XOMA Corporation Aktie

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to Ligand Pharmaceuticals to acquire XOMA Royalty. [Operator Instructions]

I would now like to turn the conference over to Melanie Herman, Head of Investor Relations. Melanie, please go ahead.

Good morning, everyone, and welcome to Ligand's investor call highlighting the announcement of our Acquisition of XOMA Royalty. Here with me today are Ligand's CEO, Todd Davis; Chief Financial Officer, Tavo Espinoza; and Vice President of Portfolio Strategy and Investments, Lauren Hay.

Today, we'll be discussing certain non-GAAP financial measures, and some of those will be forward-looking. We'd like to refer you to the safe harbor statement in these forward-looking statements, which are subject to risks and uncertainties. Actual results or events may differ from those projected or discussed, and all forward-looking statements are based on our current available information. Ligand assumes no obligation to update these statements.

And with that, I will now turn the call over to our CEO, Todd Davis.

Thank you, Melanie, and good morning. Today, Ligand announced that it has entered into a definitive agreement to acquire XOMA Royalty Corporation. We have known the XOMA team and have been impressed with the robust portfolio of biopharmaceutical assets that they have established over the last several years. This is an exciting acquisition of a highly complementary business that meaningfully expands Ligand's Royalty portfolio and accelerates near-term and long-term growth.

Through this acquisition, we will increase the number of commercial assets generating revenue today and significantly expand the pipeline of development-stage programs that will be future contributors. I will begin with a brief overview then provide background on XOMA and the strategic rationale before turning it over to Tavo to discuss the financials. After that, Lauren will cover portfolio details.

We are paying $39 a share in cash to the XOMA shareholders. Plus, there will be a CVR tied to the litigation proceeds from XOMA's dispute with Janssen Biotech over Tremfya. Subject to shareholder and regulatory approval, we expect the transaction to close in the third quarter of 2026 and be immediately accretive to earnings. When the transaction closes, we will add 7 commercial royalties to our portfolio. Including 3 we consider key commercial programs that we expect to be near-term growth drivers for Ligand.

Vabysmo, Ojemda and Miplyffa was over 100 partnered development stage programs. This will more than double the size of our portfolio and position us to drive future growth for Ligand shareholders. Consistent with our ongoing investment strategy, we are adding the XOMA clinical stage programs to our portfolio and believe they will be important contributors to our performance over time.

XOMA has built an impressive portfolio since pivoting to become a royalty aggregator in 2017. In the last 2 years, XOMA has closed 9 acquisitions, building a portfolio of royalty, tax and intellectual property assets that have begun to generate significant receipts and contains a robust pipeline of earlier-stage pipeline assets that will complement Ligand's later-stage pipeline. We believe the timing for the acquisition is very good as XOMA approaches inflection on its portfolio of over 100 assets. We look forward to integrating the XOMA portfolio into Ligand's portfolio.

Slides 8 and 9 provide a few more details on the rationale of the transaction. As I mentioned, this transaction is immediately accretive, and we expect it will add approximately $0.50 to Ligand's adjusted earnings in 2026, assuming a closing time line in Q3 and $1.50 in 2027. Beyond 2027, we expect the portfolio revenues will likely continue to grow significantly. XOMA's significant upside potential also draws from its earlier stage opportunities and longer-dated IT and royalty rights, some of which extend past 2040.

Additionally, we anticipate very significant operational and financial synergies as we integrate the XOMA portfolio. Over the last couple of years, Ligand has scaled the business and our portfolio management system in anticipation of absorbing new assets into our portfolio. With long-dated royalty cash flow, proprietary financing capabilities and increased financial strength for execution, this acquisition strengthens our position as the next-gen life sciences capital allocator. We believe this approach will continue to deliver compounding profitable growth for our shareholders and deliver high-value medicines patients in need.

I will now turn it over to Tavo to go deep on the financials.

Thank you, Todd. Turning to Slide 11. This slide captures the financial impact of the XOMA acquisition on our 2026 outlook. Our revised guidance assumes the transaction closes in Q3 of this year. The transaction adds royalty revenue that translates efficiently into cash flow through our operating model, and that dynamic is reflected in the meaningful earnings contribution even on a partial year basis.

Starting with royalty revenue. We are raising our full year royalty guidance to a range of $225 million to $250 million, up from $200 million to $225 million previously. The primary commercial contributors from the XOMA portfolio in 2026 are Ojemda, Vabysmo and Miplyffa, three approved products with established revenue streams. On total revenue, we are raising our range to $270 million to $310 million from $245 million to $285 million or non-royalty lines Captisol at $35 million to $40 million and contract revenue at $10 million to $20 million are unchanged.

On earnings, we are increasing adjusted core EPS guidance to $8.50 to $9.50 per share up from our prior range of $8 to $9 per share. The transaction is immediately accretive on a partial year basis in 2026. And as we move into 2027 and realize that the first full year of XOMA royalty cash flows, we expect the acquisition to contribute approximately $1.50 of incremental adjusted earnings per share.

Slide 12 provides additional detail on the financials. Cost of goods sold remains unchanged while operating expenses increased modestly, reflecting small incremental costs that are more than offset by the meaningful synergies we expect to realize. Together, operating leverage and continued royalty growth are expected to drive a 10% increase in cash operating profit or approximately $20 million. This is partially offset by an approximate $6 million decline in other income, reflecting capital deployment at lower interest earnings.

Net of these factors, we expect adjusted core EPS to increase by $0.50 with no change to share count. We intend to fund the acquisition through a combination of cash on hand and our credit facility. We expect to retain sufficient remaining capacity to continue executing on our capital deployment strategy of investing $150 million to $250 million annually in high-value royalty assets.

Slide 13 provides a few highlights on key long-term drivers of performance. As mentioned earlier, we expect the acquisition of XOMA to be accretive to 2026 EPS by $0.50, and we also expect an additional $1.50 of adjusted EPS in 2027. In addition to XOMA, the FDA recently approved Filspari in FSGS and Palvella announced positive Phase III data in microcystic lymphatic malformations for its QTORIN rapamycin. The latter two events we expect will contribute significant and ramping value to Ligand shareholders over time. We will share more about the longer-term view and update our 5-year plan at an Investor Day we expect to hold in December of this year.

I'll now turn it over to Lauren to discuss our portfolio more broadly.

Thank you, Tavo. XOMA's assets will enhance Ligand's portfolio in three distinct stages as outlined on Slide 15. So almost 7 commercial programs, including the 3 key programs: Vabysmo, Ojemda and Miplyffa provide near-term revenue and visibility, supported by continued adoption and potential label expansion. So most 14 late-stage programs, including Phase III and registrational assets, represent the next wave of contributors. As these programs reach approval and launch, they transition into royalty-generating assets and further expand the revenue base.

