general meeting of
         shareholders, at which the increase of the Company's authorized share
         capital by 65,000,000 Common Shares was approved, having received
         50,225,390 votes for, 3,374,183 votes against, no votes withheld, 239,053
         abstentions and no broker non-votes.
  
  Item 5 Other Information. None.
  
  Item 6 Exhibits and Reports on Form 8-K.
  
         (a)  Exhibit 10.1 Sixth Amendment to License Agreement dated January 25,
                           2000 between the Company and New York University (with
                           certain confidential information omitted, which omitted
                           information is the subject of a confidential treatment
                           request and has been filed separately with the
                           Securities and Exchange Commission).
  
              Exhibit 27.1 Financial Data Schedule
  
         (b)  Current Report on Form 8-K dated January 24, 2000 and filed on
              January 25, 2000, as amended by an amendment on Form 8-K/A dated
              and filed on February 3, 2000 (File No. 0-14710), Items 5 (Other
              Events) and 7 (Exhibits).
  
              Current Report on Form 8-K dated February 11, 2000 filed on
              February 14, 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:  May 12, 2000                      By:  /s/ JOHN L. CASTELLO
                                                ------------------------------
                                                John L. Castello
                                                Chairman of the Board, President
                                                and Chief Executive Officer
  
  
  
  
  Date:  May 12, 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 March 31, 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                                   94-2756657
  (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             65,375,846
  -------------------------------------        -----------------------------------
  Class                                        Outstanding at March 31, 2000
  XOMA Ltd.
  
                                  TABLE OF CONTENTS
  
                                                                              Page
                                                                              ----
  
  PART I FINANCIAL INFORMATION
  
       Item 1 Consolidated Financial Statements
  
            Condensed Consolidated Balance Sheets as of March 31, 2000 and
            December 31, 1999 ..................................................1
  
            Condensed Consolidated Statements of Operations for the
            Three Months Ended March 31, 2000 and 1999 .........................2
  
            Condensed Consolidated Statements of Cash Flows for the
            Three Months Ended March 31, 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)
  
                                                                            March 31, 2000    December 31, 1999
                                                                              (Unaudited)         (Note 1)
                                                                            --------------    -----------------
  Assets:
  Cash and cash equivalents                                            $    50,355        $    18,539
         Short-term investments                                                     1,387                 --
         Related party receivable                                                     219                219
         Other receivables                                                          2,460                658
         Prepaid expenses and other                                                   113                679
              Total current assets                                                 54,534             20,095
                                                                              -----------        -----------
         Property and equipment, net                                                3,506              3,651
         Assets held for sale                                                       4,442              4,442
         Deposits and other                                                           164                124
                                                                              -----------        -----------
                                                                              $    62,646        $    28,312
                                                                              ===========        ===========
  Liabilities and Shareholders' Equity:
         Accounts payable                                                     $     2,589        $     3,915
         Accrued liabilities                                                        5,405              6,519
         Deferred revenue - current                                                 3,333                 --
                                                                              -----------        -----------
              Total current liabilities                                            11,327             10,434
                  Deferred revenue-long term                                        6,111                 --
         Convertible subordinated notes                                            34,050             34,724
                                                                              -----------        -----------
         Total liabilities                                                         51,488             45,158
  Shareholders' equity (net capital deficiency)                                    11,158            (16,846)
                                                                              -----------        -----------
                                                                              $    62,646        $    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
                                                                                       March 31,
                                                                                ----------------------
                                                                                2000              1999
                                                                                ----------------------
  Revenues:
  License fees                                                         $      562       $       17
         Product sales and royalties                                                  10                3
         Contract revenue                                                          2,000               --
                                                                              ----------       ----------
                                                                                   2,572               20
                                                                              ----------       ----------
  Operating costs and expenses:
         Research and development                                                  7,194           12,273
         General and administrative                                                1,526            1,380
                                                                              ----------       ----------
                                                                                   8,720           13,653
                                                                              ----------       ----------
  Loss from operations                                                            (6,148)         (13,633)
  Other income (expense):
         Investment and other income                                                 490              369
         Interest and other expense                                                 (626)            (394)
                                                                              ----------       ----------
  Net loss                                                                        (6,284)         (13,658)
  Preference share dividends                                                          --              (55)
                                                                              ----------       ----------
  Net loss available to common shareholders                                   $   (6,284)      $  (13,713)
                                                                              ==========       ==========
  Net loss per common share                                                       $(0.10)          $(0.28)
                                                                              ==========       ==========
  Shares used in computing net loss per common share                              61,629           49,163
                                                                              ----------       ----------
  See accompanying notes to condensed consolidated financial statements.
  
                                        -2-
  XOMA Ltd.
  
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (Unaudited, in thousands)
  
                                                                                      Three Months Ended
                                                                                           March 31,
                                                                                      -------------------
                                                                                      2000           1999
                                                                                      -------------------
  CASH FLOWS FROM OPERATING ACTIVITIES:
  Net cash provided by (used in) operating activities                       $      310      $  (11,096)
                                                                                   ----------      ----------
  CASH FLOWS FROM INVESTING ACTIVITIES:
         Proceeds from sale of short-term investments                                      --          18,854
         Payments for purchase of short-term investments                                   --         (14,376)
         Capital expenditures                                                            (174)           (210)
                                                                                   ----------      ----------
             Net cash provided by (used in) investing activities                         (174)          4,268
                                                                                   ----------      ----------
  CASH FLOWS FROM FINANCING ACTIVITIES:
         Proceeds from issuance of common shares, net                                  32,980          11,391
         Payments on convertible notes                                                 (1,300)             --
         Capital lease principal payments                                                  --            (105)
                                                                                   ----------      ----------
              Net cash provided by (used in) financing activities                      31,680          11,286
                                                                                   ----------      ----------
  Net increase (decrease) in cash and cash equivalents                                 31,816           4,458
  Cash and cash equivalents at beginning of period                                     18,539          11,857
                                                                                   ----------      ----------
  Cash and cash equivalents at end of period                                       $   50,355      $   16,315
                                                                                   ==========      ==========
  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.
  
