XOMA Corporation 8.375% Perpetual Preferred Stock

Company Overview

Business Model: XOMA Royalty Corporation operates as a royalty aggregator, providing non-dilutive, non-recourse capital to biotech companies in exchange for economic rights to future milestone and royalty payments from clinical candidates and approved products. The company aims to generate stockholder value through a diversified portfolio, mitigating single-asset risk, and maintaining a capital-efficient, low corporate cost structure.

Market Position: XOMA Royalty Corporation focuses on acquiring royalty and milestone revenue streams from early to mid-stage clinical assets (primarily Phase 1 and 2) with significant commercial potential, licensed to well-funded sponsors. It also targets late-stage and commercial assets addressing unmet needs or offering therapeutic advantages with long market exclusivity. The company holds economic rights to over 120 commercial products and pre-commercial therapeutic candidates, with its portfolio anchored by seven commercial-stage assets.

Recent Strategic Developments:

• Portfolio Expansion: Since the beginning of 2025, XOMA Royalty Corporation added 22 milestone and royalty interests to its portfolio.
• Strategic Acquisitions:
  • Kinnate: Acquired in April 2024, adding an In-Process Research and Development (IPR&D) asset (KIN-3248) and pre-clinical intangible assets (KIN-8741, KIN-7136, CDK4). XOMA Royalty Corporation sold five unpartnered Kinnate assets in the first half of 2025.
  • Pulmokine: Acquired in November 2024 for $20.0 million cash, obtaining an economic interest in seralutinib, a Phase 3 asset for pulmonary arterial hypertension (PAH) and pulmonary hypertension associated with interstitial lung disease (PH-ILD).
  • Turnstone: Acquired in August 2025 for approximately $9.6 million, adding short-term financial assets.
  • HilleVax: Acquired in September 2025 for approximately $105.3 million, including IP assets related to HIL-216 (a pre-clinical norovirus vaccine candidate) and assuming lease agreements. The acquisition resulted in a $17.9 million bargain purchase gain.
  • LAVA: Acquired in November 2025 for $39.0 million, including IP assets from partnered programs with Johnson & Johnson (JNJ-89853413) and Pfizer (PF-08046052), as well as LAVA-1266 (a clinical program targeted for divestiture).
  • Mural: Acquired in December 2025 for approximately $37.6 million, resulting in a $3.2 million bargain purchase gain.
  • Generation Bio: Acquired in February 2026 (subsequent event).
• Arranger Services: Acted as structuring agent for the acquisitions of ESSA Pharma Inc. (October 2025, earning a $3.0 million fee) and Repare Therapeutics, Inc. (January 2026, earning a $3.0 million fee).
• Capital Allocation: Authorized a $50.0 million stock repurchase program in January 2024, with $16.1 million in common stock repurchased by December 31, 2025. Entered into At The Market (ATM) agreements in October 2025 for common stock ($75.0 million authorized) and Series B Preferred Stock ($50.0 million authorized).

Geographic Footprint: XOMA Royalty Corporation derives income and revenues primarily from the U.S., Switzerland, and the Asia Pacific. Its licensees and royalty-agreement counterparties operate research and development efforts globally.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Operating Margin: 21.8% (2025) vs. -140.3% (2024)
• Net Margin: 60.8% (2025) vs. -48.5% (2024)

Investment in Growth:

• R&D Expenditure: $1.7 million (3.3% of revenue)
• Capital Expenditures: $0 million
• Strategic Investments: $8.0 million in payments for Royalty Purchase Agreements (RPAs), Assignment and Assumption Agreements (AAAs), and Commercial Payment Purchase Agreements (CPPAs); $20.7 million for BioInvent contract-based intangible asset; $5.0 million for Castle Creek royalty financing.

Business Segment Analysis

XOMA Royalty Corporation operates as a single operating segment, with its Chief Executive Officer reviewing business activities on a consolidated basis. The company's "portfolio" represents its diversified economic interests across various therapeutic candidates and commercial products.