Beyond that, XOMA has an extremely diverse array of over 100 earlier-stage programs that provide the foundation for long-term growth. These assets have the potential to generate near-term income through contractual milestones as they progress through development as well as the potential to generate royalties in the longer term. The result is a layered portfolio structure with current contributors, near-term growth drivers and longer-dated opportunities working together to support sustained growth.

The breadth of the portfolio across therapeutic areas, development stages and counterparties provides diversification and reduces reliance on any single asset supporting a more predictable and compounding growth profile over time.

Now I'd like to highlight a few specific near-term growth drivers from XOMA's portfolio that we're particularly excited about. The first is Roche’s Vabysmo, The first approved bispecific antibody targeting both VEGF-A and Ang-2 reducing vascular leakage, neovascularization and inflammation more than VEGF-only agents. Vabysmo has been one of Roche's key growth drivers and is currently the third best-selling product in their entire portfolio. Analyst peak sales estimates for Vabysmo are $7.5 billion. As a reminder, XOMA is entitled to a 0.5% royalty on net sales. At peak, this would equate to a $37.5 million annual royalty.

Turning to Ojemda. This product addresses an area of high unmet need in pediatric oncology. Ojemda is currently marketed in the U.S. by Day One under accelerated approval in relapsed/refractory pediatric low-grade glioma and is the first targeted therapy delivering clinically meaningful tumor shrinkage with durable responses in relapsed/refractory BRAF fusion/rearrangement and V600-mutated pLGG.

Ojemda also recently gained marketing authorization in Europe and is being marketed by Ipsen as its ex U.S. partner. It is also in Phase III development for frontline pediatric low-grade glioma. In Q1, Servier announced the acquisition of Day One for $2.5 billion, further validating the commercial potential of Ojemda. XOMA is entitled to milestones and a tiered mid-single-digit royalty on worldwide net sales. Day One reported net sales of $155 million in 2025, and analysts expect peak sales in excess of $1 billion.

Turning to a near-term growth driver in the XOMA development stage pipeline, Osavampator currently has 5 Phase III trials evaluating the drug as an adjunctive treatment for major depressive disorder. It is a potential first-in-class AMPA-PAM offering oral convenience with strong safety, positioning it well in the MDD market. Analyst peak sales consensus is $1.8 billion. And as a reminder, XOMA is entitled to a low to mid-single-digit royalty on worldwide sales, excluding Japan.

Slide 21 is an exciting look at the substantial number of 2026 catalysts we have and will gain with XOMA. We've already had two major positive catalysts from Ligand's late-stage portfolio this year. In February, our partner, Palvella announced positive top line results of the QTORIN rapamycin program in microcystic lymphatic malformations. QTORIN rapamycin has the potential to be the first FDA-approved therapy and standard of care for the estimated 30,000 individuals living with mLM in the U.S., and Ligand earns a tiered 8% to 9.8% royalty on all QTORIN rapamycin sales. Additionally, this month, Travere announced the FDA approval of Filspari for the treatment of adults and pediatric patients age 8 and older in FSGS without active nephrotic syndrome. Filspari is now the first and only medicine approved by the FDA for the treatment of FSGS, marking expansion beyond IgAN into a second rare kidney disease. Ligand earns a 9% royalty on net sales of Filspari.

Turning to the XOMA portfolio. We are excited about several clinical and regulatory milestones, including Ojemda marketing decision in Japan, as well as the Miplyffa marketing decision in Europe. With the potential for geographic expansion, these catalysts have the potential to be near-term growth drivers for Ligand. In closing, with the acquisition of XOMA, we have never felt more confident about the potential of our portfolio, both in the short and long term.

With that, I'll turn it back to Todd.

Thank you, Lauren. We are incredibly excited about this acquisition and the accelerating growth it offers to Ligand. With long-dated royalty cash flow, proprietary financing capabilities and increased financial strength, our position is a next-generation life sciences capital allocator is strengthened. We believe the Ligand strategy and continued execution will continue to deliver compounding profitable growth for our shareholders and deliver important treatments to patients in need.

I will now hand it back so that we can take questions from the participants.

[Operator Instructions] And your first question comes from Matt Hewitt with Craig-Hallum Capital Group.

Congratulations on what looks to be a fantastic fit for Ligand. Maybe first up, why now? Obviously, XOMA has been out there for a while. A little bit different portfolio strategy on their part tending to favor earlier stage. But maybe why now? And how does this fit in your long-term strategy?

Thank you, Matt. That's a great question. And in fact, XOMA has been around for 45 years. They just had their 45th anniversary, so it's one of the original and early biotech as this industry began. And why now is that over the years, XOMA has built up really an amazing portfolio, but it is approaching an inflection point right now. They have 7 commercial assets, 14 assets in late-stage development that are very attractive, over 120 assets overall. And that's going to be very accretive, not just immediately, but that grows and accelerates our growth over the long term.

We have very long-dated IP, which lasts beyond the mid-2030s. It's very complementary to our portfolio and just a fantastic fit. Additionally, in this type of business model, which is basically it provides investors exposure to biotech, but at the same time also provides compounding profitable growth. And this just accelerates that. So we already have anticipation of over 20% growth in our existing portfolio, this will accelerate that going forward. So I think it's a very good fit. The synergies are almost 100%, not quite, but almost 100% synergies in this business model. And the value is structured to accrete directly to our existing shareholders with no dilution.

That's helpful. And then maybe -- and I don't want to distract, but just for clarity purposes, the increase in guidance today is that entirely tied to the XOMA acquisition or have you started to factor in some of the FSGS approval into that new guidance range?

Tavo?

Thank you. Super excited for this news this morning. Yes, so on the guidance, we do expect a 50% increase to adjusted EPS in the partial 2026 year. And then in 2027, $1.50. The longer-term model projects significantly more accretion as the development assets mature, but we'll wait either for a future earnings release or once this deal closes, and we'll provide a little bit more color around what we think that longer-term accretion looks like, we think it's very healthy.

So yes, the updated guidance is purely a result of today's news, the $0.50 in '26 reflects roughly half of the year of XOMA royalty contributions from the 3 -- primarily the three royalty generating assets of Vabysmo, Ojemda and Miplyffa plus the partial year of synergy realization from eliminating XOMA's a significant portion of their operating expenses that are largely centered around running a public company.

And then the step-up in $1.50 in '27 represents that full year of again, all three of those royalty streams combined with full year synergies and no changes in share count. And again, we'll provide a more detailed bridge to the 2027 number and an updated 5-year model at Investor Day that we expect to hold again this year in December.

Your next question comes from the line of Annabel Samimy with Stifel.

Congratulations on an interesting deal. So I just wanted to understand the capital used for the deal. Your stock is trading close to its 52 weeks highs, but you're buying XOMA all cash. So can you talk about the rationale in doing so and whether that limits your capital flexibility going forward? And just a separate question, given all the new opportunities, how do you think about future deal flow and priorities? And how will you manage the new portfolio programs, particularly in the pipeline? Any triaging of the portfolio you expect to take?

