XOMA Royalty Corp. (XOMA) Q4 2025 Earnings Report, Transcript and Summary

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 demonstrated 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 than 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 nor 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 obviously 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.