Commercial Assets

• VABYSMO (faricimab-svoa):
  • Revenue: $22.5 million (2025)
  • Royalty Rate: 0.5%
  • Therapeutic Area: Retinal diseases
  • Market Dynamics: Approved by the FDA and EMA for wet age-related macular degeneration, diabetic macular edema, and retinal vein occlusion.
• OJEMDA (tovorafenib):
  • Revenue: $6.4 million (2025)
  • Royalty Rate: Mid-single digit
  • Therapeutic Area: Pediatric oncology
  • Key Growth Drivers: FDA approved in April 2024. Earned $9.0 million milestone upon approval, $8.1 million from Priority Review Voucher sale, $4.0 million milestone for EMA filing, and $2.0 million milestone for Japan NDA filing in 2025. Royalties expected to increase.
• MIPLYFFA (arimoclomol):
  • Revenue: $2.9 million (2025)
  • Royalty Rate: Mid-single digit
  • Therapeutic Area: Rare disease (Niemann-Pick Disease Type C)
  • Key Growth Drivers: FDA approved in September 2024. Earned $1.0 million milestone upon NDA acceptance and $1.0 million upon first commercial sale in 2024.
• IXINITY (coagulation factor IX (recombinant)):
  • Revenue: $1.7 million (2025)
  • Royalty Rate: Mid-single digit
  • Therapeutic Area: Bleeding disorder (Hemophilia B)
• DSUVIA (sufentanil sublingual tablet):
  • Revenue: <$0.5 million (2025)
  • Royalty Rate: 37.5-75% (DoD sales)
  • Therapeutic Area: Acute pain treatment
  • Market Dynamics: Commercial sales discontinued by Alora in Q1 2025 due to manufacturing constraints; XOMA Royalty Corporation remains eligible for payments from sales to the U.S. Department of Defense.
• XACIATO (clindamycin phosphate):
  • Revenue: <$0.5 million (2025)
  • Royalty Rate: Low to high-single digit
  • Therapeutic Area: Women’s health
• DARE to PLAY (sildenafil cream):
  • Revenue: $0 million (2025)
  • Royalty Rate: Low single digit
  • Therapeutic Area: Women’s health

Late-Stage Assets

• Cetrelimab (JNJ-63723283): PD-1 antibody for oncology, developed by Johnson & Johnson. Royalty rate: 0.75%.
• D-Fi (FCX-007): Gene therapy for dystrophic epidermolysis bullosa (DEB), a rare disease, developed by Castle Creek. Royalty rate: <1.0%. Has Orphan Drug, Rare Pediatric Disease, Fast Track, and Regenerative Medicine Advanced Therapy designations.
• Ersodetug (RZ358): INSR antibody for congenital hyperinsulinism (HI) and tumor HI, developed by Rezolute. Royalty rate: High single digit to mid-teens. Phase 3 study for congenital HI did not meet primary and key secondary endpoints in December 2025.
• Ficlatuzumab (AV-299): HGF antibody for oncology, developed by AVEO Oncology/LG Chem. Royalty rate: Low single digit. Phase 3 trial for head and neck cancer and Phase 1b/2 trial for acute myeloid leukemia are ongoing.
• OHB-607: Recombinant human IGF-1/IGFBP-3 for neonatology, developed by Oak Hill Bio. Royalty rate: Low to mid-single digit.
• Ovaprene: Hormone-free contraceptive for women’s health, developed by Daré. Royalty rate: 4% synthetic royalty (decreasing to 2.5% after return threshold).
• REC-4881: MEK1/2 inhibitors for familial adenomatous polyposis, developed by Recursion Pharmaceuticals. Royalty rate: Low to mid-single digit.
• Rilvegostomig (AZD2936): TIGITI/PD-1 bispecific antibody for oncology, developed by AstraZeneca. Royalty rate: Confidential.
• Seralutinib: Inhaled PDGFR, CSF1R, c-KIT inhibitor for cardiopulmonary diseases, developed by Gossamer Bio & Chiesi. Royalty rate: Low to mid-single digit, net. Phase 3 PROSERA trial for PAH did not meet its prespecified primary endpoint in February 2026.
• Sildenafil Cream, 3.6%: PDE5 Inhibitor for women’s health, developed by Daré. Royalty rate: 2% synthetic royalty (decreasing to 1.25% after return threshold).
• Takeda Revenue Share Assets: A basket of nine development-stage assets, including mezagitamab (TAK-079), CD-38 antibody, AMPA positive allosteric modulator, and five early-stage Oak Hill Bio assets. Therapeutic areas include autoimmune diseases, neurology, psychiatry, and hepatic. Royalty rates: Low to mid-single digit.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $16.0 million in 2025 (648,048 shares). Total $16.1 million (648,708 shares) repurchased since the program's inception in January 2024 through December 31, 2025. A $50.0 million program is authorized through January 2027.
• Dividend Payments: $5.5 million in total cash dividends paid in 2025 ($2.1 million for Series A Preferred Stock, $3.4 million for Series B Preferred Stock).
• Future Capital Return Commitments: The Board may suspend, modify, or terminate the stock repurchase program at any time.

