Dear XOMA Stockholders:
Jim Neal and the team did a great job establishing the royalty and milestone aggregator business model, providing XOMA with a solid foundation from which to prosper. The combination of legacy antibody agreements and shrewd capital deployment has resulted in a portfolio of 70+ assets, providing the Company with over $85 million of milestone payments since 2017 and recording incoming cash flows from its first royalty product in 2022 (Vabysmo® (faricimab), marketed by Roche for wet AMD and DME).
At present, following the recent purchase of the IXINITY® [coagulation factor IX (recombinant)] royalties from Aptevo Therapeutics, our late-stage portfolio consists of:
- two cash flow generating assets,
- a potential 2023 NDA filing for tovorafenib (DAY101), and
- up to five assets either in or expected to enter into Phase 3 development by year-end.
In addition, our business development team, led by Brad Sitko, our recently appointed Chief Investment Officer, is reviewing an ever-increasing number of opportunities as companies come to understand the value of royalty monetizations, especially as debt and equity capital remain constrained in the early- stage life sciences market.
As we look to the future, I’d like to take the opportunity presented with XOMA’s Annual Letter to Stockholders to outline our top three priorities for 2023.
One. Increase XOMA’s brand equity as a capital provider, enabling today’s science to be tomorrow’s cures.
In March 2023, we acquired a mid-single digit royalty on IXINITY®, which is marketed by Medexus Pharmaceuticals for the control and prevention of bleeding episodes and postoperative management in people with Hemophilia B. We paid $9.6 million to Aptevo Therapeutics for these commercial payments. In the second quarter of 2023, we expect to begin receiving a mid-single digit royalty on all IXINITY® sales beginning January 1, 2023, and continuing quarterly into 2035. XOMA’s non-dilutive capital gives Aptevo Therapeutics the opportunity to continue advancing its portfolio of clinical-stage immuno-oncology candidates.
We continue to identify companies holding economic interests in pre-commercial assets licensed to large cap pharmaceutical and established biotech companies that are looking to monetize all or a portion of their future royalty streams. As companies come to recognize the value of royalty / milestone financing relative to equity dilution, we anticipate XOMA’s unique position within the early-stage biotech environment will be a critical factor for our future success.
Two. Capitalize on the dislocation in the biotech ecosystem and specifically, the biotech funding market.
The once exuberant market sentiment of 2020 and 2021 has given way to the sobering reality of one of the most difficult funding environments in the history of biotech. As of April 2023, nearly 250 biotech companies are trading with a negative enterprise value, i.e., their market cap is below their cash on hand. And it is in fact this dislocation that presents a significant opportunity for XOMA. As referenced earlier, the number of opportunities that we are actively reviewing is much higher than historical norms, both in terms of breadth as well as quality. As such, we anticipate deploying additional capital sourced from our future milestones and royalties to capitalize on this dislocation, allowing us to further diversify our growing pipeline.
Three. Generate positive risk-adjusted, non-correlated returns for our stockholders.
Our royalty cashflows are derived from the sales of pharmaceutical products addressing serious conditions that often require life-saving medications. While there may be some elasticity in pharmaceutical demand, the sales of therapeutics tend not to be influenced by the broader economic backdrop or the performance of the equity or credit markets. With a portfolio of over 70 assets, diversified across therapeutic areas, mechanism, modality, stage of development and partner, we are building the foundation for a company that maintains the upside of a traditional biotech company, but with a significantly mitigated risk profile. And in that manner, we believe our pipeline success will beget future free cash flow generation, which we intend to redeploy both internally, as well as externally to the benefit of our stockholders.
Sincerely,
Owen Hughes
Forward-Looking Statements/Explanatory Notes
Certain statements contained in this letter are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the potential of XOMA’s portfolio of partnered programs and licensed technologies generating substantial milestone and royalty proceeds over time, and creating additional value for the stockholders. In some cases, you can identify such forward-looking statements by terminology such as “believe,” “expect,” “look forward,” “plan,” “potential,” “will” or similar expressions. These forward-looking statements are not a guarantee of XOMA’s performance, and you should not place undue reliance on such statements. These statements are based on assumptions that may not prove accurate, and actual results could differ materially from those anticipated due to certain risks inherent in the biotechnology industry, including those related to the fact that our product candidates subject to out-license agreements are still being developed, and our licensees may require substantial funds to continue development which may not be available; we do not know whether there will be, or will continue to be, a viable market for the products in which we have an ownership or royalty interest; if the therapeutic product candidates to which we have a royalty interest do not receive regulatory approval, our third-party licensees will not be able to market them, and other potential risks described in more detail in XOMA’s most recent filing on Form 10-K and in other SEC filings. Consider such risks carefully when considering XOMA’s prospects. Any forward-looking statement in this letter represents XOMA’s beliefs and assumptions only as of the date of this letter and should not be relied upon as representing its views as of any subsequent date. XOMA disclaims any obligation to update any forward-looking statement, except as required by applicable law.