Thank you, Annabel. Great questions. I think although we're trading near 52-week highs, we believe that our stock is undervalued in the summer, as you know, lead the convertible bond financing to make sure we had significant cash on the balance sheet for these types of eventualities. And so that we had a de minimis amount of dilution to our shareholders but could still execute opportunistically on deals in the market.

As a result of this, there's no dilution, and it's an all-cash deal, and we think that's very good for our shareholders because all of the cash flows from the XOMA portfolio will flow directly in terms of the value to our existing shareholders. So that is the rationale for the structure. In terms of cash, we'll have approximately $200 million still available in cash plus the equity holdings and liquid securities that we have. And you have to remember, we're really, our targeted investment in our model is about $150 million to $250 million per year. So we have plenty of balance sheet to service our business model and our execution going forward.

But beyond that, now our cash flow generation is approaching $300 million per year. But the cash flow is now self-generative in terms of replenishing the balance sheet around our deal activity as well. So we think we're very well positioned to execute with de minimis solution to shareholders going forward. And we're very excited about this for that reason. In terms of the second part of your question, the portfolio management, -- so we've been scaling this business. As we said, we're going to scale the balance sheet and the team. We've gone from 3 investment professionals to 18.

We have billions of dollars of private equity investment experience on our team of 18 people. That includes significant portfolio management skilling as well. So we know that we have a large portfolio, which will now be well over 200 assets, and you have to constantly iterate, probe and manage that portfolio. We have dormant assets that we try to move along or we partner with new companies, and we've recently had some success around things like lasofoxifene in that regard. And we'll continue to work this portfolio hard with our new portfolio management system. And I expect there will be some positive surprises in the portfolio this large as well that we're not even aware of yet. So that's all part of our plan.

And in terms of future deal flow, I mean we're now positioned with pretty significant financial strength, and we're one of the few royalty players that are focused on servicing a late-stage private SMID-cap market. And so our deal flow is going to accelerate. We have -- there are more deals to do in this market that we can possibly do. And we've just added 2 additional deal leads in the last 6 months. So our deal flow should accelerate and our deal activity should be accelerating as we grow.

Your next question comes from the line of Yigal Nochomovitz with Citi.

Congrats on the transaction. I'm wondering if you could just go into a little bit more detail in terms of the strategy for the deal flow given that you're going to continue to deploy $150 million to $200 million now that you have a weighting of assets from XOMA that are earlier stage all the way from preclinical through to late-stage clinical as well as the new commercial ones. How are you thinking about the new deals in terms of risk and stage of development? And then secondarily, regarding the CVR with Tremfya, could you speak to what that may be worth if that litigation ends up being successful or any additional comments you can provide there?

Sure. Thank you, Yigal. In terms of the strategy for our deal flow, we're targeting assets that are addressing very high unmet clinical need that is both strategic in that if you're not solving big clinical problems in this market, in this regulatory world, in this payer world, that introduces more commercial risk downstream. But it also gives us and our team significant purpose as we go after the types of assets that we look for, which are addressing extremely high unmet clinical need.

We are also, from a size perspective, as you know, typically looking at deals in the $25 million to $60 million range. As our portfolio grows in value, the deal size could go up proportionately. I don't expect it to go up substantially here, but I do think we have the flexibility to do slightly larger deals as our portfolio grows. We will continue to target late-stage clinical assets. It doesn't mean that we won't occasionally do earlier stage assets, but those are smaller deals and you have to underwrite them according to the risk at that stage. So we are going to stay focused on sourcing and originating our deals and late-stage clinical pipeline.

Opportunistically, we do look at earlier stage programs occasionally, if they're significantly derisked, they're solving a big clinical problem, and there still can be strong evidence of safety and efficacy earlier programs, especially around things like repurposed molecules where there's already lots of clinical data. So that is how we're running our strategy now, and that is how we'll be running it in the future.

With regard to Tremfya and the CVR, I think I can't really obviously comment on the litigation. The value of that can be, of course, highly variable. XOMA believes they've got a very good case though. And effectively, we will be recipients of 25% of any potential net proceeds after legal costs, et cetera from that litigation. And that could effectively lower our effective purchase price by a couple to $3. But we'll have to see how that plays out, and that is in terms of predictability, that's on the lower end of the spectrum. So that's our strategy going forward.

Your next question comes from the line of Joe Pantginis with H.C. Wainwright.

Very nice transaction. So first, I just wanted to ask the housekeeping question. So I don't know if you disclosed the number as you've been giving a lot of details of your strategy and deployment going forward. You said it was a combination between current cash and the credit facility. Are you disclosing how much -- what the split was there, number one.

And then more broadly, with XOMA's aggregate royalty aggregation model being in place since 2017, as you said, they've been very, very creative in a lot of their transactions. And I was just curious, when you consider the proverbial meeting of the minds here with -- in acquiring XOMA, how much of these strategies might apply to your strategy and any changes that might happen. For example, a lot of their deals that have revolved around acquiring companies through companies that were in trouble or other types of creative deals there?

Yes. I'll take the second part, and then I'll hand it back to Tavo for the first question in terms of the financial breakdown. But the XOMA team has been very creative. I think with a lot of these kind of small acquisition deals, they've actually acquired a lot of tax assets, which I think added value to their portfolio in a very creative way. And so you tip our hat to them on that. I'd just remind you though that our strategy is fairly broad.

And we have a very diverse deal team that comes from hedge funds, royalty funds, growth equity funds, public equity funds. So we understand all aspects of the cap structure with the current team that we've assembled and we've actually engaged in M&A as well. First, with the Pyron in Europe, as you recall, which is where our Carziva royalty came from, that was immediately accretive to the tune of about $1 a share to us.

And more recently, we acquired the Novan assets all out of the bankruptcy, incubated the company for 18 months to fund that back out as Telios Therapeutic, who is now in the midst of launching their new drug for molluscum contagiosum that we have a 13% royalty on. So I think the team that we've assembled has the ability to execute in almost any deal format M&A, royalty finance in terms of project finance, royalty acquisitions.

We've navigated bankruptcies. We've restructured. We've created new companies and spun them out. So it's hard to find an approach that the team we've assembled is not capable of executing on. And I think it's probably one of the strongest, if not the strongest deal teams in the biopharmaceutical world. Tavo, do you want to take the first question on yes.

Yes. Yes. On the balance sheet question, we have not disclosed specifically the mix between cash on hand and tapping the credit facility, the revolver. But Joe, I'll just tell you that we have -- as we've stated publicly, we have over $1 billion in deployable capital. We entered the year generating approximately $200 million in operating cash on an annual run rate basis as we exit this year. That will be approaching $300 million post combination. So we're going to strike a balance here between having enough balance -- enough cash on the balance sheet, excuse me, to continue to execute on the strategy and also focusing on cost of capital and doing right by shareholders in that regard.