Balance Sheet Position:

• Cash and Equivalents: $82.9 million as of December 31, 2025.
• Total Debt: $109.0 million (carrying value of Blue Owl Loan) as of December 31, 2025.
• Net Cash Position: $(26.1) million (net debt position) as of December 31, 2025.
• Debt Maturity Profile: The Blue Owl Loan matures on December 15, 2038. Projected principal payments are $13.5 million in 2026, $16.6 million in 2027, $20.2 million in 2028, $24.3 million in 2029, $28.9 million in 2030, and $9.0 million thereafter.

Cash Flow Generation:

• Operating Cash Flow: $2.9 million in 2025.
• Free Cash Flow: $2.9 million in 2025 (Operating Cash Flow less Capital Expenditures of $0 million).

Operational Excellence

Production & Service Model: XOMA Royalty Corporation operates with a lean infrastructure, with substantially all research and development (R&D) and commercialization costs borne by the assets' sponsors. The company relies on a small team of skilled employees for executive, business development, legal, finance, and administrative functions, supplemented by independent contractors and consultants.

Supply Chain Architecture: As a royalty aggregator, XOMA Royalty Corporation does not have its own production or supply chain. It relies entirely on its partners and licensees for the development, manufacturing, and commercialization of products. Disruptions in partners' supply chains, such as manufacturing constraints that led to the withdrawal of DSUVIA from the commercial market, can directly impact XOMA Royalty Corporation's revenue streams.

Key Suppliers & Partners: XOMA Royalty Corporation's business is dependent on a diverse network of partners, including pharmaceutical companies (e.g., Roche, Day One, Zevra, Medexus, Organon, Johnson & Johnson, Pfizer, Takeda, AstraZeneca, Chiesi, Recursion Pharmaceuticals, Oak Hill Bio, Daré, Castle Creek, Twist Bioscience, Kuros, Palobiofarma) that develop, market, and license the underlying assets generating royalties and milestones. The company also engages financial and legal advisors for its acquisition strategy and capital market activities (e.g., Leerink Partners LLC, H.C. Wainwright & Co., LLC, Blue Owl Capital Corporation).

Facility Network: XOMA Royalty Corporation leases 1,620 rentable square feet for its corporate headquarters in Emeryville, California, with the lease expiring in April 2029. Following the HilleVax acquisition, XOMA Royalty Corporation also assumed the Boston Lease for office and laboratory space, expiring in December 2032, and a Swiss Lease expiring in September 2026.

Operational Metrics: Not explicitly disclosed for XOMA Royalty Corporation's internal operations.

Market Access & Customer Relationships

Go-to-Market Strategy: XOMA Royalty Corporation's market access strategy is indirect, focused on acquiring economic rights to products developed and commercialized by third-party pharmaceutical and biotechnology companies. The success of its portfolio depends on the effective go-to-market strategies, distribution channels, and customer relationships of its partners.

Customer Portfolio: XOMA Royalty Corporation's "customers" are the entities obligated to pay royalties and milestones.

• Customer Concentration: In 2025, three partners accounted for 46%, 26%, and 10% of total income and revenues, respectively. As of December 31, 2025, two partners represented 53% and 21% of the trade and other receivables, net balance. This indicates a degree of concentration risk in its revenue and receivables.

Geographic Revenue Distribution:

• United States: 44.3% of total income and revenues
• Switzerland: 45.9% of total income and revenues
• Asia Pacific: 7.9% of total income and revenues
• Australia: 1.9% of total income and revenues

Competitive Intelligence

Market Structure & Dynamics

The biopharmaceutical industry is characterized by rapid technological change, intense competition, and extensive government regulation. Pricing pressures and reimbursement limitations from government authorities and third-party payors are significant factors. The industry is also seeing increased innovation in next-generation products and therapies, including gene editing and cell/gene therapy, which could render existing products obsolete.

