How are you?
Good to see you.
Likewise.
All righty. Well, welcome everyone. My name is Dave Risinger, and it's very much my pleasure to welcome members of XOMA's leadership team. Immediately to my left is the company's CEO, Owen Hughes . To his left is Brad Sitko , Chief Investment Officer, and to his left is Jeff Trigilio , who's the CFO of the company.
Recently appointed CFO.
Yes. Recently appointed CFO. It's great to have you here. You have a lot going on. I thought it would be nice to start off with any high-level remarks you have on XOMA and what we should be focused on.
Well, I'd say, we've been at the company now for about 2.5-3 years, and the main objective is trying to increase the optionality inside the portfolio. I think, yeah, biotech is a very difficult business, and what we've been trying to build is a portfolio that can withstand the binary nature of the actual business itself. You've seen in the last couple months we've had two phase IIIs that didn't quite go our way. The drugs actually appear to work quite well, but the placebo effect was much greater than the companies anticipated. But what I'm somewhat proud of is that the fact is that the valuation of our company hasn't really changed dramatically, and I'm hopeful that's a testament to the optionality that's still embedded inside of the portfolio.
If you take a step back, there's 15 assets that are currently in phase III development, two of which have read out in the last couple of weeks. We have another two or three this year, and then a whole host in 2027 and 2028. With additional business development, our hope is that we can keep that funnel very strong, we can continue to backfill the phase II and phase I portion of the business, and ultimately what we're trying to do is create a financial instrument that generates revenue, generates operating cash flow, allows us to reinvest both back in the business internally, i.e., buying back our stock, as well as externally to keep the pipeline full without having to dilute ourselves.
Over the last three years, we've added about 80 assets to the portfolio, and our share count is actually down on a three-year basis. To me, that's how you win, right? If you can actually leverage the actual future returns by keeping the capital base relatively static, be creative as to how we actually bring these assets into the portfolio, and quite candidly cross our fingers and hope for a little bit of luck, then I think we'll be in a pretty good position.
Phenomenal. Obviously this is, you know, a little separate from, you know, the pipeline readouts that you're focused on in coming years that'll move the needle for XOMA, but there was a recent disclosure in J&J's 10-K which started to draw attention to the fact that you have optionality for economics on Tremfya .
Mm-hmm
you know, which was originally launched back in 2017. Can you talk about that?
Sure. You know, XOMA, interestingly enough, is actually the longest-tenured, publicly traded, quote-unquote, "biotech company." The company went public before Amgen. It's kinda hard to believe. Obviously, Amgen's been a little more successful than XOMA. Nevertheless, we're still trying, and hopefully we can catch up at some point in time. The basis of the company was actually essentially a bunch of different technologies that allowed companies to essentially identify the CDRs, so the sequences that make up an antibody, and then XOMA had some other additional technologies that allowed companies to manufacture the antibodies. In 2003, XOMA and J&J struck a relationship on a bunch of different things, different antibodies.
In addition to that, shortly after that, XOMA and MorphoSys actually struck an agreement where MorphoSys was using our technologies to identify CDRs for MorphoSys clients. One of those clients was J&J, and it just so happened to be that our technology was integral to the development of Tremfya. In fact, Tremfya, our conjecture and belief is that Tremfya would not actually be Tremfya if it weren't for our technology. What it stated in our agreement with MorphoSys is that we allow you to use our technology for R&D purposes, but if you or a client of yours actually goes and commercializes that entity, they have to come back to us, XOMA, for a commercial license. You know, for various reasons, that never actually occurred.
It's actually public that we actually sued MorphoSys, and actually went to arbitration in 2023, trying to go after that royalty. As it's disclosed in our 10-K 2024, we actually were unsuccessful in that bid, and we actually lost, almost every argument that we made. However, the one nugget inside of that agreement was that perhaps you have a claim. You may just have gone after the wrong party, because ultimately MorphoSys was not the commercial entity. J&J is. We're not quite sure what will transpire. We believe we have a good breach claim and that, there's a ton of optionality embedded in this claim. We have gone through various motions. The latest is that, we won the motion to dismiss in the stage of discovery on December 30th.
That was a nice late Christmas present. Now the traditional route will take place where we'll go into the discovery, we'll have summary judgments. The judge will either rule or we'll go to a jury trial. That will happen over the next 18-24 months. You know, our market cap is roughly around $450-$500 million. While I won't pontificate as to what a potential award can be, if you look at historical contracts that we've signed in this arena, and you apply that to the actual sales of Tremfya over a certain time period, it can be pretty significant. The way we think about it is that this is a way for us to actually continue to fund the company.