Your next question comes from the line of Jason Zemansky with Bank of America.

Congrats on the deal, I guess, can you speak a little bit more to the puts and takes of growing via, I guess, the acquisition of a large portfolio versus a more organic approach. I mean, fundamentally, is this a new type of deal we should be looking forward to moving forward a similar sort of transaction versus kind of the individual ones?

Great question, Jason. I think XOMA is a special asset. They've been in, first of all, long-standing biotech company, lots of legacy and history within the industry that convert into a royalty aggregation platform and approximately 2017 and added quite a bit in terms of royalty assets to the portfolio. So that's fairly unique.

And it takes a long time to build up a robust royalty portfolio like the XOMA has and in general, this is just my personal opinion, the earlier-stage assets in these portfolios are just typically not valued by the public markets. It's hard to, frankly, do all the math around the portfolio this large, but there is value there. And so this is a pretty unique asset. I don't see a lot of others like this in the market. Certainly, there are companies that may have partnered lead assets, and they have a lot of royalty value in them that you could acquire through M&A, restructure and hold on to the royalty assets.

We are a source of liquidity in those biotech companies that are out there in the market. So I suspect ultimately, the answer to your question is our regular way business, where we're doing more concentrated bets and adding them in to our vastly diverse portfolio is going to be -- kind of a consistent approach going forward. But we will do M&A. We obviously like multiple asset deals and risk in the biopharmaceutical industry in general and value, specifically is held -- 100% of it is held in the form of pharmaceutical products and royalties are simply derivative economic rights on those assets that hold all of the value in the pharmaceutical industry.

So this is a highly efficient investment model that is -- can be replicated kind of throughout the industry. And the diversity of our risk is actually calculated by the diversity of our asset portfolio, not the number of deals that we do. So when you look at the XOMA deal with over 100 assets in it, this is effectively similar to us doing about 14 or 15 deals individually and just aggregating it up. So this is a very efficient deal exercise for us, and we think we'll deliver great value to the Ligand shareholders as well.

Your next question comes from the line of Larry Solow with CJS Securities.

Congratulations as well. Just curious, just from a high level, I know you mentioned they're earlier stage, mostly programs, of course, they have a few commercial and some later stage ones.

Just can you just give us a quick highlight how the funnel -- what's their engine? How do they get these products and compounds? Do they have a business development team? It sounds like nothing to the substance that you have, but can you just kind of give us an idea of that? And then the second question was just on the acquisition itself. Was this a process? How did the kind of transaction come about?

Yes. I'll take the second part of that first, Larry, but thank you for those questions. XOMA is kind of an obvious potential target for us. We know them very well. I think Owen and the team there have done a great job. So we followed them really for the last few -- several years or so. And the timing seemed right for the reasons I mentioned earlier in the call, we think they're really approaching an inflection point. So the process, at least from an awareness perspective, has been going on for a couple few years.

However, I think we really engaged more earnestly in the December time frame and have been working on it since then. So that's how that portion evolved. And in terms of the earlier-stage assets and the process for aggregating them, I think it's a similar process. And we certainly -- we have a larger portfolio. We're larger on average. We have more financial strength. Therefore, our team is larger. So we probably have a higher level of activity than just practically they're capable of. But the teams are doing similar activities.

And it's important to point out that these deals are made. They're not in a book being marketed typically by intermediaries. You have to be aware of the types of assets in the market that you're highly interested in. You have to be able to approach the management teams you have to have a broad understanding of their financial alternatives because we invest in really good teams, and so they typically have a lot of alternatives. And you need to understand how royalty finance fits into their capital structure, which means you must understand the equity and the debt and why that makes sense for them.

And royalty finance isn't always the best solution. But it is a solution, and it's a very differentiated solution and in that it's nondilutive to equity and equity can trade above or below intrinsic value. And we also don't typically need to redirect, upset or change governance and things like that. So it's a pretty friendly form of investment. And additionally, our royalty investors' returns are tied to the long-term performance of the product.

So in terms of the life cycle of product development and pharmaceutical products, we are the most aligned form of financing. So again, royalty finance isn't always the best possible solution for a company, but it often can be. So you just have to be in the mix with those companies when they're considering a financing or when they need capital, and you have to know which companies it is that you want to be talking to and you have to understand their assets in detail so that you're directing your business development efforts efficiently into the pockets of value they're going to add the most to our portfolio.

We spend a lot of time managing that. We're very focused on that. We have weekly business development meetings, weekly investment committee meetings, and we're really running a private equity style process here where the partners and the investment committee meet around these assets, discuss them and prioritize them every week because one of the most important things we do is directing our business development efforts towards the right assets.

So that's how we go about it. I think probably was similar for XOMA and this whole deal that strengthens our portfolio and allows us to continue to scale our strengths around origination, deal execution, et cetera.

And ladies and gentlemen, that's all the time we have for questions today. This does conclude today's conference call. Thank you all for joining, and you may now disconnect.

Good day, everyone. My name is Kahalani, and I will be your conference operator today. At this time, I would like to welcome you to the XOMA Royalty 2025 Financial Results and Business Highlights Investor Call. [Operator Instructions] At this time, I'd like to turn the call over to Juliane Snowden, Investor Relations.

Good morning, everyone, and welcome to the XOMA Royalty Fourth Quarter and Full Year 2025 Earnings Call. Earlier today, we issued our financial results press release, which is available in the Investor Relations section of our website at www.xoma.com. A replay of this call will be available on our website following the webcast.

Joining me today are Owen Hughes, Chief Executive Officer; Brad Sitko, Chief Investment Officer; and Jeff Trigilio, Chief Financial Officer. During today's call, we will review our 2025 financial results, discuss recent business development activity and portfolio updates and provide commentary on key upcoming catalysts. After our prepared remarks, we will open the call for questions.

Before we begin, I would like to remind everyone that statements made during this call that are not historical facts may be considered forward-looking statements within the meaning of federal securities laws. These statements are based on our current expectations and are subject to risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those described or implied in these statements. Please refer to our filings with the Securities and Exchange Commission, including our most recent Form 10-K for a discussion of these and other risks. XOMA Royalty undertakes no obligation to update forward-looking statements, except as required by law.

And with that, I'll turn the call over to Owen.

Thank you very much, Juliane, and good morning, everyone. 2025 was a foundational year for XOMA Royalty as we continue to execute on our strategy of building a diversified portfolio of biotechnology royalty and milestone assets. We are approaching the inflection point when expected cash flows from our royalty receipts alone should cover the core operating costs of the company. Through both traditional royalty and milestone acquisitions as well as innovative transactions, we enhanced the company's prospects by adding 22 assets to the XOMA royalty portfolio in 2025 in addition to the acquisition of 2 platform technologies that we hope to be able to out-license in order to generate future royalties and milestones.