Competitive Positioning Matrix

Direct Competitors

XOMA Royalty Corporation faces competition from other companies, funds, and investment vehicles that aggregate royalties or provide alternative financing to development-stage biotechnology and pharmaceutical companies. These competitors may have lower target rates of return, lower costs of capital, or greater access to capital, potentially increasing acquisition prices and reducing opportunities.

Emerging Competitive Threats: New entrants, disruptive technologies (e.g., gene editing, cell/gene therapy), and alternative financing solutions could impact the market for royalty acquisitions.

Competitive Response Strategy: XOMA Royalty Corporation's strategy involves expanding its portfolio through acquisitions to diversify across therapeutic areas and development stages, thereby mitigating single-asset binary exposure.

Risk Assessment Framework

Strategic & Market Risks

• Market Dynamics: Biopharmaceutical product sales are subject to risks including pricing pressures, insufficient demand, product competition, clinical trial failures, lack of market acceptance, changes in licensee priorities, obsolescence, loss of patent protection, and government regulations. A significant portion of XOMA Royalty Corporation's portfolio value is concentrated in a limited number of products, making it vulnerable to the failure of any single asset.
• Technology Disruption: New products and technologies from competitors, including generics, biosimilars, and advanced therapies like gene editing, could render XOMA Royalty Corporation's partners' products noncompetitive or obsolete, impacting royalty streams.
• Asset Concentration: The portfolio is not fully diversified by product, therapeutic area, or geographic region, making it susceptible to significant deterioration in cash flows from top products.

Operational & Execution Risks

• Supply Chain Vulnerabilities: XOMA Royalty Corporation relies on third-party manufacturers and service providers for its partners' product development and manufacturing. Inadequate performance, cessation of operations, or manufacturing constraints (as seen with DSUVIA) can delay or disrupt development and commercialization, affecting milestone and royalty payments.
• Reliance on Third Parties: XOMA Royalty Corporation is highly dependent on its licensees and royalty-agreement counterparties for product development, regulatory approvals, commercialization, and accurate reporting of payments. Disputes, breaches, or terminations of agreements can reduce financial resources.

Financial & Regulatory Risks

• Demand Volatility: Product sales and, consequently, royalty payments are subject to market fluctuations and economic downturns.
• Foreign Exchange: International sales and operations expose the company to exchange rate fluctuations.
• Credit & Liquidity: Acquisitions of royalty streams carry credit risk from licensor/licensee defaults or bankruptcies. The illiquidity of acquired royalty assets may hinder favorable disposal if needed. Unstable market conditions and financial institution instability could impair access to funding.
• Regulatory & Compliance Risks: The biopharmaceutical industry is heavily regulated. Changes in regulations, healthcare reform measures (e.g., the Inflation Reduction Act), pricing controls, and data privacy laws can adversely affect product sales and profitability, impacting royalty payments. Non-compliance with healthcare laws (e.g., Anti-Kickback Statute, False Claims Act) could lead to significant fines and penalties.

Geopolitical & External Risks

• Geopolitical Exposure: Partners' operations in various international locations are exposed to natural disasters, public health crises, political instability, changes in trade policies (e.g., tariffs), and conflicts (e.g., Ukraine, Middle East), which can disrupt development efforts.
• Trade Relations: Tariffs and retaliatory measures could adversely impact partners' businesses.
• Sanctions & Export Controls: Compliance with anti-corruption, export control, and economic sanctions laws is critical, with violations potentially leading to significant penalties.

Innovation & Technology Leadership

Research & Development Focus: XOMA Royalty Corporation's business model is not centered on internal R&D. Instead, it strategically acquires economic interests in product candidates developed by other companies, leveraging their R&D investments.

Intellectual Property Portfolio: XOMA Royalty Corporation's future income streams are contingent on its partners' and licensees' ability to secure and protect intellectual property (IP). The company holds and has filed applications for patents in the U.S. and internationally to protect its technologies, and also holds licenses or income rights based on others' patents.