If we're successful, I'm sure that we will give some of this back to our shareholders that have been on the ride with us. We'll use some of it for, you know, additional business development purposes to keep the actual engine running.
Excellent. There is mediation or initial mediation that will occur, you know, following the judge's suggestion of mediation this summer. Could you just talk about that a little bit? Maybe there's not much to say beyond that, but is that still on track for this summer?
It's still on track. We'll wait for the judge's timeframe.
Mm-hmm.
He'll dictate it. You know, if you look at these situations, I would say the far, far majority of them actually get settled out of court. We're hopeful that actually would happen. We prefer to actually use this capital for additional business development opportunities, but we candidly are looking at this as a business development opportunity.
Mm-hmm.
In fact, if I look at all the things that are currently sitting in our pipeline and I had to allocate capital to those different opportunities, I would consider this one of those opportunities, and I would actually put more money into this particular opportunity than I would any other opportunity currently sitting in our portfolio.
Yeah.
Why? Because we already have one ruling from three objective judges over in Europe that suggested that we have a claim. We just went after the wrong party. We've had numerous law firms review the claim and our documentation to suggest that we actually have a claim. Candidly, the timeframe which this can happen is much shorter than a typical investment that we would make or a typical economic purchase that we would make. You know, generally we're dealing with phase I, phase II, perhaps a phase III, but it's still years in the making. You know, if we're successful in this endeavor, you could imagine that it could happen in the next two or three years.
Yeah.
Perhaps sooner. We'll see. It's an option, right? It's similar to my comments before, which is our goal at the company is to make sure that we allocate capital correctly and that we increase the optionality inside the portfolio. I'm not really convinced today that any of us sitting here on this panel, including yourself, Dave.
Yeah
Or frankly, even some of the best investors in the world can really accurately determine not only the clinical success of a program sitting in phase I, phase II, but the commercial success. The way we built the business at this point in time is recognizing that there are pitfalls, and candidly, it's strength in numbers. The more shots we have on goal and the greater we can or to the extent that we can keep our shares outstanding relatively flat, when we have an inflection point, we're gonna have significant leverage in the business. I look at the J&J opportunity as simply another opportunity where we can actually hopefully bring some cash into the company. If we do that, return some of that back to our shareholders by reducing our share equity base, then further business development.
Excellent. If that litigation were to go to trial, that would happen likely in early 2028. Is that the right way to think about it?
According to the judge's schedule today, it's early 2028.
The fact that it would go to a jury trial also is in your favor in the sense that juries typically are pretty respectful of patents. Is that also the right assumption?
I'd say no. The reason I say no is that it's very similar. A jury trial is very similar to clinical development. You have no idea. You know, we have on our board Natasha Hernday , who is the chief business officer of Seagen. As many people know, Seagen and Daiichi Sankyo were in litigation for many years. In listening to the public comments from Seagen, they were dead set that they were gonna win that case. I think even internally, not only did they say that externally, but I believe internally based on conversations with Natasha, which I don't think I'm divulging anything, I think they felt very confident that they were gonna win that case. They lost. I would just say that it is what it is at this point in time.
We're gonna do our best to look at the information, make the proper claims, and try to convince, if we go to a jury, that we actually have a legitimate claim on this product. If you look at our business model and, you know, our long-range plans, we have zero, right? It's zero in terms of the capital that could come to us, 'cause you can't run the business on hopes.
Yeah.
Right? We have a lot more hopes in the clinical side of things, and hopefully those will come to fruition, but this would be, you know, pure upside for the company.
Excellent. All righty. Let's turn to the Takeda transaction that you completed in 2025. That, you know, was a meaningful inflection for the company, if you could share some perspectives on that.
I'll have my counterpart do that.
Yeah, happy to. I think 2025 was a year that showcased our creativity in deal-making, both with the acquisition of many of the negative enterprise value companies where we were building non-dilutive capital for the company and offsetting some of our operating burn, building a strong tax base to protect the when we have that inflection point, the amount of taxes that go out to the federal government, building assets. I think the pinnacle of the year was at the end where we did a transaction with Takeda. Taking one asset that we had in our portfolio and doing a royalty exchange where through a revenue share agreement, we turn that into nine additional assets in the portfolio to increase the optionality and the shots on goal.