Furthermore, total portfolio receipts surpassed $50 million, including royalty receipts of $34 million, which grew 68% from fiscal year 2024. By maintaining a lean operating structure, we achieved positive cash flow from operations, and we were able to return $16 million of capital through opportunistic share buybacks in 2025, retiring more than 5% of our common stock outstanding. On a go-forward basis, we anticipate maintaining a disciplined approach to capital deployment, investing in new portfolio assets to increase the portfolio breadth while continuing to chip away at our equity base, which should increase our future cash flow per share.

With 7 commercially available programs, we are establishing a diverse and growing source of recurring receipts for our investors. Several of these commercial stage programs, including Day One Biopharmaceuticals' OJEMDA, and Zevra Therapeutics MIPLYFFA are in the early stages of what appear to be very promising launches with potential geographic expansion ahead. In fact, both companies submitted marketing authorizations in the EU in 2025. And just recently, I believe it was February 26, 2026, Ipsen, Day One's partner outside the United States, announced a positive CHMP opinion recommending the conditional marketing authorization of OJEMDA in the EU. In addition, Ipsen submitted a marketing authorization in Japan in the fourth quarter, triggering a $2 million milestone payment to XOMA.

On the flip side, however, we're not immune to the impact of clinical setbacks, although though given the breadth of our portfolio, we hope to be more resilient and less binary than traditional drug developers. In that vein, over the last few months, we've had 2 Phase III studies, Rezolute's program for congenital hyperinsulinism and Gossamer Bio seralutinib for pulmonary arterial hypertension demonstrate clinical efficacy that unfortunately failed to show statistically significant differences at their respective thresholds relative to the control arms. We are encouraged, however, that both companies remain committed to exploring options in 2026 for these programs.

Rezolute is undertaking extensive analysis of the primary results and other endpoints and plans to meet with the FDA prior to the end of the first quarter under its breakthrough designation. Gossamer has also indicated that it plans to meet with the FDA to discuss a path forward for seralutinib, which in a prespecified intermediate and high-risk subgroup of 234 participants, showed a 20-meter placebo-adjusted 6-minute walk distance improvement, achieving a p-value of 0.0207, with 3 of the 4 secondary endpoints achieving a p-value of less than 0.0125.

Our broader portfolio includes 14 programs in registrational stage and therefore, a number of key catalysts and sources of potential top line royalty growth over the ensuing years. The developers and marketers have guided to the following events that could occur in calendar year 2026. Top line results from Rezolute's separate Phase III program evaluating ersodetug in participants with tumor hyperinsulinism in the second half. Top line results from the volixibat VISTAS study in PSC in the second quarter. REC-4881, the developer engaging with the FDA in the first half to align on a registrational study in FAP and additional data from AZ's TIGIT program in various solid tumors throughout 2026. This robust late-stage pipeline is a result of both traditional and innovative sourcing methods.

In 2025, we executed a strategic revenue share transaction with Takeda, where we added potential royalty and milestone payments across 9 programs, including 4 in Phase II and Phase III to our portfolio, while simultaneously reducing our economic interest in Takeda's anti-CD38 antibody mezagitamab, which is being evaluated in 2 indications in Phase III trials. Importantly, we still maintain a healthy low single-digit royalty on mezagitamab as we are keen on the mechanism of action and the dosing paradigm, particularly in IgA nephropathy.

We also continue to efficiently expand our portfolio of assets through the acquisition of 7 negative enterprise value companies either directly or as a structuring agent. For the cost of sweat equity, not cash from our balance sheet, we have added multiple development stage assets, either wholly owned or with established partner economics, received nondilutive cash to support expenses or future investments and in certain circumstances, acquired technology platform such as Generation Bio's ctLNP for the delivery of messenger RNA and nucleic acids. These transactions highlight one of XOMA's unique strengths, our ability to structure creative transactions that provide capital to both biotech innovators while capturing the long-term economics for our shareholders.

From a strategic perspective, our focus remains clear, to build a large diversified portfolio of royalty interest in high-quality therapeutic programs while maintaining disciplined capital allocation. When we look at the company today in early 2026 compared with where we were at the beginning of 2023, the transformation and execution against that strategy is coming to light. Since then, we have built one of the industry's most expansive royalty portfolios, doubling the number of assets in active development, going from roughly 60 assets in 2023 to over 120 today. The portfolio has matured with sevenfold increases in both the number of commercially available assets as well as the number of assets in late-stage or potentially registrational development.

Our prior business development efforts are starting to bear fruit in the form of milestone payments and growing recurring royalty receipts, such as our economic interest in MIPLYFFA, which was acquired in 2023. We have also increased our unrestricted cash position to over $80 million, access nondilutive capital thoughtfully and creatively and demonstrated that our business model can achieve positive operating cash flows, which gives us the firepower to continue to add assets on a go-forward basis. Importantly, we have done all this without diluting our shareholders as evidenced by a share count that is essentially flat compared to 2023.

Overall, we believe XOMA Royalty is well positioned as a differentiated royalty aggregator and remains the only firm to invest in royalty assets across the entire drug development spectrum from preclinical stages all the way through commercial assets, helping innovative companies access nondilutive capital while building a portfolio designed to generate long-term shareholder value.

With that overview, let me turn the call over to Brad to give you more detail on the portfolio and pipeline.

Thanks, Owen, and good morning, everyone. Our deal team remained very active throughout 2025, continuing to identify new opportunities and expand the portfolio through a combination of royalty acquisitions, structured transactions and company acquisitions. I'll now review several of these transactions in more detail to show how XOMA Royalty through our flexible and innovative deal structuring can aggregate large numbers of assets and add portfolio optionality without putting substantial amounts of capital at risk. In 2025, these efforts translated to 22 new portfolio assets, including 5 in Phase II or Phase III trials with a total cash outlay of only $25 million upfront.

As Owen previewed earlier, most of our late-stage portfolio additions came in via a revenue-sharing transaction executed in December with Takeda related to mezagitamab. After purchasing additional mezagitamab royalty and milestone rights from BioInvent for $20 million upfront earlier in 2025, we reduced some of our aggregated mezagitamab rights for economic rights across 9 development stage assets in Takeda's externalized asset portfolio. This transaction has the potential to deliver low to mid-single-digit royalties and up to $853 million in milestones across these 9 development stage assets. XOMA's mezagitamab economic participation went from a mid-single-digit royalty and $16.25 million in potential milestones prior to the revenue sharing transaction to a low single-digit royalty and up to $13 million in potential milestones following it.