       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 with earlier application encouraged. The Company has
  implemented the revenue recognition guidelines as outlined in SAB101 for
  preparation of its first quarter 2000 results of operations.
  
       In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
  Instruments and Hedging Activities." XOMA is required to adopt SFAS No. 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 No. 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 regulations. The FASB
  granted an exception to this definition for outside directors. Under the
  interpretation, repriced options effectively changed 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.
  
                                        -4-
  3. Accrued Liabilities
  
  Accrued liabilities consist of the following (in thousands):
  
                                                   March 31,      December 31,
                                                     2000             1999
                                                  -----------     ------------
            Accrued payroll costs                 $     2,517     $    2,928
            Accrued clinical trial costs                1,950          2,957
            Other                                         938            634
                                                  -----------     ------------
                                                  $     5,405     $    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.
  
       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 comprehensive income (loss). Comprehensive
  loss and its components for the quarters ended March 31, 2000 and 1999 are as
  follows (in thousands):
  Three Months Ended
                                                                                        March 31,
                                                                             -------------------------------
                                                                                2000                1999
                                                                             ------------      -------------
  Net loss                                                            $  (6,284)        $   (13,713)
         Unrealized gain on securities available-for-sale                          887                  --
                                                                             ------------      -------------
         Comprehensive loss                                                  $  (5,397)        $   (13,713)
                                                                             ============      =============
  6. 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.
  
                                        -5-
  7. Subsequent Event
  
       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 the Phase III trial 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 a 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.
  
                                        -6-
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
  Results of Operations:
  
  Revenues in the first quarter of 2000 were $2.6 million, and were negligible in
  the first quarter of 1999. Following recent SEC guidance on revenue recognition,
  revenues in the 2000 quarter 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 $9.4 million will be recognized ratably over future
  periods. Research and development expenses decreased to $7.2 million in the
  first three months of 2000, compared with $12.3 million in the 1999 period. The
  decrease was due primarily to lower spending on clinical trials for the
  NEUPREX(R) and anti-CD11a products. General and administrative spending was $1.5
  million in the first three months of 2000 compared to $1.4 million in the first
  quarter of 1999.
  
  Investment income was higher in the first three months of 2000 compared to 1999
  due to a higher average investment balance.
  
  Liquidity and Capital Resources:
  
  The Company's cash, cash equivalents and short-term investments totaled $51.7
  million as of March 31, 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 and a $10 million
  initial payment from Baxter under the agreement of January 2000. Net cash
  provided from operating activities was $0.3 million in the first three months of
  2000, compared with a net usage of $11.1 million in the comparable1999 period.
  The decrease in usage was primarily due to lower amounts paid for clinical
  trials and preparation of regulatory filings and the $10 million initial payment
  from Baxter. 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.
  
  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.
  
                                        -7-
  Year 2000 Exposure:
  
  XOMA has not experienced any problems with its computer systems systems being
  unable to recognize appropriate dates related to the Year 2000. The Company is
  not aware that any clients or vendors have experienced material problems with
  this issue. Accordingly, XOMA does not anticipate incurring material expenses or
  experiencing any material operational disruptions as a result of any Year 2000
  issues.
  
  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 March 31,
  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 March 31, 2000:
  Fair Value            Average
                                                              Maturity        ($ in millions)       Interest Rate
                                                           -------------      ---------------       -------------
  Cash equivalents, fixed rate                             daily                    $ 50.4               6.1%
  Long-term convertible note, variable rate                2005                       34.1               7.1%
  Other Market Risk. At March 31, 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 January 31, 2000, the Company held a special general meeting of
         shareholders, at which the increase of the Company's authorized share
         capital by 65,000,000 Common Shares was approved, having received
         50,225,390 votes for, 3,374,183 votes against, no votes withheld, 239,053
         abstentions and no broker non-votes.
  
  Item 5 Other Information. None.
  
  Item 6 Exhibits and Reports on Form 8-K.
  
         (a)  Exhibit 10.1 Sixth Amendment to License Agreement dated January 25,
                           2000 between the Company and New York University (with
                           certain confidential information omitted, which omitted
                           information is the subject of a confidential treatment
                           request and has been filed separately with the
                           Securities and Exchange Commission).
  
              Exhibit 27.1 Financial Data Schedule
  
         (b)  Current Report on Form 8-K dated January 24, 2000 and filed on
              January 25, 2000, as amended by an amendment on Form 8-K/A dated
              and filed on February 3, 2000 (File No. 0-14710), Items 5 (Other
              Events) and 7 (Exhibits).
  
              Current Report on Form 8-K dated February 11, 2000 filed on
              February 14, 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:  May 12, 2000                      By:  /s/ JOHN L. CASTELLO
                                                ------------------------------
                                                John L. Castello
                                                Chairman of the Board, President
                                                and Chief Executive Officer
  
  Date:  May 12, 2000                      By:  /s/ PETER B. DAVIS
                                                -------------------------------
                                                Peter B. Davis
                                                Vice President, Finance and
                                                Chief Financial Officer
  
                                        -11-