We had, you know, derived from XOMA legacy technology, a royalty on Takeda's mezagitamab CD38 for ITP and IgAN. Earlier in the year, we also bought up more of that royalty from a partner, BioInvent, in a transaction where we paid $20 million upfront with the idea that for Takeda, this is becoming a more important and visible asset in the portfolio. We looked at it as we think about portfolio management are the ways that we can diversify risk, increase NPV, pull forward cash flow, increase optionality within the portfolio and add different news flow or catalysts. Within many of the large pharma universe, there's been programs that are externalized, there's been programs that sit there where, you know, companies have been acquired, and they've inherited legacy economic arrangements licenses.
We approached Takeda with this idea of, what if we trade you something that is, you know, increasingly valuable, and visible and add to the XOMA portfolio new assets. In that transaction, we added royalty and milestone entitlements to Neurocrine's osavampator, Mirum's volixibat, Oak Hill Bio and Chiesi's OHB-607 for bronchopulmonary dysplasia, Recursion's 4881 for FAP, as well as five preclinical assets. Similar to what Owen was talking about earlier, you know, we've thought about this as to how do you build the optionality because, you know, as Jeff can talk about later, we're at that point where the business is starting to generate cash, and now we're thinking about for the long term, how do we increase the optionality.
Excellent. Yeah. With that, actually, Jeff, maybe you could talk about why you joined XOMA and talk a little bit about, I guess, just level setting with respect to GAAP EPS versus cash flow.
Yep
And the prospects ahead.
Yeah. Absolutely. Well, I joined for the good looks of the management team, obviously. No, seriously, I love the business model.
I agree.
I was dilutive on that front. I love the business model. You know, the work that Brad and Owen have put in the last couple of years is starting to bear fruit. We see that with the financials. You know, GAAP is kind of an artifact of the fact that a lot of these assets were earlier stage. Just to make it really simple, in 2025, top line was a little over $50 million. 33 was from royalty receipts, the rest from milestones. That was enough to cover our OpEx, the Blue Owl loan obligations, and the $5.5 million to the preferred dividends. We had a little bit left over, so we were actually free cash flow positive.
If you looked at the disclosure we made last week, we had a $20 million deployment of cash net on the year. What did we do with the money? To Owen's point earlier, we both, A, added assets to the portfolio. We actually added 22 drugs through the transactions Brad just went through. And we repurchased $16 million of stock, which was about 650,000 shares. We brought in, you know, 4% or 5% of the shares outstanding. And you know, I think that speaks to the power of the model. You know, when we see these opportunities, whether they're royalties or the opportunity to build to the portfolio or to take advantage of a big disconnect between intrinsic value and market value, you know, we'll deploy the capital accordingly.
Excellent. Then looking forward, you've got obviously the ramp of Vabysmo and other approved therapies and then potential new launches on top of that. I know that you don't provide any specific guidance, but it'd be helpful to have you talk qualitatively about, you know, the magnitude of the inflection for the company that's possible over the next, you know, three to five years.
$6.36 cents in 2023 .
No, Jeff can talk to it.
Yeah. I can frame it up and then-
Yeah
I'll get to it. I mean, I think.
By the way, for the transcribers, that was a laugh after a specific point estimate.
To say the least.
Yeah. I think 2026, you can expect more of the same. You know, the portfolio's ramping between Ojemda, Vabysmo. Lilly just announced a really nice quarter for Mounjaro. They beat expectations. So I think the royalties, and depending on what happens with the milestones, you know, we could be in another free cash flow positive. Next year, in 2027, the approved assets alone will—the royalties will cover our OpEx and our financial obligations going forward. So anything that works in the pipeline will be accretive to that. Then from a bottom-line perspective, just to put some numbers on the tax assets that Brad mentioned earlier, you know, XOMA's at a point now where we have over $620 million of NOLs and capitalized R&D pre-tax deductions on the balance sheet.
That will keep us, you know, effectively a non-federal income taxpayer through 2030. Our sort of effective tax rate as our cash flows grow will remain in the sort of low single digits. Everything we're doing and everything that works in the pipeline is actually gonna, you know, accrete to the bottom line, for the shareholders. I don't know if you want to add anything on that.
100% correct. I mean, we're keeping the share count flat to down. It's just, it's math, right? It's just pure leverage. What we have today will cover our expense base, including our preferreds and other obligations that we have.
In late 2023, we did the Blue Owl deal. That was to bring capital in so we could actually make more acquisitions and diversify the portfolio. At this point in time, we're essentially self-sustainable. To the extent that we bring in outside capital, it's likely because we see an opportunity that we wanna go after, and we found a partner that's willing to actually to partner with us and go on the journey. Like I said, this is a business. It just happens to be a collection of biotech assets, which candidly, generally aren't very good businesses. The benefit of royalties is that, you know, in biotech, we're all looking to hit the home run, right? That's what powers the overall returns for any given business.