Development stage assets being developed and fully funded by third parties added to the XOMA royalty portfolio include: one, osavampator, an orally administered selective positive allosteric modulator for the AMPA receptor currently in Phase III studies for major depressive disorder; two, volixibat, an orally administered investigational therapy designed to selectively inhibit ileal bile acid transporters currently being evaluated in Phase IIb studies for primary sclerosing cholangitis and primary biliary cholangitis; three, an OHB-607, a proprietary recombinant version of insulin-like growth factor 1 in Phase II development for bronchopulmonary dysplasia in extremely premature infants and REC-4881, an allosteric MEK1/2 inhibitor in Phase II development for FAP.

As Owen mentioned earlier, we continue to complete or serve as structuring agents on 7 whole company acquisitions. Since the beginning of 2025, XOMA has accumulated nondilutive capital of $11.7 million net of expenses from these transactions. In short, we added cash to our balance sheet by buying these companies. Moreover, we also expanded our portfolio of assets, including XOMA's ability to participate in future payments derived from established collaborations with other pharmaceutical companies. These collaborations include LAVA's existing partnerships with Johnson & Johnson and Pfizer, Generation Bio's existing partnership with Moderna and several from legacy Kinnate assets that XOMA out-licensed or sold to third parties.

Collectively, XOMA Royalty obtained economic interest in approximately 25% and over $1.1 billion of potential milestone payments and low to mid-single-digit royalties from 8 partnered assets as well as the eligibility of 25% to 70% of proceeds related to any future out-license or sale of legacy assets or platform technologies from these companies. So by using contingent value rights or CVRs, these transactions also allow the target company's legacy shareholders to continue to participate in any future success, which helps XOMA create win-wins and build trust in the biotech ecosystem. More broadly, XOMA Royalty's capabilities to transact on special situations and are willing to embrace clinical risk differentiate us from our royalty peers and can provide the potential for venture capital-like returns for our capital deployment.

During 2021, XOMA obtained its economic interest in what is now OJEMDA through a royalty monetization transaction with Viracta Therapeutics. At the time, XOMA Royalty provided Viracta with $13.5 million in exchange for mid-single-digit royalties on sales and up to $54 million in milestones related to OJEMDA as well as high single-digit net royalties on sales and up to $57 million in milestones related to vosaroxin. Since completing the transaction, we've collected over $28 million in milestones and approximately $8 million in royalty receipts providing a greater than 30% IRR.

In 2023, we executed a similar transaction where we acquired economic interest in what is now MIPLYFFA and added another therapeutic candidate, aldoxorubicin. Since then, we've already recovered our upfront investment through the milestones and royalties received within 15 months of MIPLYFFA's approval. We expect to enhance those returns as Zevra continues to execute on its launch. By continuing to focus on innovative transactions and underappreciated opportunities, XOMA Royalty remains well positioned, both financially and strategically to expand our portfolio in any equity market for biotech regardless of whether it's weak or strong. As a result of our efforts over the last few years, we have cemented our reputation as a unique source of capital for biotech innovation, and we believe the portfolio now has a strong balance between commercial assets generating current cash flow and development stage assets capable of producing future milestones, receipts and durable royalty streams.

With that, I'll turn the call over to Jeff to review the financial results. Jeff?

Thank you, Brad. 2025 was a strong year financially for XOMA Royalty. We experienced significant growth in our top line with full year total GAAP income and revenue of $52.1 million compared with $28.5 million in 2024. On a cash basis, total receipts grew 9% to $50.5 million. This included approximately $34 million from royalties, which increased 68% compared to 2024. This substantial growth was driven by VABYSMO and OJEMDA year-over-year increases as well as new contribution from MIPLYFFA following its approval for Niemann-Pick disease type C in late 2024. We also continue to see diversity in our top line results. In 2025, royalty receipts came from 4 programs, which was 2 more than 2024 and 6 programs achieved clinical, regulatory and BD events, leading to approximately $17 million of cash milestone payments.

Turning to expenses. G&A expenses for the full year were $36 million, which were a small increase compared with $34.5 million in 2024. G&A included noncash stock-based comp expense of $9.3 million and $10.3 million in 2025 and 2024, respectively. 2025 G&A expenses also included an increase of approximately $1.1 million associated with ongoing litigation that XOMA Royalty initiated against Janssen Biotech, asserting claims for breach of contract and unjust enrichment arising from Janssen's unauthorized use of our intellectual property in the commercialization of Tremfya. The parent company, J&J, has reported cumulative Tremfya net revenues of approximately $19.7 billion since its initial approval in 2017. We expect to continue to incur legal fees and other professional service costs associated with pursuing this litigation. Litigation is inherently uncertain, and there can be no assurance regarding the outcome of the matter or the timing or the amount of any potential recovery.

GAAP R&D expenses for the full year were $1.7 million, including $1 million of pass-through license fees from top line receipts. Remaining R&D expense were primarily associated with the wind-down activities of acquired companies. Full year GAAP net income was $31.7 million compared to a GAAP net loss of $13.8 million in 2024. I want to briefly cover several accounting items that made significant contributions to 2025 GAAP results, which also had limited impact to XOMA's cash flows during the year. These included $21.2 million of accounting gains from the HilleVax, Turnstone and Mural acquisitions, a $3.7 million accounting gain on sale of equity securities, $3 million amortization expense from intangible assets and various other income items for $2.1 million.

Items having a more significant impact on our cash flows from operations included $13 million of interest expense, which was partially offset by $3.5 million of investment income and a $3 million arranger fee for the acquisition of ESSA. During 2025, portfolio cash receipts and interest income to XOMA Royalty were greater than the cumulative total of cash OpEx, our Blue Owl loan obligations and preferred dividend payments, which highlights the potential earnings power of our business model and growth potential from future pipeline assets.

We remain balanced and disciplined in our capital allocation strategy, deploying approximately $25 million to acquire royalty and milestone rights and $16 million to opportunistically repurchase and retire slightly more than 648,000 shares or approximately 5% of shares outstanding at an average purchase price of $24.75 a share. These cash outlays were partially offset by inflows from investing and financing activities, including proceeds of $7 million from the sale of non- XOMA equity securities, over $5 million of net proceeds from stock option exercises and the sale of preferred shares and cash inflows from company acquisitions, net of transaction expenses. As a result, unrestricted net cash and cash equivalents declined by only $18.7 million compared to the end of 2024.

Looking forward, we will continue to balance royalty portfolio expansion with opportunistic return of capital to shareholders in our allocation strategy. XOMA Royalty ended the year with a strong balance sheet, including approximately $83 million of unrestricted cash and cash equivalents. This provides ample firepower to continue adding assets to the portfolio. During 2025, we also reduced the principal balance of the Blue Owl loan from $123 million to $112.5 million at the end of the year. As a reminder, this is a self-amortizing loan funded solely by VABYSMO receipts and no recourse against XOMA royalties or any other assets. If VABYSMO net revenues continue to grow at rates similar to or even slightly lower than 2025 levels, the Blue Owl loan could be fully repaid by the end of 2030, in which case VABYSMO receipts would return to XOMA royalty for a few years. That said, the loan can be repaid at any time.