• Patent Strategy: The validity and enforceability of biotechnology patents are highly uncertain. Royalty rates may be reduced following patent expiration or revocation.
• IP Litigation: XOMA Royalty Corporation may engage in litigation to protect its IP and contractual rights, such as the ongoing litigation against Janssen regarding TREMFYA (guselkumab). Such litigation is costly and time-consuming.

Technology Partnerships: XOMA Royalty Corporation does not typically form technology partnerships directly but benefits from the strategic alliances and research collaborations of its partners.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: Changes in management, including those due to acquisitions, can disrupt business and strategy. The company relies on a small number of key personnel.

Board Composition: The Board of Directors oversees significant risks, with the Audit Committee (comprised of independent directors) specifically designated to oversee cybersecurity risks.

Human Capital Strategy

Workforce Composition: As of March 11, 2026, XOMA Royalty Corporation employed 14 full-time individuals, primarily in executive, business development, legal, finance, and administrative roles. The company also uses independent contractors and consultants.

Talent Management:

• Acquisition & Retention: The company faces intense competition for qualified personnel. Failure to attract and retain talent could hinder business objectives.
• Diversity & Development: Not explicitly detailed in the filing.

Environmental & Social Impact

Environmental Commitments: XOMA Royalty Corporation reports no significant compliance issues with environmental laws and regulations and does not anticipate material capital expenditures from environmental regulation. While climate change could present risks like increased operating costs or business disruptions, these are not currently deemed material.

Supply Chain Sustainability: Not explicitly detailed for XOMA Royalty Corporation.

Social Impact Initiatives: Not explicitly detailed in the filing.

Business Cyclicality & Seasonality

Demand Patterns: XOMA Royalty Corporation's revenue streams are tied to the sales of biopharmaceutical products, which can be influenced by seasonal trends, economic sensitivity, and industry-specific cycles.

Planning & Forecasting: The business model relies on multi-year internal and external forecasts of product sales and numerous product-specific assumptions for each royalty acquisition. The accuracy of these forecasts is subject to significant judgment and market conditions.

Regulatory Environment & Compliance

Regulatory Framework: The research, development, manufacturing, and marketing of pharmaceutical and biological products are extensively regulated by governmental authorities in the U.S. (e.g., FDA, FDCA, Public Health Service Act) and internationally (e.g., EMA). Compliance failures can lead to delays, sanctions, or withdrawal of approvals. Healthcare reform measures and pricing regulations (e.g., IRA) can significantly impact product profitability and, consequently, royalty payments.

Trade & Export Controls: XOMA Royalty Corporation is subject to the U.S. Foreign Corrupt Practices Act, export control laws, import and customs laws, and trade and economic sanctions laws. Non-compliance can result in criminal and civil penalties.

Legal Proceedings: XOMA Royalty Corporation is not currently engaged in any material legal proceedings, but initiated litigation against Janssen in August 2025 for alleged breach of contract and unjust enrichment related to TREMFYA (guselkumab).

Tax Strategy & Considerations

Tax Profile: XOMA Royalty Corporation recorded income tax expense of $0.1 million in 2025, primarily due to deferred tax liabilities from the HilleVax and LAVA acquisitions related to expected withholding taxes on repatriated earnings from Swiss and Australian subsidiaries. The effective tax rate was 0% in 2025 due to a full valuation allowance against net deferred tax assets.

• Tax Reform Impact: The "One Big Beautiful Bill Act" (July 2025) did not materially impact XOMA Royalty Corporation's financial statements due to its cumulative losses and full valuation allowance. The Inflation Reduction Act (August 2022) imposed a 1% excise tax on net share repurchases exceeding $1.0 million, resulting in a $68,000 excise tax liability in 2025.

NOL Carryforwards: As of December 31, 2025, XOMA Royalty Corporation had $198.4 million in U.S. federal Net Operating Loss (NOL) carryforwards, with $13.6 million expiring in 2036 and the remainder carrying forward indefinitely (subject to 80% taxable income limitation). A Section 382 ownership change in February 2017 significantly limits the annual utilization of pre-change NOLs.

Insurance & Risk Transfer

Risk Management Framework: XOMA Royalty Corporation maintains insurance coverage for various claims, including product liability and cybersecurity risks. However, there is no assurance that existing policies will be adequate or sufficient to cover all potential liabilities or that coverage will remain available on commercially reasonable terms.