XOMA(XOMA) - 2020 Q4 - Annual Report

Part I Business XOMA Corporation aggregates biotech royalties from pre-commercial drug candidates, dependent on partner success and facing COVID-19 related delays - XOMA's business model is a biotech royalty aggregator, focusing on acquiring economic rights to future milestones and royalties from partnered, pre-commercial drug candidates[20][22] - The company's strategy is to expand its pipeline by acquiring potential milestone and royalty streams for pre-commercial drug candidates, ideally those partnered with large pharmaceutical companies[23] - The COVID-19 pandemic poses a risk to XOMA's business by potentially delaying clinical trials conducted by its partners, which could defer milestone revenue and lead to impairment charges[24] Key Royalty Purchase Agreements | Counterparty | Agreement Date | Key Terms | | :--- | :--- | :--- | | Agenus, Inc. | Sep 2018 | Purchased rights to 33% of future royalties and 10% of milestones from six Incyte immuno-oncology assets and one Merck asset for $15.0 million. Earned a $1.0 million milestone in Nov 2020. | | Bioasis Tech. | Feb 2019 & Nov 2020 | Purchased rights to potential milestones and royalties from product candidates licensed to Prothena and Chiesi for upfront payments totaling $1.5 million. | | Aronora, Inc. | Apr 2019 | Purchased rights to royalties and milestones for five anti-thrombotic drug candidates for payments totaling $9.0 million. | | Palobiofarma, S.L. | Sep 2019 | Acquired rights to potential royalties on six drug candidates targeting the adenosine pathway for $10.0 million. | Key Out-Licensing Agreements & 2020 Milestones | Partner | Program | 2020 Milestone Event & Payment | | :--- | :--- | :--- | | Novartis | Anti-TGFβ (NIS793) | First patient dosed in Phase 2 trial, earning XOMA a $25.0 million milestone. | | Takeda | Mezagitamab | First patient dosed in Phase 2 study, earning XOMA a $2.0 million milestone. | - As of March 5, 2021, the company employed 10 full-time employees, primarily in executive, business development, legal, finance, and administrative roles[89] Risk Factors The company faces significant risks from its royalty aggregator model, including COVID-19 impacts, revenue uncertainty, and reliance on third-party drug development - The COVID-19 pandemic could materially impact licensees and royalty-agreement counterparties, causing delays or cancellations of drug development efforts and clinical trials, which would negatively affect XOMA's receipt of potential milestones and royalties[94][96] - The company's royalty aggregator strategy is subject to significant risks, including that acquired royalty/milestone payments may not produce anticipated revenues, and many are associated with drug products still in clinical development that may not be successfully commercialized[105][109] - A large percentage of the portfolio's calculated net present value is concentrated in a limited number of products, and the failure of any one of these could materially harm the company's financial condition[145] - The company has a history of significant operating losses, with an accumulated deficit of $1.2 billion as of December 31, 2020, and expects to sustain losses in the foreseeable future[127] - XOMA has a continuing obligation to pay quarterly cash dividends at a rate of 8.625% on its Series A Preferred Stock, which is an ongoing expenditure that may limit its ability to borrow additional funds[137] - The company's ability to use its net operating loss (NOL) carry-forwards is substantially limited by Section 382 of the U.S. Internal Revenue Code due to past ownership changes in 2009, 2012, and 2017[257][261] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[267] Properties XOMA leases its corporate headquarters in Emeryville, California, with the lease expiring in February 2023 - The company leases its corporate headquarters in Emeryville, California, with the lease expiring in February 2023[268] Legal Proceedings The company is not currently involved in any material legal proceedings, though future matters could have an adverse effect - The company is not currently involved in any material legal proceedings[269] Mine Safety Disclosures This item is not applicable to the company - Not applicable[270] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities XOMA's common stock trades on Nasdaq, with no common stock dividends planned, but Series A preferred stock dividends are obligated - The company's common stock trades on The Nasdaq Global Market under the symbol "XOMA"[273] - XOMA has not paid dividends on its common stock and does not plan to in the foreseeable future, but is required to pay cumulative cash dividends on its Series A preferred stock[274] Selected Financial Data As a smaller reporting company, XOMA is not required to provide selected financial data - The company is a smaller reporting company and is not required to provide selected financial data[276] Management's Discussion and Analysis of Financial Condition and Results of Operations XOMA's 2020 revenues increased to $29.4 million, driven by milestone payments, resulting in a net income of $13.3 million and strengthened liquidity Results of Operations (2020 vs. 2019) | Metric | 2020 ($M) | 2019 ($M) | Change ($M) | | :--- | :--- | :--- | :--- | | Total Revenues | $29.4M | $18.4M | +$11.0M | | R&D Expenses | $0.2M | $1.3M | -$1.1M | | G&A Expenses | $16.8M | $21.0M | -$4.2M | | Net Income (Loss) | $13.3M | ($2.0M) | +$15.3M | - The primary driver of the 2020 revenue increase was a $25.0 million milestone payment from Novartis related to the NIS793 anti-TGFβ program and