Chairman’s 2022 Year-end Letter

Dear Stockholders, Friends, and Supporters,

Dear
Stockholders, Friends, and Supporters,

As 2022 comes to an end and my retirement begins, I take this opportunity to ask you to look forward and see what I see – XOMA, the Royalty Aggregator for biotech companies. The capital we deploy through our royalty and milestone acquisitions provides immediate non-dilutive cash to the sellers and helps them achieve their near-term goals.

First, I see increasing recognition of XOMA as a royalty aggregator and the role we play in the biotechnology financing ecosystem. That signals to me that the time we have spent introducing XOMA to a broad audience of investors and biotech company executives has moved the needle. Our business development team hit a new benchmark of over 170 meetings at conferences in 2022 and expects to exceed that number in 2023. We continue to seek targeted opportunities to increase XOMA’s exposure to, and reputation within, the industry. Our goal is to make XOMA the ‘go-to’ Royalty Aggregator for biotech companies seeking to monetize a royalty.

Second, I see a milestone and royalty portfolio that is on the cusp of capturing significant attention as cash begins to flow in increasingly tangible royalty and milestone receipts. September marked the first reporting of commercial sales payments (i.e., royalties) made to XOMA since we transitioned to a royalty aggregator. Every six months going forward for the next 10 years, we expect to receive a check representing 0.5%of Vabysmo® (faricimab) net sales. Even more exciting is our view that this royalty stream is just the beginning, as our portfolio includes royalty rights on two oncology assets in Phase 3 development today and two assets with Orphan Drug designation that are preparing to enter Phase 3 in the coming months. The more Phase 3 assets we have in our portfolio, the more we see the prospects of our portfolio delivering royalty revenue and earnings.

In addition to these royalty prospects, XOMA holds rights to approximately $1.5 billion in future potential milestone payments.  The large milestone payments we received in two of the past three years have more than covered our lean operating expenses.  And though this milestone revenue is lumpy and hard to predict, it is impactful as a source of non-dilutive capital as we continue to grow XOMA’s milestone and royalty portfolio.

Third, I see a strong team that works exceptionally well together.  Each member of the XOMA team is dedicated to our mission – Play a distinctive role in helping biotech companies achieve their goal of advancing novel therapeutic candidates aimed at improving human health.  Each team member has brought royalty acquisition ideas to the table.  Each team member tells the XOMA story with excitement and passion, thereby introducing the Company to new people on a regular basis.  Each team member has worked through weekends, vacations, and COVID-19 symptoms to build XOMA into a well-regarded royalty aggregator.  They are supportive of each other, and they bring out the best in each other.  The strength of this XOMA team should not be overlooked.

Finally, I am amongst a group of highly supportive stockholders in XOMA.  When the New Year dawns and my involvement in XOMA’s day-to-day operations ends, my support of XOMA as a company, as an investment, and as a team will continue.  Establishing XOMA as the Royalty Aggregator for biotech companies is my professional legacy.  I’m proud of what we have accomplished and know the team will build on and amplify what we’ve started.

Thank you for your support these past six years, and we hope you will continue to support XOMA for into the future.

Everyone at XOMA wishes you the best for a happy, healthy, and prosperous 2023,

Jim Neal

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 “anticipate,” “believe,” “look forward,” “plan,” “potential,” “would,” “could” or “should” or, the negative of these terms 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 the impact to the global economy as a result of the COVID-19 pandemic.  Other potential risks to XOMA meeting these expectations are 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.

EXPLANATORY NOTE:

Any references to “portfolio” in this letter refer strictly to milestone and/or royalty rights associated with a basket of drug products in development.  Any references to “assets” in this letter refer strictly to milestone and/or royalty rights associated with individual drug products in development.

As of the date of this letter, all assets in XOMA’s milestone and royalty portfolio, except Vabysmo® (faricimab), are investigational compounds.  Efficacy and safety have not been established with any of these investigational assets, and there is no guarantee that any will become commercially available.