With continued execution from our developers and marketers, XOMA Royalty is approaching the inflection point where royalties from currently approved products alone could be sufficient to support breakeven operating cash flows in 2027 and beyond. This setup should provide strong positioning for XOMA Royalty to access multiple sources of lower cost capital to fund our business development objectives and deliver both top and bottom line growth for our shareholders from pipeline success. With this profile, we may explore opportunities to refinance and optimize our capital structure between the Blue Owl loan and the preferred stock instruments.

With that, I'll turn the call back to Owen for closing remarks before we open the line for questions. Owen?

Thanks, Jeff; while the operator prepares the line for the first question, let me just conclude with the following: One, our business is maturing. We are approaching the inflection point in our royalty aggregator business model where royalty receipts alone will cover our operating expenses. Two, our portfolio is increasingly diversified across therapeutic categories and modalities, and we anticipate continuing to add to the portfolio over time. And three, there are significant catalysts within our portfolio over the ensuing years that should translate into hopefully increasing growth rates.

With that, I'll turn it over to the operator.

[Operator Instructions] Your first question comes from David Risinger with Leerink.

So congrats, Owen and team on the great progress and all the hard work last year on all the transactions that you executed to drive shareholder value. And it was nice to see the stock buyback as well. So I have 2 questions. First, regarding royalty receipts for approved products, you generated $34 million last year. Can you talk about the growth prospects for royalty receipts over the next couple of years on approved products alone? And then second, I know that you can't comment in detail on litigation. But if you could provide some more color on the TREMFYA economic opportunity. And I don't know if you're comfortable, but if you could say anything about your level of confidence in being justified royalties, including anything that external legal advisers have opined and the basis for those views.

Thanks, Dave. It's Jeff. I'll take the first question and hand it over to Owen for the second. Yes, I think the bottom line is the growth prospects look strong. VABYSMO is obviously the largest contributor, had double-digit constant currency growth last year. A lot of that was driven by the ex U.S. And I think Roche has pointed to a reacceleration in the U.S. in that market in the branded market. So we look forward to that. But obviously, the receipts that go more to XOMA with OJEMDA and MIPLYFFA, those therapies are just wrapping up the second year of launch and ramping really well. I think both companies, Day One and Zevra beat expectations in the fourth quarter and Day One had a really great guide for 2026 before their acquisition. So continue to see good growth there. And obviously, anything from the pipeline will help that going forward. We're not going to give specific guidance, but we're pretty excited about the growth ahead. Owen, do you want to take the TREMFYA question?

As it relates to TREMFYA, David, I would say that both the company itself as well as our advisers, our legal advisers have a lot of confidence in the breach claim that we asserted in the litigation. This stems from an agreement that we had back with MorphoSys back in the 2003 time frame, where they use some of our phage display and BCE technologies for the HuCAL library, which is actually what created TREMFYA. Obviously, it's litigation, so we don't know the outcome, but we feel very confident that we have a justifiable claim. And historically speaking, if you look at XOMA relationships of this nature, typically speaking, these type of relationships have royalty rates that are in the low single digits.

I would just say that this particular relationship and agreement that we have was a little bit different than what we had in the past, where more often not, we established the royalty rates at the time that we signed the deal. In this particular case, we had asked the parties to come back to us at the time that they actually commercialize or prior. And it's our view that J&J and MorphoSys came back to us for the commercial license. So perhaps that will change the dynamics of what it could be in terms of the remuneration if we're actually successful. What I would just say is that we feel confident, but this is a litigation. It could go either way, but we're certainly willing to spend against it as we believe that this is actually one of the higher probabilities of success that's sitting inside of our portfolio today.

Excellent. And if I may, could I ask a follow-up question?

Sure.

So you provided a little bit of a teaser with respect to platform -- 2 platform technologies that you'll now consider out-licensing. Could you just share a little bit more color on that, please?

Sure. I think most importantly, it's very important for us to suggest that we will not be a drug development company. We are not putting R&D dollars into these platform technologies. But on occasion, we do see opportunities whereby something happened to a company and they haven't been able to progress it. In this particular case, it was Generation Bio. And through the Generation Bio acquisition, we were able to obtain 2 distinct technologies, one candidly, that is much further ahead than the other. So as it relates to the ctLNP, so that's cell-specific LNP delivery. That technology actually has established nonhuman primate data that suggests 2 things.

The first is that the majority of the metabolization bypasses the liver, which is extremely unique in LNP delivery. And the second is that we believe it's redosable. Generation Bio had established a relationship with Moderna and Moderna has certain rights for that technology. But we believe we can actually take this technology and actually license it out to folks outside of the Moderna field of use in order to generate royalties and milestones, not only for ourselves, but also for the Generation Bio shareholders through the CVR.

And the second technology they have is a DNA technology, iqDNA technology, which actually tries to get the DNA into the actual nucleus of the cell. Admittedly, this one is a little bit further behind. With that said, we're in the midst of speaking with various folks to help us fund that. So we would actually provide the technology, third parties would provide the funding to see if we couldn't actually get to a place where we would be able to monetize and actually out-license that technology. So going back to what I said before is that we are not like an antibody drug discovery company at this point. We will not be putting R&D dollars into these opportunities, but we do see the ability to actually license these technologies to third parties and allow them to spend capital. And in return for that, our hope is that we can generate royalties and milestones over the mid- to long term.

Your next question comes from the line of Phil Nadeau with TD Cowen.

Congratulations on a very productive year from us. Two questions. First, on capital deployment. You talked about balancing between returning capital to shareholders and doing new deals. Can you go into a little bit more detail about how you prioritize those 2 uses of capital? That's first. And then second, there's a growing amount of excitement among investors for Rezolute's program ersodetug. How do you size the opportunity there between the 2 indications? And can you talk about your enthusiasm for that product?

Thanks, Phil. Well, first, Phil, I just want to say that I'm not -- never thought I'd actually be sitting on this side of the phone and having you answer -- or provide questions to me and my team. So fulfilled one of my wishes in life. But as it relates to the capital deployment, our philosophy is twofold. The first is that if we want to get big, one way to do that is get small. And what I mean by that is that if you just think about the financials of any company, to the extent that you can actually whittle away your equity base while continuing to invest in the actual products and programs and portfolio in our case, what that will do is that will actually lever or increase free cash flow per share over time. And if one's valuation is a summation of one's cash flows, and we're able to generate more cash per share by taking out the equity base, we believe that is actually something that is well served and will actually be very beneficial to our shareholders over time.

With that said, we have to actually counter that relative to the opportunities that we see externally. But given where we are today with about 120 assets, roughly 15 or so in Phase III, 7 that are generating revenue for us, 3 or 4 that are really generating revenue for us, every time we actually look at deploying capital, we have to weigh that against what we have internally. And oftentimes, our view is that, frankly, we'd rather put money back into the company by actually taking out the equity because we believe it's, a, more beneficial; b, less risky; and c, actually ultimately can actually drive better returns than actually taking a bet externally.

