XOMA Corporation (XOMA) 2024 Cantor Fitzgerald Global Healthcare Conference summary

Business model and strategy

• Focuses on aggregating and acquiring biotech royalty streams, especially from early-stage assets, to generate high-margin, free cash flow.

• Transitioned in 2017 from drug development to a royalty aggregation model, aiming for self-sustainability.

• Targets smaller, riskier deals in the 'have-nots' segment, where competition is limited and capital is scarce.

• Permanent capital structure allows patience for long-term returns, unlike larger funds with shorter time horizons.

• Differentiates from competitors by focusing on early-stage royalties and leveraging industry relationships.

Financial performance and structure

• Annual operating costs are about $15 million, with $5 million in preferred dividends; three financial instruments are available for investment.

• Since 2017, spent roughly $140 million and brought in $120 million in milestones, with minimal dilution to shareholders.

• Share buybacks are used when stock is undervalued, balancing capital returns with business development opportunities.

• Aims for venture-like returns, seeking 10-15x outcomes to offset inevitable losses.

• Hopes to generate $200 million+ in annual royalty receipts within five years, with 90%+ operating margins.

Investment process and risk management

• Diligence process leverages a small internal team and extensive external consultants, especially for commercial risk assessment.

• Underwrites conservatively, often using downside scenarios for commercial projections.

• Focuses on not overpaying for assets and maintaining discipline to walk away from deals with insufficient return potential.

• Portfolio diversification is key, with strength in numbers to mitigate risk from individual asset failures.

• Commercial risk is weighted more heavily than clinical risk, especially as standards of care evolve rapidly in oncology.