XOMA Corporation, a biotech royalty aggregator, has been making significant strides in building a diverse portfolio of economic rights to future potential milestone and royalty payments associated with partnered commercial and pre-commercial therapeutic candidates. The company's unique business model has positioned it well to capitalize on the growing trend of large pharmaceutical companies outsourcing their drug development efforts to smaller, more specialized biotechs.

Business Overview

XOMA's royalty aggregator business is primarily focused on acquiring rights to early to mid-stage clinical assets in Phase 1 and 2 with significant commercial sales potential that are licensed to large-cap partners. The company also acquires milestone and royalty revenue streams on late-stage or commercial assets that are designed to address unmet markets or have a therapeutic advantage, have long duration of market exclusivity, and are expected to generate royalty or milestone payments to XOMA in a relatively short timeframe.

The company's strategy has paid off, as evidenced by its growing portfolio of economic rights. XOMA reported annual revenue of $4.8 million in 2023, up from $3.2 million in 2022, driven by milestone payments and royalties from its expanding asset base. However, the company incurred a net loss of $40.8 million in 2023, compared to a net loss of $35.2 million in 2022, as it continued to invest in acquiring new assets and supporting its operations.

Financials

Quarterly Performance

For the first quarter of 2024, XOMA reported revenue of $1.5 million, up from $0.4 million in the same period of 2023. The increase was primarily due to a $1.0 million milestone payment received under a licensing agreement. The company's net loss for the quarter was $8.6 million, compared to a net loss of $9.8 million in the first quarter of 2023.

XOMA's cash and cash equivalents stood at $136.2 million as of March 31, 2024, down from $153.3 million as of December 31, 2023, primarily due to the company's investment activities, including the acquisition of royalty and commercial payment rights. The company's working capital remained strong at $131.4 million as of March 31, 2024, providing it with the financial flexibility to continue executing its growth strategy.

Acquisition Activity

XOMA has been actively expanding its portfolio through strategic acquisitions of royalty and commercial payment rights. In January 2024, the company acquired an economic interest in DSUVIA from Talphera, Inc. for $8.0 million. DSUVIA is an FDA-approved pain medication that XOMA believes has significant commercial potential.

In April 2024, XOMA entered into royalty purchase agreements with Daré Bioscience, Inc., acquiring rights to royalties and milestones related to several of Daré's product candidates, including XACIATO™ and OVAPRENE®, for $22.0 million. These acquisitions are expected to contribute to XOMA's future revenue and cash flow.

Regulatory Approvals and Milestones

XOMA's portfolio companies have also achieved several regulatory milestones during the past year. In April 2024, Day One Biopharmaceuticals received FDA approval for its drug OJEMDA (tovorafenib), triggering a $9.0 million milestone payment to XOMA under its Viracta Royalty Purchase Agreement.

Additionally, in January 2024, Zevra Therapeutics announced that the FDA accepted its NDA resubmission for arimoclomol, a product candidate that XOMA has economic rights to through its LadRx Agreements. This milestone resulted in a $1.0 million payment to XOMA.

These regulatory approvals and milestone achievements demonstrate the strength and diversity of XOMA's portfolio, which the company expects will continue to drive future revenue growth.

Liquidity

XOMA's financial ratios indicate a strong liquidity position, with a current ratio of 9.45 and a quick ratio of 9.45 as of March 31, 2024. The company's cash ratio of 8.78 suggests it has ample cash resources to meet its short-term obligations.

However, XOMA's profitability ratios remain challenged, with a net profit margin of -6.82% and a return on equity of -41% for the full year 2023. The company's focus on acquiring royalty and milestone rights, rather than developing its own drug candidates, has resulted in ongoing losses as it invests in building its portfolio.

Outlook

XOMA's management has provided guidance for the remainder of 2024, expecting continued growth in revenue from its expanding portfolio of royalty and commercial payment rights. The company anticipates that its recent acquisitions, such as the Daré RPAs and the Talphera CPPA, will contribute to its top-line performance in the coming quarters.

Risks and Challenges

That said, XOMA's business model is not without risks. The company's success is heavily dependent on the clinical and commercial success of its partners' drug candidates. Any delays or failures in the development or commercialization of these assets could negatively impact XOMA's future revenue and cash flows.

Additionally, the company's reliance on milestone and royalty payments means its revenue can be lumpy and unpredictable, making it challenging to forecast financial performance accurately. XOMA also faces competition from other royalty aggregators and the potential for increased pricing pressure from its partners as the market for these types of transactions becomes more competitive.

Conclusion

XOMA's unique business model as a biotech royalty aggregator has positioned the company to capitalize on the growing trend of outsourced drug development. The company's expanding portfolio of economic rights to future milestone and royalty payments, coupled with recent regulatory approvals and milestone achievements, suggest that XOMA is well-positioned for continued growth.

However, the company's profitability remains challenged, and its business model carries inherent risks related to the success of its partners' drug candidates. Investors should closely monitor XOMA's ability to continue executing its acquisition strategy and manage the risks associated with its royalty-focused approach. Overall, XOMA's story as a biotech royalty aggregator remains compelling, and the company's future performance will be an interesting one to watch.