With that said, our goal is to continue to diversify our portfolio. We believe that there's -- the philosophy of strength in numbers is real. And so as you diversify across modality, indication, sponsor, geographic -- geography, et cetera, we believe we'll be able to generate better returns over time. But it's just a balance between what we see externally and what we see internally. And then every now and then, we'll be very opportunistic as it relates to kind of how we deploy that capital internally. Does that make sense?

Yes, that's very helpful.

Great. And then the second question, Jeff?

Second question on the Rezolute programs. I think the consensus estimates when you combine the 2 assets are approaching something like $1 billion. I think the order of launch and the sort of pricing between congenital versus tumor hyperinsulinism would be the swing factor on the pricing of the asset. But I think we're comfortable with that being about a 60-40 split probably between congenital and tumor.

One thing I just -- we would refer you to the commentary that's made by the Rezolute folks. I think increasingly based on what we've seen in the public domain that they believe that the tumor actually marketplace actually may be the bigger opportunity over time. One, just based on the patient population; and two, based on kind of the weight aspect, weight-based dosing. So we'll see. We do believe the drug works just based on what they've shown in the public domain. We're hopeful that they can figure out a path in CHI as there's a distinct need for these children. And secondarily, we're eagerly anticipating the data in the tumor portion of the trial. Once again, another unmet medical need, and it appears based on the open-label data that the drug is doing what it's supposed to be doing.

[Operator Instructions] your next question comes from Joe Pantginis with H.C. Wainwright.

It's Josh on for Joe. I just want to say congrats on the progress. And I had 2 questions for you guys. So focusing on the evolution of the royalty model, I'm wondering how we should think about the cadence of new deal activity going forward, if there's any framework you can give in terms of target deal volume per year? And also, how have you been thinking about the mix between smaller, more earlier-stage deals and larger derisked opportunities? Has there been any shift recently over time?

Sure. So as it relates to the first question -- which actually what was it?

Number of transactions.

Number of transactions, yes, was that we favor quality over quantity. I don't think necessarily we're big fans of having a target in terms of either the cadence or frankly, the magnitude of the capital deployed. We could sit here today and frankly, just put $10 million to work, and it could be the best deal known to man, at least in our estimation. So what we're really focused on is trying to drive the risk-adjusted NPV of the actual company itself and further diversifying the portfolio. So I can tell you that when we started 2025, we never anticipated acquiring 6 or 7 different companies and doing all the transactions that we did in every year when we come into the year, we certainly have objectives. But once again, those objectives are very high level, which is just drive the overall portfolio and continue to diversify and try to be as creative as possible without diluting our shareholders. So hopefully, that answers that question.

And as it relates to the second question, so we're very opportunistic. If you look at the 14D-9 of companies that have been bought over the last 12, 18 months, oftentimes, you're going to see a small royalty aggregator trying to actually get into the action. We believe there are opportunities to take slices of commercial assets. We have been unsuccessful in that endeavor to date, but that doesn't mean that we're not going to -- that we're going to stop. And we'll continue to monitor all assets from preclinical all the way through to commercial. Our #1 goal is to generate as much cash flow as possible. And if that entails going to the later stages and trying to find an asset that's perhaps even commercialized as long as we can fund it appropriately and not take undue risk, by all means, we will take a look at it if we believe it's actually positive to our NPV.

Your next question comes from Elemer Piros with Lucid.

Can you hear me?

Loud and clear.

So I have 2 questions. One of them is who -- what led to the amendment of the Takeda deal? Who drove that? Was it you or Takeda? If you could just give us some color on what precipitated it?

Sure. Back in 2024, we had some initial discussions with BioInvent about trying to buy up mezagitamab royalty. And at that point in time, the team had the idea of, geez, could we actually take something that we believe is very valuable to Takeda. Mezagitamab was actually showcased in their R&D Day. It was one of the top 3 or 5 programs. I can't remember, it was 3 or 5, but I know it was one of the top 5 programs that they had showcased during the R&D Day. And could we take the royalty that we had based on our original relationship, add the BioInvent royalty and go back to Takeda and try to diversify our revenue and portfolio stream. And so, Elemer, you know our background. We're not necessarily health care specialists. We're not finance specialists. We're kind of in between. And we think of ourselves as portfolio managers in some respects, right, which is how can we actually increase the odds of success inside the portfolio without taking undue risk.

And so the idea was to go back to Takeda to have some initial discussions as to whether they would be interested in actually doing the share royalty transaction. And it just so happens that at the time that we were contemplating doing this, they had done a deal with Blackstone to help fund the Phase III trials for mezagitamab. And based on what was in the public disclosure, it was clear that Takeda owed a royalty back to Blackstone for that capital in addition to milestones. So we just approached them and said, listen, this is the idea. It would be very helpful for us. We believe there's assets that are sitting in your portfolio today that may not be topical for you guys, certainly not strategic as they're being developed externally from Takeda, i.e., through third parties or perhaps these are assets that were acquired through -- or obtained through acquisitions that are no longer strategic and don't hit your top line.

And so the ensuing year, we had a number of conversations. We eventually came to a collaboration that I think hopefully is beneficial for them and certainly is beneficial for us. And we will see what transpires here over the coming quarters and years as those assets that are sitting in their portfolio that are now part of our portfolio now that they read out. Does that make sense?

Yes. Thank you. So the second question is, if you were to look at the cap structure today and if we were to project out a year from now, what would be -- how would the ratio of common preferred equity and debt would change? Or is this ideal as you look at it currently?

Yes. Happy to take that, Elemer. Thanks for the question. I think the cap structure that is on the company today is certainly helpful to get XOMA where it is today. I think we look at the preferreds as something that helped the company raise money in the past. Obviously, when we look at them, they're not as tax advantaged as I think a company might like. So that might be something we look at. The notional value of those is just under $70 million. The good news about XOMA right now is with multiple assets growing and giving us royalty receipts and showing that we can be operating cash flow positive. We have really a number of options on the financing front that kind of span the whole spectrum of things.

And some of those are at much lower cost of capital and more tax advantaged. So that might be something we look at over the next 12 months. I think the Blue Owl loan has been serving us really well. It's nonrecourse. We're in a period where there's a little bit of call protection. So I think that one is probably going to stay in place, but we'll look at those preferreds and think carefully about that as we think about how to optimize capital structure given where XOMA is today.

There are no more questions at this time. I'd now like to turn the call over to Owen Hughes for closing remarks.

Thank you for your time today. We very much appreciate it. We anticipate doing this on an annual basis just to give our shareholders and others some insight into the company. Obviously, if you have any questions, feel free to ring. And in the meantime, stay tuned as we're working on many things to try to increase the value for our shareholders. Thank you.