a $2.0 million milestone from Takeda[282][283][307] - General and Administrative (G&A) expenses decreased by $4.2 million in 2020, mainly due to a $3.9 million reduction in facilities costs from terminating legacy leases[313] Liquidity and Cash Flow Summary | Metric | Dec 31, 2020 ($M) | Dec 31, 2019 ($M) | | :--- | :--- | :--- | | Cash | $84.2M | $56.7M | | Working Capital | $75.8M | $51.1M | | Net Cash from Operating Activities | $10.1M | ($0.3M) | | Net Cash from Financing Activities | $19.8M | $30.5M | - In December 2020, the company raised $22.6 million in net proceeds from a public offering of 984,000 shares of 8.625% Series A cumulative, perpetual preferred stock[279][332] - The company's critical accounting estimates include revenue recognition, amortization of unearned revenue from the sale of future revenue streams, and stock-based compensation[292][293] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, XOMA is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[353] Financial Statements and Supplementary Data This section refers to the consolidated financial statements, notes, and the independent auditor's report, located from page F-1 - The consolidated financial statements, notes, and auditor's report are located starting on page F-1 of the Form 10-K[354] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[357] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[358] - Based on an assessment using the COSO framework, management believes the company's internal control over financial reporting was effective as of December 31, 2020[360] Other Information On March 10, 2021, the company amended its ATM agreement, increasing the common stock sale limit to $50.0 million - On March 10, 2021, the company increased its ATM agreement with H.C. Wainwright & Co. to allow for the sale of up to $50.0 million in common stock[363] Part III Directors, Executive Officers, Corporate Governance The company's board consists of seven members, including CEO James Neal and CFO Thomas Burns, with a majority of independent directors - The board of directors consists of seven members: James Neal (CEO), W. Denman Van Ness (Chairman), Joseph M. Limber, Jack L. Wyszomierski, Matthew Perry, Barbara Kosacz, and Natasha Hernday[366][367] - Thomas Burns serves as the Senior Vice President, Finance and Chief Financial Officer[378] - The Audit Committee consists of Messrs. Limber (Chair), Van Ness, and Wyszomierski, all of whom are independent and qualify as "audit committee financial experts"[386] Executive Compensation For fiscal year 2020, CEO James Neal's total compensation was approximately $1.7 million, and CFO Thomas Burns' was $0.8 million 2020 Summary Compensation | Name and Principal Position | Salary ($) | Option Awards ($) | Non-Equity Incentive Plan Comp ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | James Neal (CEO) | 533,527 | 951,201 | 187,802 | 1,693,762 | | Thomas Burns (CFO) | 386,168 | 316,109 | 98,861 | 811,489 | - The 2020 target bonus opportunities were 55% of base salary for CEO James Neal and 40% for CFO Thomas Burns[392] - Non-employee directors receive an annual retainer of $40,000, plus additional retainers for committee service and chairmanship roles. They also receive initial and annual stock option grants[417][418] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of January 31, 2021, BVF Inc. was the largest beneficial owner with 37.2% of common stock, and CEO James Neal held 6.1% - BVF Inc. is the largest shareholder, beneficially owning 37.2% of the company's common stock as of December 15, 2020[425] - CEO James Neal beneficially owned 6.1% of common stock, and all directors and executive officers as a group owned 9.9% as of January 31, 2021[425] Equity Compensation Plan Information (as of Dec 31, 2020) | Plan Category | Securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price ($) | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Approved by stockholders | 1,827,906 | $20.66 | 560,968 | Certain Relationships and Related Transactions, and Director Independence The company disclosed related party transactions, primarily with largest shareholder BVF, and confirmed a majority of independent directors - In the 2019 Rights Offering, largest shareholder BVF acted as a full backstop and purchased 845,463 shares of common stock[431] - In the December 2020 Series A Preferred Stock offering, Director Matthew Perry (President of BVF) purchased 200,000 shares for $5.0 million, and the spouse of CEO James Neal purchased 8,000 shares for $200,000[432] - Director Barbara Kosacz was a partner at Cooley LLP, the company's outside legal counsel, until July 2020. XOMA paid Cooley approximately $0.4 million in fees in 2020[433] - The Board of Directors has determined that a majority of its members qualify as "independent" under Nasdaq listing standards[439] Principal Accountant Fees and Services Deloitte & Touche LLP served as the independent auditor, with total fees of $630,500 in 2020 and $588,900 in 2019 Accountant Fees | Fee Type | 2020 ($) | 2019 ($) | | :--- | :--- | :--- | | Audit Fees | $630,500 | $588,900 | | Total Fees | $630,500 | $588,900 | - The Audit Committee's policy is to pre-approve all audit and permissible non-audit services, and 100% of services provided by Deloitte & Touche LLP in 2019 and 2020 were pre-approved[442][443] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K - This section contains a list of all exhibits filed with the Form 10-K, including material contracts and corporate governance documents[446][464] Form 10-K Summary The company did not provide a summary for this item - None[467]