It's the same in the hedge fund business, the mutual fund business, wherever you're gonna be. You know, you look at Biogen or Genentech or any of these big companies, and generally speaking, it's like really one drug that drives the entire business. Biogen, it was actually Avonex. That's what actually put them on the map. Genentech, it was, well, certainly Avastin, but it was Herceptin and then Rituxan prior to that. I think we have a couple of those, hopefully, sitting inside the portfolio. The benefit of actually owning the royalties rather than being a traditional investor is that in biotech, it's kinda like building a house, right? It always takes more time, and those change orders actually cost money. It's the same thing in biotech.
What happens on the equity side is that sometimes the last money in is actually the best money. Rarely is the first money in the best money. It can happen, you can get lucky. On a royalty side, like, the royalty can never be diluted. If we own 5%, we own 5% in perpetuity, or at least until, you know, the contract ends, the agreement ends, the patent ends, whatever it may be. Timing, while it's always important to every franchise and every company, it's not as important as actually getting to the actual event, right? Is it successful or not successful?
What's amazing about this business is that when we talk to investors, which I totally understand, they're like, "You know, what's happening with the three assets that are actually generating significant revenues today, and what are the two things you're looking at?" I kinda just laugh at that because, I mean, as a CEO and as operators, like, if we did that, we'd never have a business because those two things just failed if we said something, right? You have to look at the entire portfolio. What people don't understand is that the milestones that could accrue to us over the next several years, it could be twice the amount actually of what we have in royalties, if we get lucky, right?
It's not quite, you know, two times, but it's certainly enough to actually pay all of our expenses. So you have to build that diversified portfolio. You have to look out a little bit further than everyone else. Honestly, the thing that you don't expect to work is probably the thing that's gonna work, and the thing that you think is gonna work is the thing that doesn't work.
Uh-oh. I gotta worry about my stock right now.
For us, we're honestly we're not that concerned about it, right? I mean, I use this example all the time, but you know, AbbVie has all the money in the world, they have all the resources in the world, they have all the experts in the world to actually assess the Cerevel acquisition. Six months after they make that acquisition, they're writing almost the entire thing off. They got it wrong, you know, to the tune of, what was it? $8.7 billion or something like that. Like, I recognize that that can happen. You have to build a business model, a business model that reflects the reality of this. We don't have the luxury of some of our competitors having a cost of capital at 4.5%.
Like, our cost of capital is probably in the 10%-12% range, more or less, I think, at this point. That's kinda what we did the Blue Owl deal at. Recognizing that, you have to do a couple things. One, you need to be really creative in terms of how you bring these assets in, which is why we're doing something that other people aren't willing to do, which is acquiring these companies, shutting them down. It's not glorious, but every now and then, you can find one or two assets sitting inside those portfolios. I would just highlight one in particular. You know, we bought Generation Bio, I think it was announced in December, and it closed in January, I think I remember correctly.
Yeah.
Sitting inside of that company, we believe, is by far the best LNP delivery of any company that we've seen. You may remember, I had a little bit of history in the LNP space 'cause I was on the board of Translate, which we sold to Sanofi. We believe that we can actually take this delivery technology and use it similar to what XOMA did back in the 1980s and 1990s as a mechanism to increase and generate royalties and milestones. For the delivery of messenger RNA, sRNA, oligos, nucleic acids, we believe we can use this technology, we can license it out. Yes, we may not get a ton of it for upfront until it's proven in the clinic, but there is a partnership that we inherited from Generation Bio with Moderna.
They're essentially trying to do in vivo CARs with our LNPs. I don't know if it's gonna work or not. If it doesn't work there, we believe we can port it to other places and actually have it deliver mRNAs, et cetera. We essentially get paid by the Generation Bio folks to take this in and then essentially to license it. When we license it, we share those economics with the Generation Bio shareholders for a period of time, and then ultimately, it all comes back to us, you know, years and years out in the future. We have another technology. It's essentially a proprietary Brainshuttle technology that's sitting inside the company today that no one ever talks about. I think it's actually the most unique Brainshuttle technology that I've seen. Our goal is to actually license this out to various parties.
We don't wanna become a drug development company, right? We understand the pitfalls of drug development. We understand the capital intensity, and we're not a very capital-intensive business when it comes to this stuff. But if we can create the option, put it inside the portfolio, and ultimately have it come to fruition, it's essentially 100% free cash flow to us, right? We've built the tax base, so we don't necessarily have to worry about our income taxes at any time in the near future. You know, that's not the reason why we did those transactions, right? We acquired assets, we acquired non-dilutive capital. One way to think about it, what Brad says, is that, you know, our 2025 expenses were covered by the acquisitions that we made.
Mm.
Like, people are paying us to actually take these companies out. It's kinda. It's insane, right? Frankly, not many people are willing to do it. If I can go back to my board and we can go back to our board and say, "Listen, we're gonna cover all of our expenses. We're gonna have zero expenses in 2025. And if we do generate cash, or if we do have royalty receipts, they're gonna flow right to the bottom line if we put this in place and we have these tax benefits." The board's like, "You guys are crazy, but maybe you should try it." Like I said, we're. It's not glamorous and.
They don't say, "Go get your hands dirty"?
Uh, uh, you know, I-
'Cause it's difficult.
It's you know, part of me, it's a pain in the ass to be honest with you.
Yeah.
All right. There's a lot of things that flow. We only have 14 people inside the company, and so, you know, there are calls that we get about, you know, IP for this company and that type of stuff, and we have people that can take care of that, but they're not in a position to make those type of decisions, so everything flows up to us. Is it worth our time? You know, I'm hopeful it will be in 2027, 2028, 2029 when we actually get a little bit of success and the stuff starts flowing to the bottom line and people see this massive leverage in our business.
I think we've climbed the learning curve on it too. You know, doing nine, there's things we've learned.
Yeah
Along the way, and it's become more efficient every time. You know, to the extent, going forward, that there's cash coming in, I think those margins are probably gonna come down, but there's still a lot of other reasons to do them between the drugs and the tax benefits.
That's great.
Yep.
That's great. Let me pause, see if there are any questions in the audience. All righty.
Maybe Dave, if I can just plug, we're excited about the financials, but we do have a couple of catalysts this year.
Yes.
Not your typical biotech, but we do actually have a couple of late-stage readouts. Upcoming is the volixibat phase IIb readout in their PSC trial, and they're positioning it as a potentially registrational study.
Just remind everybody the ticker.
Ticker is for Mirum.
XOMA.
That one I know.
Oh, our ticker.
They're guiding that to be in the second quarter. We have a low single digit royalty on it. They've guided that if it's successful, they will file an NDA toward the end of the year. The second one kind of around the corner is our partners at Rezolute are running a phase III for ersodetug in congenital hyperinsulinism. That data readout is expected in the second half, and there we have, you know, pretty significant economics with the high single digit to low double digit royalty, as well as the number of milestones on it.
Excellent. Just talk a little bit about the Vabysmo financials, you know, how they're reflected in the P&L today.
Yep
The reflection later this decade.
Today we're collecting somewhere between call it about $25 million a year in royalties. The drug did $5 billion last year. It was 10% constant currency growth. A lot of that was driven ex-U.S., and I think Roche is guiding to re-acceleration of growth in the U.S. going forward. But right now, that, to your point, Dave, that all is sweeping into the Blue Owl note. It's a self-amortizing loan. If that drug continues to grow in the kind of mid to high single digits over the next five years, which is probably below where consensus is, we will be in a position where we'll pay off the loan by the end of 2030.
We'll have a couple of years of the term of our economics back to XOMA and its shareholders. There might be other opportunities for us to, you know, look at refinancing or paying back that loan as we kinda get through the call provisions, kind of in the 2020-2028 timeframe. You know, for now, it's been helpful to have the capital to deploy, but I think going forward, there's an option for XOMA shareholders to get the cash flows back.
Excellent. That's great. I think we're almost out of time. I guess maybe we could just wrap up with some of the big catalysts next year. I know that there are many, but.
Mm-hmm
Just looking beyond the few that you just mentioned, Jeff, it'd be helpful to understand what we should also be watching for in 2027 from your partners.
Sure.
There's probably too many to list.
Well, just that maybe a couple that are probably more meaningful and that are in the public domain. Mirum's volixibat is also in a PSC study. It's a phase IIb that they're positioning as registrational. That'll be fully enrolled in the second half of this year, so data is likely in 2027. To Brad's point earlier, we have economics on Neurocrine's osavampator. They will be fully enrolled in the depressive disorder phase III this year. They're guiding to data next year. Two other kinda, you know, juicy phase III pivotal readouts around the corner.
Phenomenal. That's great. Well, we are out of time. Thanks so much for being with us.
Thank you.
Excellent.
Thank you for having us.